Turnkey real estate investing: what does it mean?
When asked the question: What does turnkey mean in real estate?, there are two answers that you might hear often. This is because the term “turnkey” is used in different situations in real estate, and each has its own meaning. The two common meanings of turnkey real estate are:
- A property that is in a move-in condition – meaning that the property has been renovated, undergone repairs, and might even already have a tenant renting the place.
- A turnkey real estate investment is the process of investing in a rental property that is in a move-in condition, has tenants in it, and that is being managed by a turnkey company.
In both cases, the term “turnkey” comes from the imagery of a car with the keys already in it, and all you have to do is “turn the key” to get the car going.
So, how is this used in real estate? And what does turnkey mean in real estate investing?
Turnkey in real estate investing
Turnkey in real estate investing is an investment strategy. It is used to streamline and simplify the process of investing, allowing real estate investors to invest in rental properties with the least amount of effort required from the real estate investor’s part. This investment strategy is optimal and is often used by long-distance investors – real estate investors who are interested in investing in rental properties outside of their country or state.
However, while turnkey in real estate investing has numerous advantages, it also has certain disadvantages that must be taken into consideration. So, part of answering the question of “What does turnkey mean in real estate?” is to realize the pros and cons of this strategy to better understand it.
Related: Investing Out of State: 6 Things to Take Into Consideration
The advantages of turnkey real estate investing
There are several advantages of turnkey real estate investing, especially for long-distance real estate investors as mentioned above.
So, let’s take a look at the major advantages of investing in turnkey properties and using turnkey companies to manage your investment.
The biggest and most sought out advantage of turnkey real estate investing is that it allows real estate investors to make profits from rental properties in areas where rental properties are an optimal investment without the investor having to move to a different state or country to manage the investment. This is especially great if you’re a real estate investor living in an area where rental properties are not profitable, but you’d still like to enjoy the profits of investing in one.
Click here to find the best performing rental properties for investing out-of-state!
Another advantage of investing with a turnkey company is their knowledge of the area and their market insights. As a real estate investor who wants to invest out of state or in an unfamiliar market, it can be extremely challenging to find the best opportunities and to understand the market’s performance or the best streets/neighborhoods to invest in. Turnkey companies, on the other hand, typically have years of experience in their local market, allowing them to find the best prices in the best areas for your investment property.
Professional property management
In addition to finding an investment property for you that is in a ready-to-move condition, and sometimes with tenants already renting the place, turnkey companies are generally professional property management companies as well. This means that they will manage all aspects related to your rental property, allowing you to truly enjoy the passive income that the rental property will generate without having to engage in managing or running the property yourself.
This also means that they will have a team of professionals to handle all aspects related to the property, such as contractors, gardeners, and other professionals who are necessary for maintaining the property. Also, they will tend to the tenants and handle turnovers to maintain your property’s occupancy rate and make sure that it is always generating a rental income for you.
Related: Professional Property Management: A Key to Success or a Waste of Money?
Professional turnkey companies will also have expertise in marketing properties for rent and finding tenants for your rental property. This will drastically improve the performance of the investment property and keep it advertised in a number of different mediums, allowing the property to have sufficient exposure to always be occupied by tenants.
All of these advantages make for a very simple investment strategy for you as a real estate investor. Similar to investing in a REIT, turnkey real estate investing will typically only require you to put forth cash for your investment, while the turnkey company handles the rest.
The disadvantages of turnkey real estate investing
However, with all of these advantages, there has to be a catch, right?
Sometimes, yes. But in order to avoid any unnecessary risks, you should take these factors into consideration.
Heavy on the wallet
Turnkey investments are generally expensive to get into. This is because the turnkey company is also trying to make a profit off of your investment property. For example, most turnkey companies have good market insight, allowing them to find and purchase investment properties below market price. However, when they sell you the property, they want to make a profit from it, and so they might sell it to you at a higher price.
Additionally, the property management services that turnkey companies provide are not free services, and they will result in heavy expenses on your property. So, if the property you’re investing in does not have a high enough rental income, it might result in a negative cash flow for you, which could cost you more than it’s worth.
Investing in turkey properties requires a lot of faith to be placed in the turnkey company that is managing your investment. This means that you should definitely research the company and make sure there are no tricks or hoaxes that are taking place in order to avoid being scammed for your money. After all, you’re entrusting the turnkey company with your money and your investment property, and you expect them to live up to your trust and have your best interest at heart.
Turnkey in real estate investing – things to consider
In addition to these advantages and disadvantages of turnkey real estate investments, there are additional aspects that you should take into consideration.
Investing in a real estate property is not a feat that you should take lightly. Investment properties are expensive investments, and they are fixed assets. So, before you commit your money to an investment property, it is always recommended to visit the property and see it in person, even if it means that you have to travel to a different state or country to do so. So, before committing to your purchase, you should always go see the property, walk around it, and make sure it is what you want to invest your money in.
Click here to find the best rental properties near you that are up for sale!
The property manager
Additionally, as mentioned above, investing in turnkey properties requires a lot of faith and trust to be put in the turnkey company that will be managing your investment. Similar to visiting the property, you should also meet with the property management provider and get to know them better. Make sure to meet the team that will be handling all the different aspects of your property management, and don’t hesitate to ask them any questions or let them address any concerns that you might have.
Finally, you should also take into consideration the type of ownership that you want to have over the property. Some turnkey companies will require you to invest in the property as an LLC (Limited Liability Company), which is generally a good idea, and it allows for easy transactions and money distribution for handling repairs and the maintenance of the property.
However, if you prefer to have a regular ownership of the property, you can have a shared bank account that the turnkey company has access to whenever they want to use it for repairs or maintenance.
Either way, make sure to research the types of ownership and choose the one that suits you best.
Related: Why Investing in Turnkey Real Estate Investment Properties Makes Sense
What does turnkey mean in real estate? Turnkey in real estate means an investment opportunity for out-of-state real estate investors or long-distance investors. It allows real estate investors to find investment opportunities that they otherwise wouldn’t be able to take advantage of. But it also means a higher risk and higher expenses on your investment. So, if you’re considering a turnkey investment in real estate, make sure to research all the aspects that are related to this investment strategy in order to make investment decisions that will help you avoid losing money or getting scammed by the turnkey company.
Finally, if you’re looking to find the best rental properties to invest in out of state, use Mashvisor for finding rental properties with readily calculated returns and metrics, and to help you research the market and determine whether it is the best choice for you or not.