In the world of real estate, there are countless ways to invest and make a profit. Turnkey real estate in the simplest sense is real estate that is fully ready to be rented: A tenant can literally turn the key and move right in.
This is an appealing investment opportunity to real estate investors who have the money to put up front but not necessarily the time and energy to get the rental property ready for tenants. Learn more about turkey real estate now with Benzinga’s guide.
What Is Turnkey Real Estate?
When dealing with turnkey real estate, you are dealing with a rehabbed or renovated property. These properties are ready to be rented or sold. They are already in great condition and require little to no work from the investor to get them ready for the market.
These properties generally have the right upgrades to appeal to the masses — updated kitchens and bathrooms as well as newer main systems, such as heating, electric, air and plumbing. Ideally these properties are located in sought-after locations and in competitive markets, and tenants will be lined up and waiting.
Benefits of Turnkey Real Estate
There are a slew of benefits turnkey real estate can bring. A few of the most common include:
- Rent and sell easily: Renovated properties rent and sell easily. These types of properties are desired by many people. Not everyone is handy, so buying or renting a home that is finished and needs no work is worth a lot more than a deal sometimes. Most real estate markets have a demand for renovated real estate, meaning these properties will move quickly.
- More money: Many renters and buyers are people who physically do not have the time, knowledge or desire to redo or upgrade a property. They will pay more for the convenience to live in a turnkey property and enjoy luxury living without the headache of renovating or upgrading the property themselves or waiting for a contractor to do it.
- In demand: If you decide to sell the renovated property in the right market, bidding wars can occur. This can happen easily if there is a demand for renovated real estate in an area where the supply is especially low. Buyers will compete and pay top dollar to not have to worry about big-ticket items in the home for years and have minimal maintenance. In turn, this will raise the sale price higher and higher, giving you a lot more money back in your pocket.
- More options: Turnkey investors can do more than just rent or sell — they can furnish these already finished properties and rent apartments to big corporations for big bucks.
- Quick income: Once an investor purchases a turnkey property, it’s immediately ready to be rented out. There’s no waiting around, there’s just collecting rent. Many investors even opt for a property management company that will find the tenants in addition to maintaining the rental property.
- Tax advantages: Although these properties are more expensive up front, it’s worth mentioning the tax advantages. Property taxes, property management fees, mortgage interest, plus maintenance and other operating expenses are all deductions for rental income properties. These deductions will reduce income tax on your net cash flow and still leave you with great profits.
Drawbacks of Turnkey Real Estate
Of course, any investment also has its drawbacks. Watch out for these when dealing with turnkey real estate:
- Upfront expenses: It’s no secret that turnkey properties are expensive. Any renovated property is expensive. Another investor bought the house and did the work and still needs to make a profit on it. As the turnkey investor, you are not only paying the price tag for a beautifully renovated property, but you are investing your hard-earned cash whether paying outright or financing. When financing an investment property, you usually will need to put down at least 20% to 25% for the down payment, which can be steep depending on the sale price. However, there are many types of mortgage lending options to consider.
- Property taxes: Certain locations are, of course, worse than others in relation to property taxes. And property taxes are one expense that never goes away — if anything, they just keep increasing yearly. With a newly renovated property, your property taxes may jump quickly. If the permits were recently closed, the tax information may not even reflect the new tax numbers at the time of purchase. Be prepared for property tax increases.
- Holding costs: If for some reason your investment property does not rent or sell right away, holding costs can be high. This can occur as a result of unforeseen circumstances resulting from a bad economy, the time of year, the location or the price. Either way, you as the investor are now responsible for the property and maintaining it until you can rent or sell. This will include your mortgage payments, taxes and maintenance fees coming out of your pocket with no income coming in. If you have several vacant properties, this can become a real problem for you.
- Tenants: Obviously, you need tenants in your property in order for the whole investment to work efficiently, but bad tenants can be hard to deal with. Maybe they are not paying their rent, or they are trashing your beautiful property. In many states, it can be hard to evict someone. In addition to that, losing tenants means losing rental income for at least a month or more. That means you will have to dip into your own pocket for monthly fees until you can get the property rented out again.
Who Should Invest in Turnkey Real Estate?
Turnkey real estate is an investment that anyone can get into as long as you have the money to put up. You can easily start investing with minimal work or effort in most cases. Of course, experienced investors or businesses will understand the process better and may have more luck starting out. But any interested investor can get to know the real estate market and begin working with turnkey real estate.
This is a great investment opportunity for people with little time on their hands but a desire to invest. You don’t even have to be in the same state to start. Research real estate markets across the country and get started from anywhere. Keep your day job and set a budget for your investment. There is no need to come up with the money for all the extra work because turnkey properties are ready to go. You can team up with a property management company for easy rentals and low maintenance. As the investor, you can be as involved or uninvolved as you’d like to be. While many investors do visit the properties before purchase, some buy sight unseen.
Real estate professionals, such as agents and brokers, may know the possibilities and opportunities before other investors, giving them the advantage to get into investing in turnkey properties. Knowledge of the real estate market, up-and-coming areas, competitive pricing as well as industry connections make real estate investing a no-brainer for real estate professionals.
Investing in turnkey real estate can also be a great way for businesses to diversify and even add cash flow. In addition to the business tax advantage, extra cash flow never hurts.
Benzinga’s Best Real Estate Investment Platforms
Knowing that the investment opportunities are out there is one thing; actually getting started is another. Benzinga can help guide you to the best real estate investment platforms to get you earning money on your investments and to diversify your investment portfolio.
Turnkey real estate is clearly an easy, relatively low-risk, get-started-fast real estate investment opportunity. In addition to turnkey real estate, there are a plethora of investment strategies out there for every investor to use, whether you’re a successful, seasoned investor or a brand new hopeful looking for options. Be sure to check back frequently with Benzinga for more helpful financial information and investment advice.
Frequently Asked Questions
Are turnkey homes worth it?
Simply stated, yes. In a turnkey home, you are getting a recently rehabbed or renovated property, usually already set up with a tenant and the need for minimal maintenance for years to come. All the big-ticket items are new. These properties are more expensive up front, but in the long haul, they are a great investment that gives investors top dollar on their investment with limited effort.
Is turnkey real estate profitable?
Yes, turnkey real estate is a profitable investment. These properties are fully ready for tenants and ready for you to begin receiving a passive cash flow immediately. The minimal effort it takes for you to be successful in it is a driving force. Usually, there are no long hours, hard work or physical effort put in. Invest in the best markets, keep tenants long term, and enjoy your cash flow.