What Is a Turnkey Property? A Quick Explanation

In a 2022 poll, nearly three in 10 Americans said that real estate is their top pick for investments. That makes it the leading choice among all other investment media. Indeed, stocks only ranked second, with just 26% of surveyed participants favoring them.

Turnkey property, in turn, is one of the most popular types of real estate investments.

But what exactly is a turnkey property, and what are its pros and cons? What should you be aware of when investing in such properties?

Keep reading, and we’ll tell you all the answers in the guide below.

What Is a Turnkey Property?

Turnkey properties are available as single-family houses, duplexes, or even apartment buildings. What makes them unique is that they’ve already undergone significant renovations. In addition, most of these properties for sale are move-in ready and fully furnished.

Thanks to those features, people who invest in real estate can buy and rent them to tenants ASAP.

Thus, turnkey properties can be passive income generators. They do so by enabling investors to create a steady flow of income through rent.

Where Do You Buy a Turnkey Property?

Most turnkey homes are available for purchase through specialized turnkey real estate companies. Usually, these firms also provide management services for the purchased properties. You can click here for a more detailed guide on what these businesses offer investors.

Why Are Turnkey Properties Excellent Investments?

One of the chief benefits of investing in turnkey is that a renter is often part of the deal. In short, you don’t have to spend time and resources hunting down potential renters. Instead, the turnkey investment company handles the process of finding a suitable tenant.

However, you can still have a say if you want your pick in a renter. But prepare for a lengthy screening process, including background and financial checks.

Overall, you don’t have to worry about renters being hard to come by, as rental properties are in demand. Indeed, in 2021, rental vacancy rates have dropped to 5.8%, a record low since the mid-1980s.

Another advantage of turnkey properties is that you’re not responsible for renovations. That’s because these homes have already undergone them, making them move-in-ready. As a result, they can generate cash flow faster than house-flipping projects.

You can also choose not to be responsible for the property’s maintenance and repairs. Instead, you can hire a property management company to handle those tasks. As mentioned above, this can be the same firm that sold you the turnkey home.

Lastly, turnkey properties allow you to diversify your portfolio with remote investments. For example, you can buy properties from several cities with many renters and high rent rates. That can help safeguard you from having a too volatile portfolio.

What About the Disadvantages?

Turnkey properties are all over the U.S., but where exactly depends on the investment company. Thus, you don’t have complete control over the exact location of the turnkey homes you buy. You may find that an issue if you like being physically close to your investments.

Another drawback to turnkey properties is that you won’t have a say in their appearance. After all, the investment company handles everything, from paint color to interior decorations. That may be an issue on your end if you like flexing your creative muscles in such projects.

There’s also the risk of hiring inexperienced or amateurish property managers. In this case, they may fail to address all necessary property maintenance and repairs. That can result in renter disputes, disrupting your bottom line.

If you buy turnkey properties far from where you live, you won’t have an active presence on them. As a result, you won’t be able to check in on them to ensure they’re in top condition.

You may also run into the problem of spending more on management fees than what you make in rental profits. After all, you also need to pay the property managers for their services on top of the upkeep and repair costs.

How Can You Make Successful Turnkey Investments?

Because of their features, turnkey homes are among the priciest real estate investments. Therefore, you must treat their purchase the same way you would when you buy a home for yourself.

Even though you’re not going to live on the property, other people will, and you want them to feel safe, secure, and at home. Otherwise, you can expect a high renter turnover rate.

So before buying any turnkey home, it’s always best to give it a physical tour. Do that even if you must travel to another state to see it in person. And when you do, ensure you also invest in a house-wide inspection done by a professional.

A licensed inspector can tell you if the house has foundational and structural flaws. The professional can also determine if it has plumbing, roofing, or electrical defects.

The last is of utmost importance, as electrical malfunctions cause house fires. Indeed, these problems result in as many as 51,000 residential fires in the U.S. each year.

Also, work only with a highly experienced and reliable property management company. Your best bet is to hire a licensed firm. One reason is that licensure helps establish their qualifications.

Besides, most states require property management companies to hold a license. Licensure, in turn, comes from local real estate boards.

So, check with the local board to confirm the licensure status of each of your prospects. Likewise, ask them about the standing of your prospective property managers. If there are too many complaints against them, bring your business elsewhere.

Be Careful When Investing in Turnkey Properties

And there you have it, your guide on the most crucial facts about investing in a turnkey property. Now you know these move-in-ready houses can provide you with a steady rental income. However, you also learned that they could sometimes be a risky endeavor.

So, always do your due diligence before purchasing turnkey properties.

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