If you are new to real estate investing, you may have come across property listings with the term “turnkey” in the description. A turnkey property is simply a property that has been fully renovated and is ready to be moved in.
But is this investment strategy right for you?
As an investor, turnkey properties have their pros and cons. Turnkey properties can be very beneficial for new investors because they don't have to worry about rehab or any renovations to the property. However, one of the major cons of this strategy is that there isn’t much room to add value to the property through forced appreciation since the property has recently been renovated.
These are just a few examples of the pros and cons related to turnkey properties, but there are other elements that you should consider before you make your decision if investing using this strategy is right for you.
Pros to Turnkey Properties
One of the biggest pros to turnkey properties is that it usually a more hands-off form of investing. For a lot of new real estate investors who don't want to worry about rehabs and construction work getting into turnkey property can be a nice entry point into real estate investing.
A turnkey property can allow the investor to get experience as a landlord without dealing with rehabs and renovation costs down the road. In some situations, turnkey properties come with property managers already selected. Therefore, giving the investor an easy entry into becoming a landlord without the stress of finding a property manager.
Another pro to turnkey investing is that turnkey investment properties have lower vacancy rates because the property is fully renovated or practically brand new. In most markets, newer properties and newly renovated properties have lower vacancy rates than older properties.
Even some turnkey properties come with existing tenants already occupying the unit, thus helping keep the vacancy rate for turnkey properties low.
Cons to Turnkey Properties
One of the major cons of turnkey properties is their lack of add-value opportunities. Since you are buying a newly renovated investment property, there is no room to add value to the property through forced appreciation.
Typically, most investors add the majority of the value to a property through forced appreciation, and it is not possible to achieve with turnkey properties. Therefore, your main source of income from this investment opportunity will consist of cash flow from the tenants and some appreciation of the market.
Another con that comes with buying turnkey properties is that you will be paying a premium for the property since it is in great condition. You will likely be buying the property at its highest value with just enough room so you can profit from the cash flow.
So is investing in turnkey properties right for you?
If your goal is to maximize your profits through forced appreciation and cash flow, investing in turnkey properties is not the best investment strategy for you. Turnkey properties profit opportunity comes from the cash flow from tenants.
However, if your goal is to have consistent, reliable cash flow, and you don't want to deal with any rehab or maintenance then obtaining a turnkey property may be a great option. Turnkey property investing offers an easy entry for most investors wanting to get started in real estate.