It takes practice to quickly analyze a property and determine if it is a good investment, but this depends on factors such as your financial situation and your real estate investment goals. Personally, I am a long-term real estate investor. I am looking for a slow and steady evaluation. Some may try to switch assets and focus on a more short-term approach.
Factors such as price and location are always important when considering a new investment, but the condition of the property may not deter you from making a decision. Some investors are looking for properties that are ready to move into. turnkeywhile others prefer to repair, refurbish and resell for profit. BRRRR method. Here’s some advice from seasoned real estate investors on choosing between a turnkey investment property and a fixer-upper investment property.
Advantages of turnkey investment
“Turnkey” means different things to different investors, but generally the term refers to a property that is ready to move in. The property is often fully renovated and may already be occupied by tenants (or may be ready for immediate occupancy without any work being done). Advantages of investing in turnkey propertiesIncludes:
- With no upfront costs (or headaches) to refurbish your property, you are likely to see quicker cash flow and a quicker return on investment.
- The ability to diversify your portfolio by property type and location is very attractive if your local area is experiencing a recession.
- You can easily turn it over to a property management company and make a passive investment completely hands-free.
- In most cases, it is more affordable to invest in turnkey real estate than to build from scratch.
Turnkey challenge Invest
Turnkey investing may sound like too much to say, but it’s not without its pitfalls.
- Turnkey properties are in prime condition and priced accordingly, often requiring a large up-front investment.
- Turnkey rental properties often include tenants. Depending on how the previous landlord was screened, you may or may not find a quality tenant to keep the property and pay the rent on time.
- Since many turnkey properties end up being long-distance investments, there may or may not be an opportunity to conduct due diligence and inspect the property for structural, electrical or other issues.
- Since the property has already been built and designed, you don’t have much control over elements such as layout, style, and appearance without incurring additional costs.
Advantages of the fixer upper
While the advantage of rentable properties is immediate income, property repairs and renovations can be a long-term strategy to improve your return on investment. If you can buy a property at a lower price and increase its value so that you can ask for a higher rent, you will know where your investment will pay off in the future.
- Depending on the market, there may be less competition for Fixer Upper properties as some investors may not have the skills, connections or knowledge to complete the necessary renovations.
- While most investment properties take an average of 10 years to appreciate in value, Fixer Upper properties appreciate as you renovate, repair or update your home. The more you invest, the higher your potential return on investment (especially if the purchase price drops significantly).
Fixer Upper Challenge
The biggest pitfall of fixer-upper properties is the time and money it takes to actually “fix” them. who will do the work? Investing in fixer-upper properties is a common real estate investment strategy, but it often involves greater risk.
- If you are not qualified to renovate the property yourself, you will need to assemble and hire a team of professionals who can complete all the work required to make the property ready for rent. This can be a complicated process if you don’t already have a trusted team you’ve worked with before.
- Always be prepared for the fact that repairs can take longer and cost more than expected. It’s like losing money every day when the rental property is empty. Vacancies can quickly erode profit margins.
- The future is always uncertain, even if you have a large fortune. There is no telling what the market will be like when the property is complete and ready to find tenants or final buyers. You don’t have to keep making mortgage payments on a property that doesn’t generate rental income.
final thoughts
There are many different investment strategies in the real estate market and choosing the right one ultimately depends on your financial situation and long-term goals. I generally recommend that beginning real estate investors look for properties that require minimal repairs to be considered rentable. If you have experience with large home improvement projects, have a team of experts in place, or have flipped properties in the past, buying a Fixer Upper could be a great investment.
All investments involve risk, so please take the time to do your research and determine if the property is the right investment for your situation. Be mindful of the cost and time involved in repairs and maintenance.
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Note by BiggerPockets: These are opinions written by the authors and do not necessarily represent the opinions of BiggerPockets.