What Is a Turnkey Property?
A turnkey property is a fully renovated home or apartment building that an investor can purchase and immediately rent out. It generates quick rental income with minimal effort. A turnkey home is often a property purchased from a company that specializes in the restoration of older properties. Those same firms may also offer property management services to buyers, minimizing the amount of time and effort they have to put into the rental.
Turnkey properties became popular during economic downturns.
Key Takeaways
- A turnkey property is a fully renovated property that can be immediately rented out by the buyer.
- These properties gained popularity after the 2007-2008 housing market decline due to affordability compared to renting.
- Investors often hire property management services to handle rentals, minimizing their involvement.
- Turnkey properties appeal to those interested in real estate investment without renovation or maintenance work.
- The goal is to quickly generate rental income by acquiring properties requiring minimal refurbishment.
Understanding the Mechanics of Turnkey Properties
Turnkey properties became popular after the 2007-2008 housing market slump when buying homes was cheaper than renting in many U.S. areas. Nationwide, buying is 30% cheaper than renting, and it’s even more affordable in low-cost regions. In pricey real estate markets like New York, investors often buy cheaper rental properties elsewhere, using property managers to handle rentals while they collect profits from afar.
This investment approach is especially appealing to individuals who desire exposure to the real estate market but who do not have the time or ability/interest to renovate a home or handle maintenance issues. In most cases, the investor will hire a separate company to manage the property. Often, there will already be a tenant in the property when it changes hands, simplifying matters for the investor even further.
However, the term “turnkey property” isn’t just for investors. Realty companies often use the term to market any renovated, move-in ready home for sale. Some homebuyers enjoy renovations, but those with busy lives or limited skills may prefer turnkey properties that need no work.
Generating Revenue With Turnkey Properties
The purchase of turnkey property is expected to allow the new buyer to make it available for tenants immediately. By acquiring real estate that requires little to no refurbishment, the intent is to quickly generate revenue through renting the property as quickly as possible. The extent of the work necessary to bring a residence to turnkey status can include replacement of electrical fixtures, repairs to plumbing, fresh paint for the interior, and fixes to the flooring where necessary. The shorter the turnaround to rent the property, the faster the new buyer may start seeing a return on their investment.
The effectiveness and worth of fully renovating a home or other dwelling may be questioned if the goal is to put the property up for sale rather than for rent. The expenses that may be put toward repairs and, say, fresh paint might not be a selling point as prospective buyers could want to make alterations to the property. That could include tearing out or doing away with the very refurbishment done by the current owner. Also, the money spent making those repairs will likely increase the asking price of the seller. In some instances, particularly for selling a residence, it may be more efficient to see that repairs are done that bring the building up to code, but little more.
The Bottom Line
A turnkey property is a renovated residential real estate that can be immediately rented out, providing an advantage for investors looking for a hassle-free investment. Turnkey properties have become popular due to their renovated nature, which allows investors to quickly generate rental revenue without engaging in extensive property management or renovation activities. They rose in popularity following the 2007-2008 housing market decline, and they offer a cheaper alternative to renting in many regions.
The goal of purchasing turnkey properties is to generate income swiftly through renting, with little to no refurbishment required. But while turnkey properties are appealing for rental investments, their value as a sale item may vary based on prospective buyers’ preferences, as some may desire to customize the property further.