Turnkey Property – Definition, Overview & FAQ
What is a turnkey property?
Definition: A turnkey property is a type of real estate investment that is fully renovated, often furnished, and ready for immediate use.
The term “turnkey” comes from the concept of just turning the key to the front door and starting to use the property right away, without needing to do any additional work or renovations.
These properties are particularly popular among investors who wish to purchase rental properties without dealing with the hassle of repairs, renovations, or furnishing. Turnkey properties are typically managed by a separate property management company, making them a convenient choice for investors who want to avoid being actively involved in the day-to-day management of the property.
In essence, turnkey properties offer a hassle-free, ready-to-use option for real estate investors, allowing them to earn rental income almost immediately after purchase.
How does a turnkey property work?
Turnkey properties operate based on a simple concept that appeals to investors, especially those who prefer a hands-off approach.
Here’s how they typically work:
- Renovation and Preparation: The property, often acquired by a company specializing in turnkey real estate, is renovated and updated to make it appealing and functional for tenants. This includes necessary repairs, modernizing fixtures, and sometimes furnishing the property.
- Property Sale: Once the property is ready, it is sold to an investor. These investors are often looking for rental properties but don’t have the time, desire, or expertise to manage renovations or find tenants themselves.
- Management Services: Along with the property, turnkey companies often offer property management services. This means they handle the day-to-day tasks of being a landlord, such as finding and vetting tenants, collecting rent, and addressing maintenance issues.
- Ready for Immediate Use: As the property is already renovated and often comes with management services, the investor can start earning rental income almost immediately. This is the key appeal of turnkey properties – they are a “plug-and-play” solution in the real estate market.
- Passive Income Stream: For the investor, a turnkey property typically provides a source of passive income. Since the property management company handles most of the operational aspects, the investor doesn’t need to be actively involved in managing the property.
- Cost and Profit Considerations: While turnkey properties can be more expensive upfront due to their renovated condition and the inclusion of management services, they can offer a more predictable and steady income stream. The investor needs to consider the cost versus potential rental income and the convenience of having a property that is ready to go.
Pros and cons of investing in turnkey properties
- Immediate Rental Income: Since turnkey properties are ready for tenants, investors can start earning rental income immediately, making it an efficient way to invest in rental property.
- Less Time and Effort Required: These properties eliminate the need for the investor to oversee renovations or manage the property’s day-to-day operations, especially if a property management company is involved.
- Good for Long-Distance Investing: For investors who want to invest in markets outside their local area, turnkey properties can be a convenient option since they come fully managed and don’t require the investor’s physical presence.
- Lower Risk of Unexpected Renovation Costs: Turnkey properties have already been renovated, which can reduce the risk of encountering unexpected repair or renovation costs shortly after purchase.
- Appealing to New Investors: Those new to real estate investment might find turnkey properties an easier entry point, as they come without the complexities of property renovation and tenant placement.
- Higher Initial Cost: Turnkey properties are often more expensive than non-turnkey properties because they are fully renovated and ready to rent. This higher initial investment can impact the overall return on investment.
- Less Personal Control: Investors have less control over renovations and property improvements since these decisions are made by the company selling the turnkey property.
- Potential for Lower Returns: Due to the higher purchase price and potential management fees, the return on investment might be lower compared to actively managed properties where the investor does the renovations and management themselves.
- Quality of Renovations: There’s a risk that the renovations made by the turnkey company are of low quality or merely cosmetic, potentially leading to higher maintenance costs in the future.
- Market Risks: Like any real estate investment, turnkey properties are subject to market risks. Investors need to research the market to ensure it’s a good fit for their investment strategy.
- Dependence on Management Company: If a property management company is involved, the success of the investment can heavily depend on the quality of its management. Poor management can lead to issues like high tenant turnover or inadequate maintenance.
What should I look for in a turnkey property?
Focus on location, quality of renovations, rental demand in the area, and the reputation of any included property management services. Also, verify the property’s financial performance and ensure a thorough inspection has been conducted.
How do I finance a turnkey property?
Standard methods include conventional mortgages, investment property loans, cash payments, hard money loans, or through real estate investment groups.
Are there any additional costs with turnkey properties?
Additional costs may include higher purchase prices, property management fees, closing costs, ongoing maintenance and repair expenses, and regular property taxes and insurance.
Are turnkey properties suitable for first-time investors?
Yes, they are suitable due to their ease of management, lower time investment, immediate rental income potential, and as a learning opportunity in real estate investment. However, thorough research and financial planning are still essential.
What is turnkey value?
Turnkey value refers to the market value of a fully renovated property, furnished, and ready for immediate use. This value incorporates the convenience and immediate functionality of the property, often making it higher than similar properties requiring upgrades or renovations.
What does 100% turnkey mean?
100% turnkey indicates a property is completely ready for use or occupancy without any additional work needed. It includes all necessary renovations, furnishings, and sometimes even operational setups like utilities and services, offering a complete, hassle-free solution for buyers or renters.
What is the difference between fixed price and turnkey?
Fixed price typically refers to a pre-agreed price for a construction project, covering all specified work and materials without any changes during the project. Turnkey, on the other hand, means the project or property is delivered ready for immediate use, including all necessary finishes, installations, and often furnishings. Turnkey projects can be fixed price, but fixed price doesn’t always imply turnkey readiness.