What Is a Turnkey Property and Is It a Good Investment?

Looking to jump into the world of real estate investing? Then you’ve probably come across the term turnkey property as an investment option. But what is a turnkey property exactly? At first glance, turnkey properties are units that are fully prepped and ready for lease. But what does this setup entail? To answer these questions and more, here’s a guide on turnkey property investments – what it is, how it works, and what you can expect from this type of real estate investment property.

Key Takeaways

• Turnkey properties are move-in-ready investments that allow investors to begin marketing the property or generating rental income much sooner.
• With minimal upfront renovation work, easier financing opportunities, and lower initial maintenance needs, turnkey properties provide a simpler entry point for both first-time and experienced real estate investors.
• The downside of turnkey properties is that they typically cost more upfront and offer fewer opportunities for value-add improvements.

What Does Turnkey Mean in Real Estate?

Throughout our experience in Atlanta area property management, we know that turnkey in real estate refers to properties that are move-in ready. Basically, these are properties that people can already live in with the “turn of a key”. Usually, these properties are already fully renovated and require little to no immediate repairs to be put up on lease and occupied.

In real estate investing, turnkey properties are the opposite of fixer-uppers, as they generally require significant renovations before they are ready for occupancy. On the other hand, you can place a turnkey property up for lease once you have the keys.

Turnkey investments typically fall under two categories – vacant and tenant-occupied. Basically, vacant turnkey properties involve a home that is fully renovated and is ready for lease upon purchase. On the other hand, tenant-occupied involves turnkey properties that are sold with an active lease in place. In this case, you simply become the new property owner, and you can immediately collect rent from the property’s existing tenants.

Benefits of Investing in a Turnkey Property

Now that you know a little more about what a turnkey property is, you might be wondering what makes this type of real estate particularly good as an investment. So, here’s a quick recap:

When it comes to turnkey properties, one of the biggest advantages is that you can put the property on lease sooner rather than later. Instead of spending weeks or months rehabbing a property until it becomes rental-ready, turnkeys are handed over to you in prime condition and ready for the rental market. As a result, you can generate rental income faster.

Speaking of renovations, another perk of investing in a turnkey property is that you typically have minimal upfront renovation costs and lower repair needs early on. Since there’s no need for any major change or repair upon purchase, you have a better opportunity to accurately estimate your initial investment requirement. On top of this, you’re less likely to face significant repairs since improvements have been made prior to purchase, and the property will only need regular maintenance.

From an investment perspective, turnkey properties are usually easier to finance since lenders can see that the property is in good condition. In such situations, turnkey properties seem less risky, especially if compared to other properties that require extensive repairs to be habitable and marketable.

Taking all of these into consideration, investing in turnkey properties simplifies how people can get into real estate investing. Instead of having to deal with extensive renovations, contractors, tight schedules, and construction costs, investors can jump right into marketing, leasing, and managing their investment property.

Challenges and Risks of Turnkey Investments

As an investor, knowing the advantages of investing in a turnkey investment is only the first piece of the puzzle. To better understand what it’s truly like to invest in a turnkey property, here’s a quick rundown of the potential challenges and risks that you may face.

Considering that turnkey properties are fully renovated, one of the biggest challenges that comes with them is the upfront cost to purchase. Essentially, turnkey properties tend to sell at a higher price, especially if compared to properties that require more renovations and improvements. For that reason, it is important that you carefully and thoughtfully evaluate the income potential of the property relative to its purchase price.

Aside from this, turnkey investment properties also have lower value-add opportunities. Unlike fixer-uppers, where you have a lot of opportunities to increase equity by renovating strategically, turnkey properties essentially have already gone through major improvements. Because of this, you have fewer opportunities to create additional value to further boost your property’s worth.

At the same time, a turnkey property leaves you in a position where you have to depend heavily on the quality of the build or any improvements made before you purchased it. This is particularly important when it comes to meeting building codes and safety standards.

Because of this, due diligence on your part is critical. To comprehensively evaluate a potential turnkey investment, be sure to conduct an independent inspection done by a licensed home inspector and review the property’s repair and renovation records. On top of this, evaluating local market trends and analyzing expense and cash flow expectations can help determine the true potential of the turnkey investment.

How Bay Property Management Group Can Help

For aspiring real estate investors, turnkey properties provide a relatively straightforward path to enter the rental market. For many, it can be a smart investment strategy that can generate rental income from the get-go. Do keep in mind that this convenience usually comes at a premium price and with minimal value-add opportunities.

Need help managing your turnkey property investment? We at Bay Property Management Group are ready to help! We offer a wide array of management services – from tenant screening to rent collection and lease enforcement. What are you waiting for? Contact us today and let’s get started!