While the stock market can be a great way to earn passive income, its extreme ups and downs have left some investors looking for an alternative. Many have found turnkey rentals to be an excellent way to build wealth in the long-term while generating immediate cash flow in the form of rental income. Just like any investment, however, turnkey rentals can have their advantages and disadvantages. Let’s discuss a few of the potential pitfalls, as well as the reasons why rental properties can be an excellent investment strategy.
The Disadvantages of Turnkey Rentals
Turnkey rentals are a truly great way to put your money to work for you right away, but they do come with potential headaches. Here are a few things to be aware of before you start your real estate rental portfolio.
Turnkey Rentals Aren’t Set-It-and-Forget-It
They require maintenance just like any other home. If you live in an area that sees extremely cold weather in the winter, for example, you’ll need to perform annual winter maintenance on your turnkey rentals just as you would with a home in which you reside. This includes maintaining appliances and interior items such as the HVAC system and hot water heater, as well as ensuring that the landscaping is properly trimmed and maintained to prevent injuries and keep the property from looking unsightly.
In addition to maintenance of the physical property, you’ll need someone to run the business side of things. This includes finding and vetting potential renters, collecting rent payments and late fees, and handling any repairs or complaints that may arise.
Rental Property Damage Is Always a Potential
When you have tenants living in your property, damage is always a possibility. This can range from damage due to neglect or carelessness to damage that arises because of an accident. Even if your renters are model tenants, natural disasters or random events can arise that result in fires, floods, or a demolished roof. Having a rental property portfolio means taking the time to have the proper insurance policies to cover any possible damage that may occur.
The Advantages of Turnkey Rentals
While rental properties can be seen as just one more thing to take care of, they’re excellent investments that can pay off incredibly well if they’re properly managed and maintained. Here are a few of the advantages of owning turnkey rental properties.
You Enjoy Long-Term Appreciation and an Immediate Payoff
Most people love real estate investments as a long-term wealth-building strategy. Instead of buying a property and leaving it empty while waiting for it to appreciate (or having it sit empty for most of the year if it’s a vacation property you rarely use), why not take advantage of it by renting it out? The monthly cash flow can help cover mortgage payments, tax costs, and ongoing maintenance until you’re finally ready to sell.
You Don’t Need Lots of Cash to Get Started
Although there is often a perception that you have to be uber-wealthy to be a real estate investor, this simply isn’t the case. If you’re strapped for cash, there are still plenty of ways to get your turnkey rental portfolio up and running, from working with sellers who are willing to finance to finding a private lender. It’s even possible to become a real estate investor in your 20’s if you plan properly!
It’s Not a Full-time Job
Although (as we mentioned above) having turnkey rentals is not a set-it-and-forget-it endeavor, this doesn’t mean that you have to take on a full-time job to be a real estate investor. An experienced property management company can cover all the bases for you — from finding tenants and handling rent payments to making sure the property is well-maintained and up-to-date. This frees you up to take care of your regular full-time job … or simply enjoy your retirement.
While turnkey rentals can have their disadvantages, they aren’t enough to dissuade truly savvy investors. In fact, with proper planning and a good rental management strategy, the negatives are easily outweighed by the positives when it comes to building your turnkey rental portfolio.