If you’re starting to get into real estate investing you’ve probably already noticed that there is a lot of jargon about the different kinds of properties, property condition, and even what kind of investor you are.
Turnkey properties are one of those pieces of jargon that might not seem immediately obvious when you hear it or see it on a property listing.
Here’s what you need to know about turnkey properties, what they are, why you might want to buy one, and the pros and cons you should consider before investing in this property type.
What Do Your Realtors Mean When They Call Something A Turnkey Property
The first thing you need to know is what a turnkey property is.
This isn’t a specific kind of property in the sense that almost any property can be a turnkey, assuming it’s in the right condition.
A turnkey property is a property you can buy that is ready to immediately turn around and rent out. That might meant that there isn’t any maintenance needed, could mean that there has been a recent renovation, or simply that the property is still in good overall condition and ready to start making money for its new owner.
These properties are often popular because the upfront costs are lower and typically more predictable.
The only problem is that you have to be able to make sure a turnkey property is actually ready to list. Some properties are listed as turnkey properties, but turn out to need at least a little work before they are ready to rent.
Knowing what to look for, and making sure to get a thorough inspection before you commit to buying a property can help make sure it’s actually in turnkey condition.
How Do Turnkey Properties Work?
There isn’t anything special, particularly about turnkey properties. You still go through the purchasing process as normal, including inspections, dealing with closing costs, and the other costs associated with buying a new property.
The term turnkey is borrowed from buying vehicles, where it was used to demonstrate that all the buyer had to do was turn the key in the ignition to get going.
Often turnkey properties are sold after another company, like a house flipping company or renovators, have finished with it. That means that the cost may be higher, because that company needs to turn a profit on their work, but also that you can immediately start making money, or at least looking for a tenant.
Is A Turnkey Property The Same As A Furnished Property?
Not necessarily. A turnkey property can come already furnished, but that’s relatively rare.
Furnished properties are their own category, and can be a good thing or a bad thing depending on the investor and how much you’re willing to spend on upkeep. Typically, furnishing a property also means that you’re responsible for that furniture unless it’s damaged by your tenants, and the furniture also needs to be replaced every few years even if it isn’t actively being damaged.
You can raise your rents for furnished properties, but the additional costs and oversight, including keeping a record of the condition all the furniture is in and when it was last replaced, can also add a lot of costs to your rental.
That said, turnkey properties that come with furniture can always be turned into unfurnished properties at some point in the future if you decide that you don’t want to deal with the additional hassle of offering furniture to your tenants.
Are Turnkey Properties Worth It?
Deciding whether a turnkey property is worth buying is complicated, and every investor is going to approach this problem differently.
Let’s talk about the advantages and disadvantages of buying turnkey properties a little more to help you decide whether these are good investment opportunities for you.
What Are The Advantages Of Buying A Turnkey Property?
The biggest advantage of turnkey properties is that you can calculate exactly how much they are going to cost you to buy early on in the process.
These properties shouldn’t need new paint, flooring, or any of the other work that real estate investors need to put into properties between tenants in most situations. They are also often updated versions of whatever the property was before, which can make them more desirable to tenants, especially in high-demand areas, or areas where other properties tend to be more rundown than the turnkey you’re considering buying.
Turnkey properties also tend to be relatively generic, which can be a good thing because you don’t need to sell on unique features of the property and because it means that things like the interior colors, layout, and other design choices may have been updated to reflect the most recent trends.
When it comes to real estate turnkey properties also usually take the least work and time from the investor. You won’t have to spend a lot of time or money doing the typical maintenance work yourself, and they usually look pretty good, so listing these properties for rent is typically easy.
Getting tenants to actually live in the properties is also pretty easy in most cases since there are often other benefits, like new appliances, trendy design, and undamaged detailing that all make the place more appealing.
Lastly, turnkey properties can be a huge financial boon as well. For new investors they can help you kickstart your cashflow, getting you a position to potentially buy additional properties significantly faster than you might otherwise.
You can also usually command a higher rental rate for a turnkey because of the renovation work and addition of things like new appliances that often come with these properties.
Turnkey properties are also almost entirely passive income, at least until they do need some maintenance down the line. These properties are low work and a good option for investors who don’t want to hire property managers right away.
Turnkey properties can also be a good way to get started in a new market, or to get low-work properties in another state or a more desirable market, which can help protect your investments and give you more consistent income even when one area or another is hit by an economic downturn.
What Are The Disadvantages Of Turnkey Properties?
For all of the advantages of a turnkey property, there can be some disadvantages as well.
One of the big disadvantages of turnkey properties is that you don’t really know much about the quality of the work or materials that went into getting them ready for rental. Since you don’t have control over the details, it can also be hard to estimate when you’re going to need to pay for fresh renovations, or how well the property will hold up to regular use.
Cheap construction materials can often look good but may also mean thousands of dollars in repairs or additional renovations after just a few years of use.
Turnkey properties also tend to be very generic, which can be an advantage, but it can also be a disadvantage. In a lot of properties, the unique details or off-the-wall design features add a lot of charm and can really make the property more valuable to the right renter.
Did the previous owner turn the garden shed into an art studio? Well, chances are the company that make the property turnkey-ready turned that studio back into a garden shed.
For renters looking for something a little off the beaten path, turnkeys are rarely going to fit the bill. So you really have to know who you’re marketing to, and work with a real estate agent who understands how to make it work.
Turnkey buyers also often end up overpaying for what they are actually getting, which means that you might have higher costs at first. Of course, this isn’t all bad, since you’re also able to immediately offset those costs by renting the property.
These properties still aren’t always the best way to spend your money, especially if you’re starting with a more limited budget. House flipping or doing the work to make a property a turnkey and then selling it to other investors, might be better for maximizing your budget.
The last big problem is that turnkey opportunities aren’t rare, but they aren’t exactly common either. If you’re looking for a turnkey instead of just a good property to invest in, you’re going to lose control over details like the location of the property, quality of local amenities, and other key details that can impact your long-term profit potential.
There’s a reason turnkey properties often show up in areas that have just been hit by an economic downturn, and they aren’t always a sign that the area is starting to recover.
Think Turnkey Properties Might Be Right For You?
If you’ve weighed the pros and cons of buying turnkey properties and think that this might be a good investment strategy for you, our team at Teifke Real Estate can help. We have experienced investment consultants as well as real estate agents that can help you find turnkey properties that maximize the benefits of buying a turnkey while minimizing the potential downsides.
Don’t go it alone, especially if you’re just getting started. You deserve the added confidence and security of working with the experts. You deserve to work with Teifke Real Estate.
- Chen, J. (2022, November 19). What is a turnkey property? how it’s used as an investment. Investopedia. Retrieved December 20, 2022, from https://www.investopedia.com/terms/t/turnkey-property.asp
- Turnkey project advantages and disadvantages: What to know before signing a contract. Top Industrial EPC Contractors. (n.d.). Retrieved December 20, 2022, from https://www.hm-ec.com/blog-posts/turnkey-project-advantages-and-disadvantages-what-to-know-before-signing-a-contract-hm
- What is a turnkey house? What Is A Turnkey House? | Rocket Mortgage. (n.d.). Retrieved December 20, 2022, from https://www.rocketmortgage.com/learn/turnkey-property#:~:text=What%20Does%20A%20Turnkey%20Property,you%20to%20rent%20out%20immediately