Last Updated: February 2024
The real estate investment strategy of “turnkey investing” allows investors to purchase fully renovated and sometimes even already leased properties from a turnkey provider. Unlike house hacking or wholesaling, this investment strategy can be attractive to investors who want to invest in real estate but do not have the time or expertise to manage properties themselves. Turnkey real estate investing can be a great option for those who desire to own a physical piece of real estate, without the burdens and time commitments often associated with preparing them to rent.
What is Turnkey Real Estate Investing?
Turnkey Real Estate Investing Definition
Turnkey real estate investing is a type of real estate investing where investors purchase fully renovated and leased properties from a turnkey provider, typically with the goal of generating passive income thereafter. Depending on the turnkey provider, they can handle all of the necessary renovations, property management, and leasing, making it a hassle-free investment for the buyer. The idea behind turnkey real estate investing is to provide investors with a steady stream of income without the need for active management or property ownership responsibilities.
Turnkey Investing Property Types
Virtually any type of rental property can be a turnkey property. While turnkey properties are often associated with residential rental properties such as single family rentals or multifamily buildings, the concept can also be applied to commercial properties such as industrial related uses or even vacation rental properties as well. Just like in residential turnkey investing, any turnkey property can be delivered ready for the new owner to start renting, or can be part of an ongoing service that continues to oversee all aspects of operations such as property management, tenant sourcing, and lease administration.
Types of Turnkey Real Estate Investing
Full Turnkey – Full turnkey real estate investing refers to a comprehensive investment package where a turnkey provider handles every aspect of the investment process. This typically includes sourcing the property, renovating or constructing it, finding tenants, managing the property, and sometimes even securing financing.
Partial Turnkey – Partial turnkey real estate investing allows investors to purchase properties that may require some level of renovation or repairs. The turnkey provider handles the acquisition, renovation, and property management services, but the investor may be responsible for financing the renovation or overseeing the final touches.
Build-to-Rent – Build-to-rent is a type of turnkey real estate investing where new properties are constructed specifically for the purpose of being rented out. Investors can participate in the process from the ground up, including selecting the location, customizing the design, and overseeing the construction.
Important Turnkey Investing Terms
Due Diligence – Real estate due diligence refers to the process of conducting thorough research and analysis before making an investment decision. In turnkey real estate investing, due diligence involves researching the turnkey company or investor, assessing the property’s location and condition, reviewing financial projections, and understanding the terms of the investment. It is essential to perform due diligence to ensure that the investment aligns with the investor’s goals and minimizes potential risks.
Tenant Turnover – Tenant turnover refers to the process of tenants leaving a rental property and new tenants occupying it. In turnkey investing, tenant turnover can impact cash flow and property management. Understanding the historical turnover rate and the efficiency of the property management company in finding new tenants is important for assessing the potential risks and returns of an investment.
How to Invest in Turnkey Rental Properties
Investing in turnkey rental properties can be an effective way to generate passive income and build wealth through real estate. Turnkey rental properties are fully renovated and leased properties that are managed by a turnkey provider, making it a hands-off investment for the buyer. Here are the steps to invest in turnkey rental properties.
1. Identify Investment Goals
The first step in investing in turnkey rental properties is to identify your investment goals. Determine how much capital you have to invest, understanding of rental real estate finance, what type of returns you are seeking, and what level of risk you are comfortable with.
2. Find a Reputable Turnkey Provider
Research and identify a reputable turnkey provider that has a proven track record of success in the industry. Look for providers that offer properties in desirable areas with high rental demand and a solid return on investment.
3. Conduct Due Diligence
Conduct thorough due diligence on the provider and the properties they offer. Evaluate the provider’s reputation, track record, and experience, as well as the quality of their properties and the rental income potential.
4. Purchase the Property
Once you have identified a turnkey provider and a property that meets your investment goals, make an offer and purchase the property. Work with a reputable title/escrow company or attorney to ensure a smooth and legally binding transaction.
5. Collect Rent
As the owner of the turnkey rental property, you will start collecting rent from the tenant(s). Make sure to keep accurate records of rental income and expenses, and stay in communication with property management (if applicable) to ensure that the property remains well-maintained and profitable.
6. Monitor and Manage the Investment
Monitor the performance of the investment and manage it accordingly. If you are self managing, consider utilizing property management software. Stay up-to-date on market trends and rental rates in the area, and be prepared to make any necessary changes to maximize your returns.
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Pros & Cons of Turnkey Rental Property Investing
While there are several benefits to investing in turnkey real estate investing, there are also some potential drawbacks that investors should be aware of. We take a look at the pros and cons of both below.
Pros of Turnkey Investing
- Passive Income – One of the primary advantages of turnkey real estate investing is the ability to generate a steady stream of passive income. As the owner of a fully leased and managed property, investors can collect rent without the need for active management or property ownership responsibilities.
- Diversification – Turnkey real estate investing can provide diversification to a portfolio, as it offers exposure to real estate without the need to manage properties directly. This can help to hedge against market volatility and provide a stable, consistent source of income.
- Low Risk – Turnkey real estate investing can offer a lower risk investment opportunity compared to other real estate investments such as note investing or syndication. This is because the properties are fully renovated and sometimes even leased, reducing the likelihood of unexpected expenses or vacancies.
Cons of Turnkey Investing
- Limited Control – One of the main drawbacks of turnkey real estate investing is the limited control that investors have over the property. While the turnkey provider can handle the property management and leasing, investors may not have a say in certain aspects of the property, such as tenant selection or maintenance.
- Lower Returns – Turnkey real estate investing may offer lower returns compared to other real estate investment strategies, such as BRRRR or triple net (NNN) rental property ownership. This is because the turnkey provider takes a cut of the profits, reducing the overall return for the investor.
- Hidden Costs -Turnkey real estate investing may come with hidden costs, such as ongoing property management fees or maintenance expenses. It’s important for investors to thoroughly research and evaluate the potential costs associated with turnkey real estate investing to ensure that it’s a sound investment.
Turnkey Rental Property Investing FAQ
What Types of Loans are Available for Turnkey Rental Properties?
Investors can access several types of loans for turnkey rental properties, such as conventional mortgages tailored for investment properties, portfolio loans from private lenders or banks, and government-backed loans such as FHA or VA loans under certain conditions. Additionally, some turnkey companies may offer in-house financing options, and hard money loans are available for those looking for shorter-term financing with a quicker turnaround, albeit at higher interest rates.
Who Handles Property Management for Turnkey Rentals?
Property management for turnkey rentals is typically handled by the turnkey provider or a partnered property management company, which oversees day-to-day operations, tenant relations, maintenance, and rent collection. This arrangement allows investors to enjoy a passive income stream without the need for direct involvement in the management of the property.
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