Turnkey (sometimes seen as turn-key):
A property that’s completely ready for occupancy at closing. Although it applies to all real estate, most of the time the term is used to used to define residential rental property managed by a professional, licensed real estate agency.
In the real estate sector turnkey properties are primarily offered by property management brokerages as investments. The homes are usually well-appointed, in good locations and ready to move into, which makes them attractive rental properties for investors looking for passive income streams.
Of course, there's plenty more to know—understanding the most basic turnkey definition is only the beginning. Let's take a deeper look at turnkey property investing.
What Makes Turnkey Properties Different
Turnkey homes are the easiest way for people who want an income stream, along with a reliable payoff when they sell an asset. These properties appreciate at rates that make them attractive over other investments, and many of the expenses associated with holding them are tax deductible.
Turnkeys are different from other real estate investments in that a specialized real estate group has completed all the tasks associated with property acquisition and leasing, including improvements, approvals, cleaning, and maintenance.
Although a real estate group may be part of a national agency, the work they do is local. Since the agents and their staff live in the area, they have an understanding of neighborhoods. An important and time-consuming part of becoming a successful real estate investor lies in discovering the quality and characteristics of the local housing stock and what makes one area more desirable than another.
Most turnkey property management companies select properties in better neighborhoods because there is more demand from credit- and income-qualified tenants. Under normal market conditions, these are the areas that see higher rates of appreciation and a larger buyer pool, which leads to a shorter time on the market when an investor does sell.
By definition, turnkey properties are ready-to-go. They’re upgraded to a level suitable for the market and they have passed all the necessary inspections required by state and local regulations. The home and yard are ready for occupancy if the property is vacant.
An owner may also put an occupied property on the market, which gives you the opportunity to own an income-producing property as soon as you close on it. Since the unit has been professionally managed, it’s unlikely you’ll have to make any substantial tenant improvements, and you’ll have a valid, signed lease to submit with the loan paperwork.
Turnkey properties are the most passive investment you can make in real estate. With a professional management company handling the day-to-day activities, the demands on your time will be limited to those of your choice. Most management companies give you options about the extent of services you want them to provide, which repairs they schedule independently, and which require your authorization.
Their leasing services may be the most important service they provide. Besides running the required checks, the agency will conduct the appointments to show the property, and document the condition of the property at move-in. They collect and disburse the rents and maintain all the records.
Suitability of Turnkey Properties
Any investor who wants to achieve a passive income through rental properties will benefit from a turnkey property. Professionals handle most of the responsibilities associated with property management, and by definition, the properties themselves present low risk for an investor. They’re located in solid neighborhoods, fully improved, and ready to rent, if not already occupied.