Fixer-Upper vs. Turn-Key Property: Which Should You Purchase?

fixer upper

If you’re in the market for a new investment property, it's important to consider how much work you're willing to put into repairs or renovations. Some investors like to tackle properties that need a lot of TLC and are turned off by seemingly cookie-cutter housing developments. For others, it's the reverse. Determining the level of elbow-grease you want to put into an investment property can help you decidewhether you should be shopping for a fixer-upper that you can rehab to suit your tastes and preferences, or if you should be looking for a turn-key property that’s move-in ready.

Pros of Purchasing a Turn-Key Investment Property

Move-in ready properties can be appealing for a number of reasons. Consider the following:

You Get to Be Lazy

If you’re someone who prefers to watch television shows about home improvement from the comfort of your couch, but you aren't too keen on actually wielding a hammer, a fixer-upper might not be the property for you. Even if you think you'd be able to complete the work, you may not have the time to invest incompleting or supervising a lot of projects. Turn-key properties eliminate this worry.

You Don’t Mind Paying More

In general, a turn-key property will cost more than a fixer-upper. If you don’t mind having a higher mortgage and can see that your rental income will coverthe difference between a fixer-upper and a turn-key property, you won't need to invest in a home that needs a little more work.

No Delay in Renting

If you purchase a turn-key property, you’ll be able to rent it right away. Conversely, a fixer-upper won’t generate any income until it’s completely rehabilitated. If the idea of carrying a mortgage for a few months without being able to rent the property scares you, then you shouldn’t buy a fixer-upper.

Peace of Mind

If you are just not handy and would have trouble making necessary repairs on a fixer-upper, then spend the extra money and go with the turn-key property. Remodeling a property is best done by experts anyway, and if you don’t know what you’re doing, you run the risk of devaluing your property.

Pros of Purchasing a Fixer-Upper

Homes that require a little work can still make solid income properties for the following reasons:

More Bang for Your Buck

Purchasing a property that needs work gives you a lot of leverage in negotiating a good price, so you’re likely to get it for below-market value. If you can remodel it yourself inexpensively and quickly, then you’ll soon have a lot of equity in the property.

Saving Money on Interest

You’ll pay more for a turn-key property than a fixer-upper, and this means that you’ll have a bigger mortgage, which in turn means that you’ll be paying more interest. If you find a good deal on a fixer-upper and renovate it in a smart way without exorbitant costs, you can enjoy a greater return on your investment.

You’re Not Stuck with Cookie-Cutter Décor

If the cookie-cutter designs of many condos and home developments bug you, then a fixer-upper might be the way to go. Remodeling a property from scratch gives you the opportunity to put your creative stamp on it. Also, if you go the extra mile and install high-end finishes and appliances, you’ll likely be able to charge higher rent.

Choosing between a fixer-upper and a turn-key property isn’t easy. Both have pros and cons, and you’ll likely have to live with your choice for a long time. Look at all the elements of both, and you'll make a solid investment decision.

POSTED November 05 2014 12:53 PM

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