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Pros and Cons of Turnkey Rentals Versus Private Money Lending

Once you’ve decided to invest in real estate, you have several options for where to put your money. Two of the most popular choices are turnkey rentals and private money lending. Each of these real estate investment opportunities has its own unique benefits and drawbacks. It helps to compare them in order to make a decision about where to invest your money.

Pros of Turnkey Rental Investments

Turnkey rental investments offer tremendous benefits, including the following:

Instant Cash Flow

As soon as you close, the profits from the turnkey rental are yours. If you buy your turnkey rental with a tenant already residing in the property, you’ll see instant cash flow.

Affordable Entry Levels

All you need is money for a down payment in order to invest in a turnkey rental. This makes it affordable for almost anyone with credit good enough to qualify for a conventional mortgage.

Diverse Choices

Turnkey rentals exist in every city across America. Whether you choose to invest in your own backyard or clear across the country, you’ll have a broad diversity of options of where you want to invest.

Backed by a Hard Asset

A turnkey rental is a solid, actual asset that backs your investment. You’ll always have something that you have an equity stake in when you invest in a turnkey rental.

Numerous Tax Deductions

Owning a piece of real estate provides you with numerous tax deductions that you can use to offset other income sources. No matter how much your turnkey rental cash flows, those tax deductions are yours to take.

Cons of Turnkey Rental Investments

Every investment comes with its drawbacks, including turnkey rentals. Here are some cons to consider.

Challenging to Manage Out of State

If your turnkey rental is located out-of-state from where you live, it’s nearly impossible to successfully manage with help. That means hiring a property manager, which is an added expense.

Hard to Find Cash Flowing Turnkey Rentals

In certain economies, it can take a very long time to find attractive cash flowing turnkey rentals, even when buying from a turnkey rental company. Often, the inventory is simply very low and your choices are limited.

Expenses Are Still Up to You to Cover

Owning a turnkey rental means you are responsible for covering needed repairs and other expenses related to maintaining the property. Even if you have a property manager, you’re still the one paying for things.

Not a Purely Passive Way to Earn Income

As a turnkey rental owner, your participation is needed to help ensure the investment is economically viable. It’s not a completely passive income experience.

Pros of Private Money Lending as an Investment

Private money lending is one of the less known investment types, but those who do avail of its benefits are usually repeat investors. Here are some benefits of private money lending to be aware of.

Dependable Dividends Come in Like Clockwork

As long as you work with a quality and trustworthy private money lending sponsor, you can count on regular dividends coming in like clockwork each month. You’ll always know how much to expect, to the penny.

100% Passive Income

The true beauty of private money lending as an investment is that it’s completely passive income. Once you submit your funds, there’s nothing else you need to do. No one will pester you with issues or questions. The only communication you’ll see is when your dividends come in.

Higher Returns Beat Out Most Other Investments

It’s very, very hard to get double-digit returns in today’s economy. You may never see that level of returns in any other type of investment; certainly not CDs or mutual funds, and probably not with stocks and bonds.

You Have Recourse

Your private money lending investment may be backed by a first lien position. That means that if the borrower defaults, you and the rest of the pool of lenders have recourse to take possession of the property. This is like having insurance on your investment dollars.

Cons of Private Money Lending as an Investment

Like every other type of investment, private money lending comes with some challenges.

Must be an Accredited Investor

Not just anyone can be a private money lender. You must be an accredited investor, which means you must meet certain qualifications. It’s not impossible to do, but it is a hurdle you won’t face with turnkey rental investments.

Entry Point is Higher

Private money lenders are typically expected to fund with a minimum of $50,000. That’s more than many people have available in cash, although it’s easier to get if you lend out of your self-directed retirement account.

You Don’t Technically Own Anything

Private money lending is strictly hands-off investing. Although you are investing in real estate, you don’t technically own any real estate. Therefore, you can’t take any of those attractive tax deductions that are available to turnkey rental owners.

Here at American Real Estate Investments, we offer our investors both single-family turnkey rentals and private money lending opportunities. Our turnkey rental homes are in the Dallas Fort-Worth area, where the diverse and growing economy and population growth have made it a very popular place to invest. Our private money lending opportunities run the gamut among residential and commercial developments, rehab projects and the burgeoning CBD industry. Please speak to a member of our team for information about our latest private money lending raises. When you’re ready to move forward with your investment goals, we’d like to be a part of your plan. Please contact us today for more information.