Turnkey properties are homes, apartments, or condos that are move-in ready. Turnkey real estate is a term used when you buy a pre-built house, condo, apartment, or other pieces of real estate in its “turnkey” condition.
The term ‘turnkey’ comes from the real estate industry, where it is used to describe homes that are ready for occupancy upon purchase, sometimes referred to as just “turnkey” homes. It means the house has all the appliances, furniture, and even housewares needed to live immediately in the home after closing on your purchase.
A turnkey property is essential to renters who want to move in immediately upon signing a lease. In times of high demand, such as for students during the school year or individuals relocating from out of state, the turnkey property can be critical when looking for a place to rent. Turnkey properties are essential options in real estate investing because they offer a ready-to-go opportunity for real estate investors.
Some benefits of investing in turnkey property include moving right in by vacating your existing home or apartment. Another benefit for real estate investors is the speed of renting out turnkey properties. Turnkey properties typically rent much faster than other types of rental property because tenants know they will not have to wait to live in the rental. Purchase offers on turnkey homes are often very flexible, making it easy for investors to purchase them with cash or traditional financing.
Who Should Purchase a Turnkey Property?
Turnkey properties are typically purchased by people who want to move into a home rather than continue renting immediately. These homes are also often purchased by first-time buyers or investors. Some people have the money available for down payments on non-turnkey properties but not enough for other real estate investments.
Investors can purchase turnkey properties for new or established rental portfolios. As long as the home meets local zoning requirements, investors can buy turnkey homes to maintain a diversified portfolio of properties. Turnkey properties are often purchased by real estate investors who own multiple properties and need other ready-to-go rentals.
Turnkey properties may be a good option for those looking for a less intensive property to manage. Turnkey property owners typically do not have to worry about extensive maintenance issues because of professional builders’ design and construction. When turnkey properties are new, owners will likely need to spend some time preparing them for rent and amping up curb appeal with landscaping and exterior decorating touches.
What should You Look for in a Turnkey Property?
When looking for a turnkey property, there are some considerations based on your current needs.
- Cap Rate: Turnkey properties often provide better cash flow returns than other types of property investments. You can check the cap rate or amount of income received for every dollar invested in a turnkey real estate investment to determine if it is an appropriate choice for your goals. Investors typically look at the total monthly rent against the total monthly expenses to determine if the investment will have positive cash flow, meaning your income exceeds expenses for the home.
- Risk: Turnkey properties can be a good option when looking to minimize risk in real estate investing. Because they are already constructed, turnkey properties typically do not require any construction financing. Therefore, investors cannot make mistakes during construction or renovation phases that will impact the home’s value or safety.
- Location: Location is critical when considering turnkey properties. Ensure the property meets your needs for its intended use, such as being close to schools, churches, recreational areas, and transportation options.
- Size: Research the size of the house you are interested in to ensure it meets your needs now and before it is paid off.
- Price Range: Look at the current prices of turnkey properties so you can determine if they are within your budget. Sometimes, the builder may have created a more expensive option than necessary for its location. It will help you avoid paying too much or furnish your home with items that are not needed to meet the builder’s standards.
What are the Pros of Turnkey Property?
Turnkey properties provide some great benefits for investors, including:
- Easy to finance: As mentioned before, turnkey properties do not require construction financing and can be purchased with traditional loans.
- Low risk: Turnkey properties will either be ready to rent or new construction homes. When the home is new and unoccupied, you still do not have any cost of a vacancy during the first few months of ownership.
- Flexible purchase options: Turnkey homes are sometimes available with flexible financing terms because they are already developed. You can also negotiate the price or home down to make it fit into your budget.
- Ready-to-go housing options: You can move right into the house with little additional work when purchasing a turnkey property. You do not have to worry about renovations or extensive repairs before you are ready to rent it out.
- Positive cash flow: Turnkey homes offer many great rental options and good cash flow returns for investors.
- Furnished home: This can be a pro or con, depending on your preferences and needs. Some investors like the fact that they do not have
What are the Cons of Turnkey Property?
Although turnkey properties can be great investments, there are some drawbacks to consider as well:
- More expensive: Turnkey homes are typically more expensive than other rental properties because they are already furnished.
- Closed market communities: If you are looking to invest in an open area, turnkey properties may not be for you. Most turnkey homes are developed in closed communities where only certain people can buy property.
- Limited family needs: If you want to purchase a turnkey home, make sure it fits your family’s current and future needs. You may need to do some renovations or additions after moving in if your family is growing.
- Premium features: Turnkey homes often come with premium features that increase the price point; therefore, they typically do not meet the needs of a lower-income family in need of a home.
How a Turnkey Property is Used to Generate Revenue
Turnkey properties are typically rented to tenants who will pay for the cost of ownership along with any additional expenses or costs associated with owning a turnkey home. Turnkey homes are great rental options because they provide low-risk business plans that generate income, allowing investors to meet their short-term financial goals.
Its contribution to revenue is positive cash flow, which is money left over after all costs associated with the rental property are paid.
Does Turnkey mean Furnished?
Yes. A turnkey home is a house that comes completely furnished and move-in ready. This type of property does not require any construction financing, making it easier to purchase without dealing with building costs or contractor issues.
Turnkey homes are typically more expensive than unfurnished properties because they come with a premium, including appliances and other furnishings designed for the convenience of buyers.
Turnkey properties are furnished because they are otherwise difficult to put on the market as rentals. Investors can expect to pay more for a turnkey home than other types of properties, but it is often low-risk and fully furnished.
Where is the Best Place to Invest in a Turnkey Property?
Turnkey homes are usually available in closed or gated communities, which can be great for some investors (for example, retirees) but may not be desirable. Although turnkey properties are easily obtainable with traditional loans, they still tend to fit within their subcategory of real estate based on where they are located and what they offer.
Also, turnkey properties are most common in resort-style communities where it may be challenging to find a furnished rental property. Examples of these communities include golf or ski resorts, which can become challenging during the off-season.
Condos for rent are easier to find in urban areas. Still, turnkey homes tend to be developed in smaller towns and communities, where investors can typically drive to the houses quickly and easily.
Investors should also consider the atmosphere of the community when looking for a turnkey property. Turnkey homes may exist in private communities that are only open to residents who live there or those approved during a specific time frame.
Can You Negotiate a Turnkey Property Price?
Yes. A turnkey home is technically fully furnished, but that doesn’t mean all the furnishings are free. Investors can negotiate the price of a turnkey property if they think the current asking price is too expensive.
Turnkey real estate properties are usually priced at standard market value because they have premium features, such as appliances and other furnishings.
In some cases, turnkey homes can be negotiated to a lesser sale price depending on the time of year or an aggressive seller’s market. In most cases, investors should expect turnkey properties to be one of the most expensive types on the market.
What are the Differences between Turnkey and Value-Add Properties?
Turnkey homes are different from value-add properties because they do not require renovations or updates. A turnkey home already comes with appliances, furniture, and other fixtures.
Although investors can still make renovations to value-add properties, there are no additional costs associated with the property itself. Turnkey homes are different because they do not require further upgrades or repairs. Everything is included at purchase.
Value-add properties are typically classified as distressed real estate types that can be fixed up to increase their market value. So, value-add properties are often priced lower than turnkey homes.
Operators can also expect to pay more for a turnkey home because they do not have the same risk as with other types of real estate. Turnkey homes are fully furnished and ready to occupy, whereas value-add properties require some work before owners can rent or sell them.