Turnkey property can be one of the best options for investors seeking to invest in real estate while avoiding the headache of day-to-day management. Most of them are fully renovated, tenant-ready, and third-party-managed. This enables investors to continue earning passive income without considering repairs, problematic tenants, or maintenance. I’ll break down how turnkey real estate works, its pros and cons, and whether it will be worth adding to your portfolio going into 2025.
What Is a Turnkey Property?
You might be wondering, “What does turnkey mean in real estate?” A turnkey property is a real estate investment property that is already in a fully renovated state and ready to be put into immediate use, like renting it out to tenants. The term “turnkey” describes a property that an investor can buy and immediately start generating rental income from, with little effort, since it’s set up with tenants and managed by a third-party property management company. These properties are designed to be hands-free for investors, without any renovations or hands-on property management.
How Does Turnkey Real Estate Work?
Turnkey real estate investors have a straightforward property investment process without necessarily taking on hands-on management, as typically seen in rental properties. This turnkey real estate investment enables investors to outsource most renovation and management activities and spend most of their time growing the portfolio with much less daily operation stress. Here’s a deeper look at how the process works:
-
Finding a turnkey provider:
The very first thing an investor does is find a reputable turnkey provider or company that specializes in sourcing and renovating properties. These companies will focus on high-demand rental markets for landlords and take care of the whole renovation process, bringing the property to move-in condition.
-
Property buying:
After the investor chooses a property, they go through a normal purchase process. Often, the turnkey company helps to secure financing. The property is purchased as an already fully renovated, move-in-ready asset, with all the necessary improvements done. Sometimes, the turnkey properties have tenants in place, so rental income begins immediately.
-
Tenant management:
A turnkey provider or a third-party property management company will market the property, screen prospective tenants, and conduct leasing if the property is not rented.
-
Property management:
Upon purchase, a property management team will take over. They handle all the operational aspects, from collecting rent and sorting out tenant issues to performing maintenance and ensuring that the property complies with local regulations. This relieves the investor of the typical landlord responsibilities and truly provides them with a passive stream of income.
-
Ongoing income:
The investor gets net rental income, a deduction of management fees, and the appreciation in the property over time. Investors can also realize tax benefits in some markets and property types, including depreciation and deductions for property-related expenses.
Turnkey Property Investment Costs
Investing in turnkey real estate requires a deeper understanding of all the costs beyond a simple property purchase. While turnkey properties may be convenient, there are significant continuing expenses an investor might want to be aware of when it comes to turnkey properties. All these costs can potentially affect your return on investment and, therefore, should be factored into your financial planning. Following is a breakdown of typical costs related to turnkey properties.
-
Purchase price:
The house could be highly valued due to renovations and occupancy of tenants.
-
Property management fees:
The owner is usually charged about 8% to 12% of the monthly rental receipts for management services.
-
Closing costs:
These are likely to include title insurance, attorney fees, and other appraisal fees.
-
Maintenance and repairs:
Monthly upkeep of a rental property, even after renovations.
-
Insurance:
Insurance against property damage, burglary, or other liabilities.
Pros & Cons of Turnkey Real Estate
Before investing in turnkey real estate, it is wise to consider the various advantages and disadvantages. Though all the turnkey properties offer hassle-free passive income to an investor, not all turnkeys work for every investor. Below is a table that summarizes most of the key advantages and disadvantages that may help you decide whether your goals align with turnkey real estate:
|
|
|
|
|
|
|
|
|
|
How to Purchase a Turnkey Property
Buying a turnkey property can be relatively simple, especially for investors who want a hassle-free entry or addition to their portfolio. With this in mind, an investor must treat reputable turnkey providers as partners, access good financing, and conduct proper due diligence with the assurance that whatever properties are purchased will already generate income. The steps to buying a turnkey property include the following:
- Step 1: Reputable turnkey providers. Find reliable companies with a history of delivering completely renovated and tenant-occupied properties in solid rental markets.
- Step 2: Property selection. After getting the property list, select a property that best suits your investment goals and market preferences.
- Step 3: Financing. Arrange for financing through a traditional lender or cash purchase. This is based on your financial strategy for this particular asset.
- Step 4: Due diligence. Review property inspection reports, rental history, and financial performance to ensure the property meets your expectations.
- Step 5: Close the sale. The sale shall be consummated with usual closing procedures, including legal documents, title checks, and closing costs.
- Step 6: Property management. After the sale, a property management company assumes responsibility for day-to-day operations, enabling you to enjoy passive rental income with minimum involvement.
Best Turnkey Real Estate Companies
The right provider is what matters the most when it comes to investing in turnkey real estate. They minimize the need for investors to scour for their own property leads. Every company has different services, markets, and support, further enhancing or detracting from the investment experience. Below is a comparison of a few of the best turnkey providers to help you find the best fit for your investment needs.
| Roofstock: Best for leverage of technology | |||
| Norada Real Estate Investments: Best for providing market resources | |||
| Howard Hanna Real Estate Services: Best for their money-back guarantee |
1. Roofstock
-
Starting cost:
0.5% of the purchase price or $500, whichever is greater
Roofstock is an online marketplace to buy and sell single-family rental homes. It caters to the needs of investors who want a tech-driven approach to the acquisition of single-family rental homes. Advanced technology guides users throughout every step of the investment process, from property search to purchasing. I chose Roofstock as the best for leveraging technology because it provides innovative uses of data and digital tools that provide transparency in property management integration along with ease of transaction handling for a busy investor.
2. Norada Real Estate Investments
-
Starting cost:
Contact for fee
Norada Real Estate Investments is all about turnkey investments designed to help investors buy cash-flowing properties in growth markets nationwide. I think Norada is best for market resources because it brings robust data, comprehensive research, and educational material together to walk investors through every step of the investment process. Thanks to the market insight and support network provided by Norada, investors can appreciate just how much easier it is to diversify their portfolios with much more confidence.
3. Howard Hanna Real Estate Services
-
Starting cost:
Not explicitly listed, but buyers will be charged a broker fee
Howard Hanna Real Estate Services is one of the single largest family-owned real estate businesses in the US, offering services ranging from residential sales to mortgage, title, and insurance. I ranked Howard Hanna as one of the best turnkey real estate providers based on its money-back guarantee to ensure buyers’ peace of mind. The extra layer of security from this guarantee provides and reduces stress during transactions. Investors can rest assured that Howard Hanna will buy back the property at the purchase price if, for some reason, they are not satisfied with it.
Methodology
In determining the best turnkey real estate providers, a team of researchers at The Close considered several critical factors to ensure investors know what each company offers and how that matches their investment goals. Our methodology focused on key elements influencing the overall investment experience, from property selection to financial performance.
How we determined the best turnkey real estate providers:
- Turnkey process: Asses company’s ability to provide property rehabilitation, tenant selection, and fully operational, rent-ready properties to investors.
- Average return on investment (ROI): The profitability and potential financial gains offered by the turnkey properties provided by each company.
- Location of inventory: The areas in which the companies’ inventory is located were considered to determine the geographic diversification options.
- Average property prices: Allows investors to gauge affordability and align their investment goals with the price range that suits their budget and investment strategy.
- Suitability for investors: Identifying which type of investors each company is most suitable for helps potential investors determine if it aligns with their investment objectives.
- Fees: The fees charged by the companies, like marketplace fees or property management fees, to consider cost implications for investment calculations.
Read more about our methodology here.
FAQ
What's the difference between turnkey and furnished?
A turnkey property is completely rehabbed and ready for immediate use or rent. Tenants are often included and managed by a property management company, making it considered a hands-off investment for the buyer.
A furnished property just comes with all the needed furniture and appliances but might not be fully prepared for immediate rental or tenant placement. While the word turnkey focuses on the investment and its readiness for income, furnishing only refers to the interior setup and does not mean additional management or readiness for rental.
Is turnkey fixed price?
Turnkey properties are typically sold for a market price reflecting their renovated, move-in-ready condition. This market price might be somewhat fixed but will change with market dynamics and buyer financing. In addition, other costs related to the property will be extra, like closing fees, property management, and maintenance, which are not part of the listed price. The total investment goes way beyond the sale price of a house.
At what age does a house start losing value?
Generally speaking, houses tend to begin losing value and desirability as they reach the age of approximately 30 to 40 years due to the aged systems and wear-and-tear that may be expensive to fix. However, well-maintained properties-even those much older-can appreciate in stronger markets. Infrequent updates and renovations, together with good maintenance, will continue to extend the economic life of a house; poor maintenance and outdated systems accelerate depreciation.
Bringing It All Together
Turnkey real estate investing offers an investor a hands-off approach to property investment. It combines convenience and passive income opportunities. By understanding what does turnkey mean in real estate, investors can reap a really strong portfolio without much effort. This is due to working with reputable providers, taking advantage of property management services, and understanding the costs. It could be a good way for an investor to break into or expand a current portfolio in the real estate market, with much fewer of the traditional property management headaches.
Are you just starting to look into the process of turnkey investment, or have you already jumped in? Let us know about your experience so far!
Add comment