Landlording & Rental Properties

6 Pros & Cons of Investing in Turnkey Properties

Expertise: Landlording & Rental Properties
25 Articles Written
House with "For Rent" sign in front

You’ve likely seen the term “turnkey” used in property listings before, but many wonder if this is just a savvy marketing buzzword or a legitimate selling point. The definition of turnkey can be subjective, but generally speaking, it refers to a fully renovated or move-in ready property that an investor can purchase and immediately rent out to tenants. Turnkey properties customarily won’t require any upfront costs to make updates or bring the property up to code. 

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How do you know if turnkey property investing is the right strategy for your portfolio? Weighing the pros and cons of any real estate investment decision is a critical step in determining if you will have a profitable return on your investment.

Pros and Cons of Turnkey Properties

Pros of Turnkey Property Investing

  • Lower vacancy rates: Since turnkey properties are move-in ready, you’ll likely see a return on your investment more quickly because tenants can move in right away and the property can start producing cash flow without requiring upfront funds for renovations and repairs. Some turnkey properties are even occupied by tenants upon sale, making your job even easier. When you do deal with tenant turnover, turnkey properties can be more desirable to potential renters because they typically are updated with more modern features and amenities. 
  • Diversify your portfolio: Adding a turnkey property to your investment portfolio will allow you to diversify by type and even location. Turnkey properties make it much easier to invest in areas outside of where you live, looking for markets of growth even if your local market is in decline. Diversification across different markets can mitigate the effects of an isolated local downturn. 
  • Hands-off investment: Because a turnkey property doesn’t require much (or any) work to get your investment up and running, it is usually a solid “passive income” investment. All of the parties involved prior to your investment have likely handled the time-consuming processes like inspections, appraisals, and title search and procurement. You can even turn the property over to a management company for a completely hands-off investment.

Related: The Top 5 FAQs About Turnkey Rental Properties — Answered!

close up view of upper level windows and roofs on four row homes

Cons of Turnkey Property Investing

  • Less personalization: As an investor, you will have less control over appearance, layout, appliances, landscaping, and similar items without incurring additional costs because the property has already been renovated and updated (and therefore reversing the turnkey status). If you plan to live in the home yourself at some point (or have another specific purpose in mind), this may be an issue for you. Vintage, specialized, or other unique homes also might not be included in the turnkey property category. 
  • Price: Because turnkey properties are often updated and in premium condition, they will be priced accordingly and in line with market value. This could potentially make a turnkey property a higher initial investment for you, and it will take you longer to realize an increase in overall property market value. 
  • Long distance: While the option to invest in markets outside of your local area is helpful to diversify your portfolio, investing in any sort of property long-distance presents its own set of risks. Being away from your investment property requires more effort in terms of due diligence, both before and after purchase, and often requires the help of other professionals. If there are any unforeseen issues that were not disclosed (structural, electrical, etc.), this can prove to be difficult to manage from far away.

Who Sells Turnkey Properties and Why?

Generally, there are two situations where a turnkey property is listed for sale:

1. The first is real estate agents or brokers who represent—or even specialize in—the sale of turnkey homes on behalf of property owners.

2. The second is investors who purchase fixer-upper, foreclosed, or wholesale homes and perform renovations and repairs to bring the property up to turnkey status. Then, they list it for sale.

investor-real estate

You will likely encounter many different scenarios in your search, and doing your due diligence prior to making an investment will help mitigate your risk. 

Related: 3 Ways to Vet a Turnkey Provider

Is Turnkey Property Investing Right For You?

Turnkey property investing is typically part of a long-term investment strategy. Investing in a property that needs work is known as a fix and flip or a buy, renovate, rent, refinance, and repeat (BRRRR) investment and is more commonly used in quick “resell for profit” situations.

Weighing the pros and cons of your investment and educating yourself as much as possible will help you make the right choice when it comes to your next rental property.

What other questions do you have about turnkey investing?

Ask in the comment section below!

Aside from being a landlord and real estate investor himself, Nathan founded Rentec Direct, a software company that serves the rental industry. Today he works with over 13,000 landlords and proper...
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    Barry H. Investor from Scottsdale, AZ
    Replied 7 months ago
    NATHAN - Excellent article and summarized well !! I am The #2 type of TurnKey Seller in Kansas City MO who sells tenant-occupied (immediate cashflow) fully remodeled homes to Investors with Seller-Financing. I have gotten repeat Buyers who love avoiding the whole rehab/marketing/tenant-screening process involved with cash-flowing rentals and making over 20% Annual ROI (even with loan costs, Prop Mgmt fees and repair expenses). One TIP I would offer TurnKey Buyers is to negotiate with your Seller a warranty period for repairs/maintenance - typically, 3-6 months. I offer this to my Buyers because I am comfortable with the renovated property and the property is the collateral (Seller-financed loans). The Buyer likes having a warranty in case something major happens, especially when the Buyer is out-of-state. It also makes for an excellent transition period for the tenants when you are selling tenant-occupied properties.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 7 months ago
    Unfortunately, while there are many good turnkey companies, there are also some scammers out there. You mention the due diligence required, but even still, I think the risk of getting hit by a scammer is another disadvantage.
    Michael Barry from League City, TX
    Replied 7 months ago
    I know this is a broad question...When buying a turn-key property, does the buyer generally purchase at retail price thus having no real meat on the bone with respect to forced equity? One of the constant things you hear on BP podcasts is that money is made on the purchase. This is one reason I’ve held off on the turn-key model.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied 7 months ago
    Yes, that's accurate. Turnkeys are cash flow plays and no real way to force appreciation at the purchase other than if the market itself appreciates and the value of the property goes with it. The only way to capture that equity on the buy that I've seen with turnkeys, other than buying right before a boom, is to go the BRRRR+turnkey method. You have to be more careful of what provider you work with on those since it's your money in the pot rather than theirs, but you get all the benefits of turnkey but you get the forced appreciation on the other side as well, so the perks of BRRRR too.