What Is a Turnkey Property?
Written by: Veronique Hart, Property Management Specialist - Published: Sep 29, 2022
“Turnkey property” is a term used nationwide in real estate markets. Millions of these newly renovated properties are for sale, ready for tenants to move in immediately and begin generating passive income for rental property owners. Knowing about these turnkey properties is crucial to evaluating your real estate investment strategy.
To help investors learn more about these properties, the team at Propertymanagement.com has compiled the key information you need to know regarding the pros and cons of turnkey property investments. The following guide will help determine whether investing in these properties is right for you.
What Does “Turnkey” Mean?
If you are a real estate investor, you may have considered investing in a local or remote turnkey property and want to learn more about the pros and cons of investing in these properties. Firstly, however, what does “turnkey property” actually mean?
As the name implies, a turnkey property is a long-term rental property that has already been renovated (in other words, you need to turn the key after purchase). In addition to single-family and multi-family properties, turnkey properties can include condos, apartments, and duplexes. These properties are ready for immediate move-in and can almost instantly generate passive income for investors.
For the most part, turnkey properties are repaired, renovated, managed, and sold by businesses specializing in turnkey properties. Investors purchase these properties directly and begin renting them out to potential tenants immediately. Because these companies have already spent significant resources renovating these properties, this investment is reflected in the sales price of turnkey properties. It is wise to search for similar properties on the market and compare the offerings of multiple turnkey property companies to avoid overpaying.
Where Can I Find Turnkey Properties?
You can find great turnkey properties in and around all major cities across the country. Whether you are searching for investments close to home or nationwide, knowing which markets offer the best opportunities is key to making smart investments in turnkey properties. To determine whether a particular real estate market is suitable for investing in turnkey properties, ask:
- Do the properties available in the area fit your budget?
- Do investments in this market appreciate over time?
- Are reliable property managers available for properties in this area?
- Is there a high rental demand in the local market?
- Does the local market have a low tenant default rate?
If you answer yes to all of the above, you have found a great market on which to focus your turnkey property investments. Real estate investors can find excellent turnkey investment opportunities by asking the above questions. Mostly, however, investors find turnkey properties by consulting with a reliable turnkey property business. These businesses have already selected properties that met the above criteria and renovated them for investors like you.
Benefits of Investing in Turnkey Properties
Many successful real estate investors get their start by investing in turnkey properties. These properties are very popular and tend to sell quickly when listed on the market. Whether your first or tenth property purchase, a turnkey property can offer many benefits to real estate investors.
“Passive income” is any profits generated outside of regular employment. Passive income may require a significant, upfront investment but will require little to no maintenance. Investing in turnkey properties is one of the most popular ways of generating passive income for real estate investors or those looking to grow their real estate holdings. Ready-to-rent, remote, turnkey properties allow owners to choose their level of engagement in property management. If you hire a reputable property manager, you can leave the day-to-day management to them while you benefit from an investment that requires minimal labor.
No Lengthy Renovation Process
While a fixer-upper or “flipper” property may cost less in terms of up-front investment, these properties will require a lengthy and often expensive renovation process before they are ready to rent out to tenants. Property owners may spend hundreds of thousands of dollars before they can search for prospective tenants. An extensive renovation process may be a drain on your time and resources if you own multiple rental properties.
Investing in a turnkey property eliminates the need for a complicated renovation process, allowing you to focus your time and money elsewhere. These properties come into the buyer’s profession with up-to-date appliances, plumbing, and amenities that are attractive to renters and save you the hassle of hiring contractors to renovate your property.
Start Seeing Profits Sooner
As stated above, a turnkey property does not need to undergo a long-term renovation process. Because turnkey properties are ready to rent immediately, you can start generating a profit by renting out to tenants much sooner than if you were to invest in a fixer-upper property. Properties purchased with the intention of “flipping” could result in months or even years of delay before any profits are generated. In comparison, you can buy a turnkey property already occupied by long-term tenants or is ready to be listed on the rental market as soon as possible, reducing the gap between your initial investment and generated profits.
The Downsides of Investing in Turnkey Properties
Does investing in turnkey properties sound too good to be true? For the most part, these properties truly are an excellent means of generating income for real estate investors. However, there are some genuine downsides to investing in these properties that you should keep in mind before pouring your money into a property that isn’t right for you.
Priced at or Above Market Value
First and foremost, the main downside with turnkey properties is the listing price. Because these properties have undergone extensive renovation, costs are reflected in the purchasing price. Additionally, companies that specialize in renovating and selling turnkey properties may price these properties above market value to generate their own profits. Depending on your budget, a fixer-upper that will require renovations but can be purchased below market value may be the right choice for you. Regardless, it is important to do your research and conduct a market analysis to make sure you are paying a fair price for turnkey properties in your area.
No Choice in Location
Are you only interested in investing in properties in a particular market? One of the cons of turnkey investments is that the location is often unpredictable; when a suitable property is newly renovated, investors interested in these properties must act fast, regardless of where the property is located geographically.
If you do not have the resources or are uncomfortable with remote investments, turnkey properties may not be your best option. For those who prefer to keep their investment properties within a specific geographical range, look for other properties that may require renovations but are in the desired real estate market.
Little Opportunity for Personalization
Lastly, another thing for real estate investors to remember when looking at turnkey properties is that there is little opportunity to customize these properties for your specific needs. Because these properties have already undergone renovation, they likely will have been designed to fit the needs of an average renter, not a particular client base. If you have specific preferences for your rental properties’ floor plans, appliances, features, or design, or if you are renting to a particular consumer base, you may be frustrated by the lack of customization available in turnkey properties.
Do I Need Property Management for Turnkey Properties?
Some turnkey properties may come to you with a property management system already in place– the company that renovated the property may also provide management services. In most cases, however, you will need to decide about hiring a property management firm for your turnkey properties. Should you attempt to manage the property yourself or hire a property manager?
While you may choose to manage your property yourself, this becomes increasingly difficult if you invest in multiple properties across distant real estate markets. For these reasons, many turnkey property investors decide to hire a property manager to oversee the day-to-day operations of their property.
If you are unsure if you need property management for your turnkey properties, consider that a qualified property manager can:
- Market your available rental units to potential tenants
- Screen tenants and review applications
- Collect tenant rent
- Quickly address on-site maintenance concerns
- Provide regular updates on the state of your properties
- Build relationships locally within the real estate market
- Work as a liaison between you and the property’s tenants for conflict resolution