If you’ve seen the term ‘turnkey’ in property listings you may be asking yourself if that is just a clever marketing buzz word or a legitimate key selling point of a home. If legitimate, what does that mean as an investor and could turnkey property investing be the right move for your portfolio?
Turnkey Property Investing
There isn’t a consensus on what turnkey means but generally, in the real estate profession, it describes a building for sale in a move-in ready condition; and often is occupied or available for occupancy without additional features or updates.
For investors, because the fully renovated property is immediately rentable or occupied, it could potentially bring in quick cash flow as there would be no upfront costs to renovate and/or bring the property up to code.
A turnkey property would not be a fixer-upper needing rehab and repairs but rather one in next to perfect condition with or without a tenant already in place. Investing in this type of home is very different from the buy, renovate, rent, refinance, and repeat (BRRRR) strategy.
BRRRR is more common for a quick resell for profit whereas a turnkey property investment is typically a long term investment strategy.
Turnkey Real Estate Opportunities and Players
Turnkey Real Estate Sales
There are two distinct groups offering turnkey properties for consideration:
- Real estate agents or brokers who represent (and may even specialize) in the sale of turnkey homes for sellers.
- Investors purchasing distressed, foreclosed, and/or wholesale homes who perform a general house flip through renovation and repairs turning a home into a potential turnkey opportunity for purchase.
Turnkey Property Management
There are property management companies specific to the turnkey model who not only provide purchasing and/or investment opportunities but also handle all the aspects of tenant selection, rent collection, home maintenance which provides the investor with a hands-off passive income.
Whether you decide to purchase or maintain the turnkey investment with or without the help of a turnkey real estate broker or management company, there are three distinct types of investment opportunities in this industry: home rentals, vacation rentals, and commercial properties.
Pros and Cons of Turnkey Investing
The Benefits of Investing in Turnkey Properties
- The property can be attractive to tenants typically because the home is not only move-in ready but typically has more modern amenities and features.
- Oftentimes, the return on investment (ROI) can be faster than a renovated property the unit can start producing quick cash flow and no funds are needed upfront for renovations.
- It allows for diversification of your portfolio by type and perhaps even location.
- A turnkey management company, construction company, or seller may have already taken care of some time-consuming activities such as inspections, appraisals, rehabbing, title search and procurement, tenant screening, tenant selection, etc.
- The property is easy to turn over to a management company for a completely hands-off passive income investment.
- You can continue to invest in other areas of growth even if your local area is in decline.
- Diversification across different markets can mitigate the effects of an isolated local downturn.
The Potential Pitfalls of a Turnkey Investment
- As the property is in premium condition, it would likely be priced accordingly making it more expensive initially.
- There might be unforeseen structural, electrical, or other issues undisclosed or uninvestigated.
- Vintage, specialized, or unique homes might not qualify for this category limiting the types of homes for investment.
- The investor would have less control over the appearance, layout, style, appliances, landscaping, etc without additional costs and at that point, the home is no longer turnkey.
- The home(s) might need to be purchased long-distance to find an optimal purchase price within the investment budget. Distance from the property requires more effort in terms of due diligence both before and after purchase.
Where to Find Turnkey Properties
Conducting a general internet search and using online listing sites might bring up opportunities without much difficulty. However, you may want to do an internet search for a turnkey company that specializes in move-in ready property sales. Just know that using a company will likely incur additional costs so consider that when calculating your ROI. Although you may be looking for a passive investment, the due diligence prior to investing should be an active process to help mitigate risk.
Common Questions Before Purchase
If you are seeking to work with a turnkey company, it’s important to ask good questions prior to purchasing before doing business with a turnkey provider. Some questions to consider would include similar questions to purchasing any home but it’s good to interview the company for other information such as:
What is their company structure and process from start to finish?
How long have they been in business and do they have referrals and reviews?
What sets them apart from other turnkey companies?
Who currently owns the home?
Who rehabs the home?
Will they offer the scope of work done (or in process)?
If so, will they offer an itemized cost or at minimum a list of the items addressed?
What types of properties are and have been available and are there any within your budget?
Have the inspections and appraisals already been completed?
Will the agree to independent inspection and/or appraisal if requested?
Is the turnkey environmentally friendly with sustainable property features?
Self-Manage Turnkey Properties
Many investors purchase a turnkey property from and turn it over to a turnkey property management company. But is it possible to manage turnkey investment properties yourself? Absolutely! Just like any other property portfolio piece, with the right tools and resources an investor can self-manage the day-to-day as the role of landlord/management company. It may come with additional challenges but a turnkey property can be managed with the right resources even as a long-distance landlord.
Tools and Resources to Manage Turnkey Rentals
To be self-managed investors will need a few tools and resources to maintain high property standards and low tenant turn-over while likely not being in proximity to the property. Remote management might be difficult but not impossible with some careful planning.
Build a Reliable Team
You will certainly need to select and create an extensive vendor list such as electricians, plumbers, landscapers, etc., as you’ll need to heavily rely on those contractors and experts to care for your investment as if it were their own.
Prepare for Contingencies
From heat waves to hurricanes, emergencies, and catastrophes can happen at any time. It’s important, especially as a long-distance landlord, to be proactive in disaster preparedness for your rental properties.
Software Automation
A good property management software that allows you to automate all the aspects of property management is a must. Be sure the software offers online tenant portals, text, and email communication features, and electronic signatures for documents such as rental agreements and leases.
Electronic Payments
Typically a good landlord software will allow you to collect rent payments electronically to avoid the dreaded “the checks in the mail” excuse. A few providers even let tenants pay by cash at convenient local convenience stores eliminating not only handling money but also automating the data-entry accounting of the received funds.
Finding Help for your Turnkey Real Estate
Self-managing a turnkey portfolio might not be feasible for your business model or situation, there are numerous property management companies that specialize in not only sourcing new turnkey rentals for an investor but also in providing full-service property management. In that, your income will be more passive as you let the management company handle the day-to-day business of tenant selection, rent collection, and property maintenance.
Just as there are turnkey property providers there are also turnkey property management companies and at times those can be the same. Take care again to vet and ask good questions to make sure they have your best interest in mind and not skipping vital steps in getting a home move-in ready or skimping on tenant selection criteria just to occupy the home with a warm body vs an ideal tenant candidate.
It might be a conflict of interest or brings discomfort to buy from the same company that would manage the unit(s), so consider hiring a general property management company either in that area or one that can manage your portfolio wherever the properties are located.
Summary
Turnkey rental properties abound and can be found by working with a real estate agent, conducting an internet search, or working with a turnkey company.
The purchase price typically runs higher for a move-in ready home so it may be necessary to look in different markets to find homes that fit within your budget. Purchasing outside your local area may add challenges to managing remotely.
Whether you are investing in single-family homes, vacation homes, or commercial properties, for a truly passive income scenario you may want to hire a turnkey property management or a general property management company for the day-to-day operations.
Investments are never without risk so be prepared to spend considerable time in due diligence before purchase or hiring an outside company to manage your portfolio which is good advice for any rental property endeavor.
