A turnkey property is a fully renovated home or buildings that can be purchased and immediately rented out. A turnkey home is typically purchased from a turnkey company, which specialized in the renovation of older properties.
Turnkey real estate investing is ideal for people that are willing to give up potential returns in return for an easy, less risky, method of investing in rental properties.
You can invest in any type of real estate, be it multifamily, commercial, single-family, condos, turnkey only affects the shape of the property. Most rental properties need at least a little rehab when they are sold, which most investors jump on due to lower prices. Turnkey properties can be immediately rented out, contributing to the lower risk.
Turnkey Investment Companies
Most real estate investors that operate primarily in turnkey properties typically have connections with turnkey investment companies.
Turnkey investment companies essentially operate as the wholesalers in the operation. They find the property, they fix it up, and they sell it to you, so that you get a deal and they get a profit. Oftentimes, they will manage it for you as well.
Should you invest in turnkey properties? Let’s go over the pros and cons:
Service at a Distance
When you become a turnkey real estate investor, you will most likely want to develop connections with outside resources. Whether it is agents, brokers, other investors, turnkey investment companies, you will want to know other people and other markets.
When just starting out, you will want to focus on one market. But what if your local market isn’t a good market? There are people in California who invest in the Midwest, and they don’t even set a foot in the town they invest in!
You need to form connections with trustworthy people, and then you can invest from afar. Turnkey investing is typically the go-to strategy for long-distance real estate investing, because rehabs are a headache when you’re there, and it is amplified when you’re not there.
When involved with a turnkey investment company, you will oftentimes get market insight that you previously didn’t have. Most turnkey investors focus on markets outside of their own, so they don’t know much about the market.
You can look up the crime rates, neighborhoods, and other statistics, but that only goes so far. Turnkey investment companies are typically local to their area, and know the ins-and-outs.
Turnkey investment companies have professional staff that are experienced in what they do, and can certainly help make you a better investor just by talking to you.
When just starting out, it can be easy to get overwhelmed. Having professionals to go to can certainly ease the growing pains.
Now, this is one of the primary benefits of using a turnkey investing company. On your own, what do you have to market your house? A listing site like Zillow or Loopnet, maybe a craigslist ad, a facebook page?
Many turnkey providers buy, sell, and rent up to hundreds of homes every month, and have the marketing power to get it done. They have access to billboards, radio ads, newspaper ads, etc. They are a marketing machine.
I’m sure you’ve heard of tenants, termites, and toilets. You hear new landlord horror stories every day on Reddit, Youtube, BiggerPockets, you name it. And when you try to manage yourself starting out, the risk of screwing up grows even larger.
Turnkey investment companies typically have a lot of management experience and can either guide you through managing it yourself, or can manage it for you. They will take the calls and complaints from tenants, they will ensure the tenants pay their rent, and they will keep track of the property.
The next thing, is simplicity. Most real estate investments need a little bit of rehab at the minimum. Any of this can be complicated. If you’re rehabbing it yourself, you need to have more cash set aside to pay the mortgage, and you need to be able to afford the materials. Not only that, but you need to learn how to rehab! It is a lot of work, but it can be done.
On the flip side, you can hire a contractor. Hiring a contractor can be a headache, but once you find a good one, you need to be able to pay them and afford all of the materials. Pretty expensive job, but it could be worth it in the long run.
But with a turnkey property, there is no rehabbing. You buy the property, they hand you the keys, and you’re ready to rent! You immediately start bringing in cash flow every month.
This is probably everyone’s concern. Time.
Obviously, if a turnkey investment company does most of the work for you, then a lot of time will be saved. The company doesn’t even charge much, just 10% of the monthly rent.
So if you do decide to use a turnkey company, you will essentially get rid of a lot of the worry and headache for 10%.
You lose potential profit anytime you use a turnkey investment company. The upside is that they have market insight and more resources to find the deal, but they don’t just tell you. They buy the deal, and essentially flip it to you. They fix it up and sell it for a higher price.
Now, you will still get a good deal most likely, but not as good as if you did the rehab yourself. But turnkey companies need to make money as well, and you pay for convenience.
You will still most likely make a large profit, because even though the turnkey properties take some of the potential profit away, their marketing machine gives them access to the most incredible deals on the market, meaning you may win in the long run anyways.
Turnkey properties aren’t perfect. You ALWAYS need to run your own numbers, because even professionals screw up the analysis sometimes. They may underestimate potential expenses of the property, and it could really put you in a bad position.
Never outsource the analysis to a third party. Use a third party to find the deals, but don’t use a third party to determine if it a good deal or not.
When you make a decision to use a turnkey investment company, you are putting a lot of trust in them, so you need to ensure that they are a company full of integrity, with a good reputation.
After all, you are trusting them to choose a location, choose a property, choose a tenant, and manage the tenant and property. That is a lot of trust, and sometimes bad turnkey companies can screw the investor over big-time.
Do your due diligence, and make sure you look closely before making any decisions that could put you in the hole.
Pros and Cons of Turnkey Real Estate Investing
The information in this article was presented by Brandon Turner in his book, The Book on Rental Property Investing.
Brandon Turner is the VP of Growth for BiggerPockets, and runs the BiggerPockets podcast and Youtube channel. He is the author of several books in real estate, and has been helping people since he started 13 years ago. Since starting in 2007, he has built up a portfolio of around 300 rental units, and continues to add to it as he shares his story with others.
The Book on Rental Property Investing is widely regarded as the best overall guide on real estate investing. It covers every subject that you need to know about, from taxes, to analysis, to insurance, to managing, you name it, it’s in there.
Turnkey real estate investing is great for out-of-state investors, and is still a good option for those looking for convenience over potential return.