Turnkey properties can be defined differently depending on who the seller and the end buyers are. Real estate agents may refer to a home as “turnkey” if it is move-in ready. In the investment property market this would be regarded as what we at American Properties refer to as “semi-turnkey”. For an investment property to be considered truly turnkey it must be move-in ready, have a tenant in place paying rent, and have property management already in place. This is the type of property we connect our members with.
Turnkey properties offer an investor the benefit of being able to purchase a property with the peace of mind that it doesn’t require any repairs, maintenance, cosmetic upgrades (new carpet, paint, etc), or any other kind of work to bring the house to a move-in ready state; additionally there will not be any lost rent or leasing charges while a suitable tenant is found. This has the benefit of saving time and potential headaches. Buying a property that requires work to be made move-in ready and additional time and effort to place a tenant will take time, money, and opens the door to many risks and unexpected delays.
Take these examples or scenarios that may be encountered when NOT buying a turnkey property:
- While that minor problem of the leaky roof gets repaired, the contractor notices that the leak has caused a structural beam to deteriorate significantly. The cost to repair goes from $500 to $3000 and on top of this you have had to delay finding a tenant for another 15 days, which costs you half a month’s lost rental income at $600.
- The plumber you called out keeps missing his appointment and after a week when he finally turns up he tells you that he’ll need to order a part from out of state to repair the problem. The part costs an extra $500 but it also takes 8 days for him to receive and install the part costing you a further $400 in lost rental income.
- You agree with a contractor to repair the property foundation for a fixed fee. The contractor completes the work but claims that the work he did to repair the concrete back porch was not included in that initial, agreed upon cost. The contractor wants you to pay an extra $1,000 and, when you refuse, he decides to take you to small claims court. The whole incident becomes a big expensive headache.
- You’re confident that you can rent out your new investment property once it’s been fully repaired, however you have bad luck finding a tenant and go two months without rent, costing you $2,400 in lost earnings.
Overall American Properties strongly recommends turnkey properties over “fixer uppers”, or untenanted properties, but please consider these pros and cons first as you make up your own mind:
- Positive cash flow from the day you purchase the property
- No risk of renovations taking longer than planned (every week without a tenant costs you money)
- No risk of unexpected costs (eg. discovering a cracked foundation, or termites, etc)
- No risk of contractor or legal disputes related to the renovations
- No lost income while finding a tenant, and no risk of being unable to find a tenant
- Most turnkey property providers have strong proven track records of producing quality investment properties
- Turnkey properties can cost more than non-turnkey property that you purchase, renovate and tenant.
- Your selection of properties is not as large as most properties on the market are not turnkey
- You must be sure the turnkey housing provider you purchase from has a history of providing high quality properties