What Is a Turnkey Property? How It's Used as an Investment

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. 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.

How a Turnkey Property Works

Turnkey properties grew in popularity following the housing market decline of 2007- 2008 when it became cheaper to buy homes than rent them in most parts of the United States. In fact, nationwide, buying is 30% cheaper than renting, and in many low-cost-of-living regions, it’s even cheaper than that. In markets where real estate is particularly expensive, such as New York, investors will often seek to create revenue streams by buying rental properties in parts of the country where property is cheaper, and hiring property managers to take care of the rentals for them, leaving them to do little more than collect profits from afar.

Key Takeaways

  • Turnkey properties have often been renovated and repaired.
  • Turnkey homes have become popular investments.
  • New buyers usually rent out the properties to generate revenue.

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.

The term turnkey property is not used solely by investors, however. In marketing literature, realty companies sometimes use the phrase to describe any renovated, move-in ready home that is up for sale. While some homebuyers relish the thought of renovating a property themselves, those with busy lifestyles, or who lack home improvement skills, may prefer a turnkey property that needs no work.

How a Turnkey Property Is Used to Generate Revenue

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.