Hello friends. Welcome to another episode of Ask Marco on the Passive real Estate Investing show. Interesting question here today, the person who wrote it in titled it Exit Strategy for Turnkey Rentals, and I'm gonna keep that title. It is a comment and a question related to it, but not entirely, but I'll explain as I go. So this person, I'm not exactly sure their name. They, they left it generic, I think is, it says Jersey. But anyway, the question's about the returns and the exit strategy for buying or investing in turnkey rentals. So they or he has four or five questions in here. I'm gonna just break 'em down and take 'em one at a time for the sake of simplicity rather than reading the whole thing.

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But they write in, say hello. I would like to have your honest opinion if exit strategy really works with turnkey investments you sell, obviously I know you're going to say yes.

Here are the reasons I don't think it will work or fetch positive inflation adjusted returns. Okay, so let's break this down one question at a time and I'll give you my my honest feedback. So the first bullet point here, or the first numbered item is turnkey. As in turnkey properties is bought at a premium. It takes years to build real equity. So my comment to that is this, I wouldn't say they're bought at a premium at all. The properties that are sold as turnkey rental properties are sold at or below fair market value. And the reason I say that is because each and every single one of them is gonna have an appraisal done at the time of purchase. 99.9% of our investors buy with financing Fannie Mae, Freddie Mac financing, conventional financing. And so there's a requirement to have at least one appraisal done by a qualified third party appraiser that you have no choice in.

It's, they're randomly assigned, and that appraiser is his, their, their job is to justify the purchase price and make sure that you're you know, well, they're not trying to make sure that you buy it at the right price. They're basically saying, this is the market value. It's up to you to, to decide whether you move forward with the purchase or not. However, I will tell you that most all the properties come in at or below fair market value. So you're not buying at a premium. If you're buying turnkey and it's truly turnkey, which means that there are no capital expenditures and, and little to no deferred maintenance items, there shouldn't be, then you are buying at a fair price. It'll be at or below fair market value if you get a discount on it, which happens somewhat frequently because of the the volume we deal with and the providers we work with.

You might be getting a little equity bump right from the get go. So $150,000 property might be purchased by you at $140,000 price, and that's a, a $10,000 discount in equity terms. So your comment about buying at a premium is not true. It's not like it's overpriced or inflated you. What you might be thinking is what if you are buying and fixing and then refinancing your own property where you're buying it at a distressed price to fix it up, get some equity in it, then you refinance the property and you have a little extra equity or an equity kicker because you bought it distressed and took the time, energy, money taking on the risk of fixing it up into a, like, new condition with the risk of it going over budget, which means now you, you, you'll have less equity at the get go than you had before because you had to put more money into it.

So it can go the other way. If you're an active real estate investor, you can choose the route of finding distressed sellers or distressed properties or trying to find a real deal, meaning you're negotiating and negotiating hard for something that is turnkey or something very close to turnkey.