Microsoft Start | Jan 30, 2024 | Mia Rodriguez
When looking to build wealth through real estate, investors have two main options - turnkey or conventional investing. Both come with pros and cons, so it's important to weigh your goals, timeline, budget and risk tolerance.
"We started out buying run-down properties, fixing them up, and renting them out ourselves," said REI Nation founder and CEO Kent Clothier Sr. "It was rewarding but extremely time- and labor-intensive. We knew there had to be an easier way for investors to benefit from residential real estate without all the hassles."
The answer was turnkey - a hands-off approach that allows investors to own rental properties without handling any of the legwork involved. A turnkey company like REI Nation purchases, renovates and rents the property, then transfers ownership to the investor under a triple-net lease agreement.
So, what are the key differences between turnkey and conventional real estate investing? And how do you decide which strategy is better for your goals?
Hands-On vs Hands-Off
The primary difference lies in the amount of effort and direct oversight required from the investor.
Conventional real estate investing takes a very hands-on approach. The investor sources discounted properties, secures financing, oversees repairs and improvements, markets to tenants, manages leases and maintenance requests, pursues evictions if needed, and more. Some investors enjoy this level of control, but it’s also risky, time-consuming and requires local market expertise.
Turnkey investing completely removes these burdens through the triple-net structure. Once you purchase the turnkey rental, a property management company handles everything involving the home and tenants. You become a hands-off landlord collecting passive income checks every month.
Upfront Costs
Because turnkey properties have already been purchased and renovated by the turnkey company, investors can buy them "move-in ready" for immediate rental and cash flow. This eliminates the major upfront capital needed for down payments, rehabs, carrying costs, etc. with conventional deals.
That said, turnkey premiums do translate to higher purchase prices. And you’ll owe monthly or annual property management fees. Conventional investing offers more opportunities to add value through sweat equity and direct oversight of operating expenses. But this works better for seasoned investors with specialized expertise.
Risk Mitigation
Assuming more risk allows for higher reward potentials in conventional deals. But there’s also greater exposure if things go sideways. It only takes one bad tenant to destroy profits through non-payment, property damage and eviction costs. And if local market conditions decline, the investor feels the full brunt versus a diversified turnkey portfolio across different regions.
By contrast, turnkey investors benefit from the risk mitigation efforts of an experienced company managing hundreds or thousands of units. Strict tenant vetting and systematic operations control risk far better than any single investor can manage on their own. Portfolio diversification also avoids concentration risk.
Passive Income
Both turnkey and conventional investors enjoy rental income from their properties. But turnkey investing prioritizes minimizing effort for maximum payout. There’s no need to pursue discounted deals or add value through renovations. The turnkey company sources and prepares the property to maximize rents from day one.
"Our goal is to free investors from unwanted burdens, so they can spend time with family, give back to causes they care about, or pursue their dreams and passions," said Clothier.
This appeals to investors seeking purely passive income with no desire to moonlight as a landlord or property manager.
Wealth Building Potential
Conventional real estate investing clearly offers higher profit margins per deal for seasoned investors who can manage the process efficiently. Adding value through repairs and effectively containing costs pads the bottom line. Turnkey investors purchase the property post renovation and generally with less value add potential.
However, the hands-off simplicity of turnkey leads most investors to accumulate more properties in their portfolios. This scales wealth faster through more assets, producing monthly cash flow. Some turnkey companies also offer built-to-rent new construction at historically low-interest rates to maximize leverage potential, including companies like REI Nation.
So, while returns per property dip slightly lower, portfolio growth potential actually outpaces conventional real estate over time with exponentially higher rental income. Diversification across different markets also avoids boom-and-bust cycles affecting local economies.
Which Strategy is Right For You?
Now that you understand the key differences in approach, assessing your personal goals and risk factors can point you toward the best real estate investing strategy.
Turnkey investing appeals most to new investors or anyone pursuing completely passive income with their rental properties. It also serves remote investors who lack specialized local market expertise. Turnkey companies like industry leader REI Nation offer full soup-to-nuts services, allowing investors to own rental homes across America with maximum ease.
On the other hand, seasoned real estate veterans may prefer a conventional approach for higher returns through value-add opportunities and tighter expense controls. Just know that it comes with far more effort, risk and responsibility in managing the properties.
There's also room to blend both strategies. For example, you might hire a turnkey company to acquire your first few investment properties while learning the ropes of landlording. Over time, optimize your approach through conventional deals in your immediate metro area once you gain experience.
No matter which path you choose, REI Nation stands ready to serve through turnkey rentals or third-party property management on existing assets. Call today to discuss your investing goals with one of our Portfolio Advisors. They can map out a custom game plan tailored to your specific objectives, timeline and risk factors.
Microsoft Start | Jan 30, 2024
