Thoughts on Turnkeys?
Shelby McKeanPro Member
New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votesThoughts on Turnkeys?
Most Popular Reply
Marc RiceBusiness Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votesQuote from @Jonathan Greene:
Look, someone from Columbus is again telling someone to invest there. What a surprise.
-----
The first thing you want to do is repurpose the word turnkey into rent-ready. Turnkey is a system - rehabbed property marketed and sold by a company who bakes the property management into your future. You have limited appreciation and often the taxes go up later and shortfall the cash flow expectation.
Rent-ready for you would also mean live-ready, but by having two residences and two short-term options when you are not there, you are creating a lot of upkeep and maintenance on both that will be very hard to manage.
You were the first one to say the word "Columbus" 🧐 ?
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews
31 Replies
- 1yNick HarringtonBusiness MemberReal Estate Agent · Milwaukee, WI · Member since 2019 · 31 posts · 28 votes
Hey Shelby -
You are correct, turnkey properties don't get the lime light like flips / brrrs get in general within the BP community.
Whether to buy something turn-key or something that needs work comes down to your goals and what you are looking to accomplish.
A turn-key property allows you to walk into something that is ready to go to be rented out with minimal repairs, or it potentially already has tenants in place. There are in general less headaches on the front end and it is typically easier to get stabilized.
The downside though is your ability to recycle your money with a turn-key property is limited. Something turn-key is typically going to be sold at market price (unless you can find a deal off market as you mentioned). Therefore, your ability to re-use your money like you could in a BRRR or a flip is limited, and you are banking on the cash flow from that property or market appreciation over time to re-capture any money.
If you have a lot of capital already, a solid income coming in elsewhere from real estate, and want to minimize your headaches / downtime to get a property, than I would say this strategy fits.
I also believe that jumping into a flip / brrr as a first deal is a good way to never do a real estate deal again.
In your situation, it sounds like the primary focus for you is more a quality of life play (reducing your commute time), and the STR may allow you to break even cash flow wise?
A turn-key purchase is typically an easier and less risky strategy , but the benefits are less than buying a flip / brrr.
Nick Harrington | Compass531 Reviews - Lender · Seattle, WA · Member since 2022 · 482 posts · 768 votes1y
yes in theory turnkeys limits you to create/add value .If you do see a deal that makes the numbers work, you should still consider the deal and take advantage of it. The reason people seek for distress properties, so that they can acquire the property at a low price and renovate the house aka "value add" so that they can increase the property's value and create sweat equity, then pulling the money out or cash out we call out so that investors can liquidate their money and reinvest on the next project @Albert Bui @Carlos Valencia
- 1yJonathan GreeneBusiness MemberReal Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
Look, someone from Columbus is again telling someone to invest there. What a surprise.
-----
The first thing you want to do is repurpose the word turnkey into rent-ready. Turnkey is a system - rehabbed property marketed and sold by a company who bakes the property management into your future. You have limited appreciation and often the taxes go up later and shortfall the cash flow expectation.
Rent-ready for you would also mean live-ready, but by having two residences and two short-term options when you are not there, you are creating a lot of upkeep and maintenance on both that will be very hard to manage.
- 1yMarc RiceBusiness MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
Quote from @Jonathan Greene:
Look, someone from Columbus is again telling someone to invest there. What a surprise.
-----
The first thing you want to do is repurpose the word turnkey into rent-ready. Turnkey is a system - rehabbed property marketed and sold by a company who bakes the property management into your future. You have limited appreciation and often the taxes go up later and shortfall the cash flow expectation.
Rent-ready for you would also mean live-ready, but by having two residences and two short-term options when you are not there, you are creating a lot of upkeep and maintenance on both that will be very hard to manage.
You were the first one to say the word "Columbus" 🧐 ?
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews - Member since 2018 · 1k+ posts · 1k+ votes1yMy thoughts on turnkeys is simple: get your head examined. Peruse all of the threads/posts here on BP about turn key properties that weren’t turn key. Never buy any property without physically inspecting it and its neighborhood yourself, AND having it thoroughly inspected by a great inspector who YOU select and pay for. Don’t forget to get title insurance to, and get the owner’s paperwork showing that all contractors, subcontractors, and materialmen have been paid.
Quote from @Shelby McKean:
I don’t hear much about turnkey properties on the BP podcasts. Is there a strategy for buying something that someone else has already improved or is inexpensive (or off-market) and starting to do a short-term rental right away? I realize that turnkey properties mean you can’t improve equity so a re-assessment would not add lending dollars, but is there a scenario where the numbers work? Break-even cash flow?
I am thinking of using an apartment or condo to eliminate my commute four days per week and making it available on weekends for STR. My primary residence also has an apartment I am preparing as an STR.
As for short term rental of a condo you buy, most condominium associations don’t allow that, and for good reason. Also, it can be very difficult to get financing for a unit in an association where a percentage of units are not used as primary residences full time. - 1yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Shelby McKean
I've bought 25 SFR turnkeys. You're not getting the instant equity as you would with fixer uppers with rehabs. However, you're able to rent them out right away and don't have the hidden surprises rehabs almost always bring on. And in 3-5 years, these "base hits" look like home runs due to inflation and your tenants paying down the mortgages.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes1y
Quote from @John Clark:
My thoughts on turnkeys is simple: get your head examined. Peruse all of the threads/posts here on BP about turn key properties that weren’t turn key. Never buy any property without physically inspecting it and its neighborhood yourself, AND having it thoroughly inspected by a great inspector who YOU select and pay for. Don’t forget to get title insurance to, and get the owner’s paperwork showing that all contractors, subcontractors, and materialmen have been paid.
As for short term rental of a condo you buy, most condominium associations don’t allow that, and for good reason. Also, it can be very difficult to get financing for a unit in an association where a percentage of units are not used as primary residences full time.I completely agree. I considered buying turnkey (meaning renovated home with a tenant placed in there) with a company that buys properties in Detroit area, Cleveland, and a few in St. Louis and got on a call with them. The numbers look good on paper and I still get their emails - one of them said "stress free ownership". There's nothing stress free about real estate investing. I decided against it because I didn't know those markets or neighborhoods in those cities. Since then I've heard mixed reviews about that company. I've heard turn key companies can range from terrible to good. I wouldn't buy a property based on numbers from a turnkey company, agent or wholesaler, but fly or drive out and look at the property and neighborhoods. Seeing it in person looks much different than video tours and Google map images
I also agree on buying a condo. HOA fees can increase with no limit and you can have special assessments. I sold a condo in the San Francisco Bay Area, really wanted to keep it but the badly managed HOA and all their HOA increases with a large special assessment, decided to get out of it. And most HOAs won't allow STRs.
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Thank you for taking the time to reply. I think that your assessment is very helpful and it is true that I am trying to offset costs and cut my commute.
I have also had reservations about a flip/brrr because of the difficulty of finding a builder for my team. I may be a bit gun-shy because of the extensive renovations we have done to a primary residence that spanned three contractors and six years. I just got the railings on a deck that was built over a year ago so…I wonder about how over-subscribed the builders in my area are.
Your explanation about the possible reasons why someone might and might-not want to buy something already at its highest value is exactly what I was asking for and will help me to think about what my final goals are and will develop into.
Shelby
- 1yJoe DerobertisPro MemberAltadena, CA · Member since 2014 · 67 posts · 42 votes
Lots of good info already mentioned here but just to add another hat in the mix I recently purchased 3 turnkey properties each from a different turnkey provider. 1 in Cleveland and 2 in Memphis. It’s been about 4 months post and so far I’d say it’s been a very good experience. As @Nick Harrington stated the main drawback as I see it is that you are buying at retail or very close to it. I continue to evaluate deals these providers send me and if something penciled I would definitely consider buying more.
For me the reason for going turnkey was to limit my lack of experience and knowledge of the areas I am investing in and I looked at the premium I was paying as worth it to acquire the things I lacked.
In the end I’ve learned a ton and it’s given me the confidence to pursue non turnkey as I continue to build relationships with people.
I think the most important thing is taking action and limiting your risk as you start, knowing that part of starting is going to force you to learn some things you just can’t learn otherwise so try not to focus on hitting home runs right out of the gate.
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @Jonathan Greene:
Look, someone from Columbus is again telling someone to invest there. What a surprise.
-----
The first thing you want to do is repurpose the word turnkey into rent-ready. Turnkey is a system - rehabbed property marketed and sold by a company who bakes the property management into your future. You have limited appreciation and often the taxes go up later and shortfall the cash flow expectation.
Rent-ready for you would also mean live-ready, but by having two residences and two short-term options when you are not there, you are creating a lot of upkeep and maintenance on both that will be very hard to manage.
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Thanks for the reply-I didn't realize that those terms had different definitions and that is very helpful. I also appreciate you pointing out the turn around each week on two properties would be difficult. It's something to consider and think of in terms of management. The STR in my primary residence is actually an apartment that I don't live in and I have a cleaning staff for that house anyway. I am also not commuting to a job so while my son is in school during the day I would be cleaning and turning over the apartment for STR.
At any rate, it will partly depend on whether the STR regulations in that area would even allow for this arrangement in an apartment or condo, but I just cannot quite see, at least for this potential property, adding a flip or rehab project to the mix. Maybe, if I locate a small house, though.
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @Joe Derobertis:
Lots of good info already mentioned here but just to add another hat in the mix I recently purchased 3 turnkey properties each from a different turnkey provider. 1 in Cleveland and 2 in Memphis. It’s been about 4 months post and so far I’d say it’s been a very good experience. As @Nick Harrington stated the main drawback as I see it is that you are buying at retail or very close to it. I continue to evaluate deals these providers send me and if something penciled I would definitely consider buying more.
For me the reason for going turnkey was to limit my lack of experience and knowledge of the areas I am investing in and I looked at the premium I was paying as worth it to acquire the things I lacked.
In the end I’ve learned a ton and it’s given me the confidence to pursue non turnkey as I continue to build relationships with people.
I think the most important thing is taking action and limiting your risk as you start, knowing that part of starting is going to force you to learn some things you just can’t learn otherwise so try not to focus on hitting home runs right out of the gate.
Yes! This is sort of what I was also thinking. Now-someone above pointed out that there are two different terms…rent-ready and turnkey and I think what I meant was rent-ready. For me it is partially a timing question as well. There are some nice small things on the market that have already been re-habbed and it seems like I could pay that premium for things I lack at this moment and still move forward to build confidence in properties where I need to develop the team for adding value to my next properties.
Also, I think Memphis is a cool spot-hope that works out really well for you.
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @Nick Harrington:
Hey Shelby -
You are correct, turnkey properties don't get the lime light like flips / brrrs get in general within the BP community.
Whether to buy something turn-key or something that needs work comes down to your goals and what you are looking to accomplish.
A turn-key property allows you to walk into something that is ready to go to be rented out with minimal repairs, or it potentially already has tenants in place. There are in general less headaches on the front end and it is typically easier to get stabilized.
The downside though is your ability to recycle your money with a turn-key property is limited. Something turn-key is typically going to be sold at market price (unless you can find a deal off market as you mentioned). Therefore, your ability to re-use your money like you could in a BRRR or a flip is limited, and you are banking on the cash flow from that property or market appreciation over time to re-capture any money.
If you have a lot of capital already, a solid income coming in elsewhere from real estate, and want to minimize your headaches / downtime to get a property, than I would say this strategy fits.
I also believe that jumping into a flip / brrr as a first deal is a good way to never do a real estate deal again.
In your situation, it sounds like the primary focus for you is more a quality of life play (reducing your commute time), and the STR may allow you to break even cash flow wise?
A turn-key purchase is typically an easier and less risky strategy , but the benefits are less than buying a flip / brrr.Thank you for taking the time to reply. I think that your assessment is very helpful and it is true that I am trying to offset costs and cut my commute.
I have also had reservations about a flip/brrr because of the difficulty of finding a builder for my team. I may be a bit gun-shy because of the extensive renovations we have done to a primary residence that spanned three contractors and six years. I just got the railings on a deck that was built over a year ago so…I wonder about how over-subscribed the builders in my area are.
Your explanation about the possible reasons why someone might and might-not want to buy something already at its highest value is exactly what I was asking for and will help me to think about what my final goals are and will develop into.
Shelby
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @John Morgan:
@Shelby McKean
I've bought 25 SFR turnkeys. You're not getting the instant equity as you would with fixer uppers with rehabs. However, you're able to rent them out right away and don't have the hidden surprises rehabs almost always bring on. And in 3-5 years, these "base hits" look like home runs due to inflation and your tenants paying down the mortgages.
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
I think I am learning that I probably should have said rent-ready and not turnkey, but I think you have answered the subtle question I was asking which is, is it possibly worthwhile to invest in properties that give you only one type of revenue (paying down the mortgage) and maybe don’t give back the cash immediately for the next investment?
If I am understanding, you don’t (or can’t) refinance these properties for seed money for your next investments.
Thanks for your reply
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @Becca F.:
Quote from @John Clark:
My thoughts on turnkeys is simple: get your head examined. Peruse all of the threads/posts here on BP about turn key properties that weren’t turn key. Never buy any property without physically inspecting it and its neighborhood yourself, AND having it thoroughly inspected by a great inspector who YOU select and pay for. Don’t forget to get title insurance to, and get the owner’s paperwork showing that all contractors, subcontractors, and materialmen have been paid.
As for short term rental of a condo you buy, most condominium associations don’t allow that, and for good reason. Also, it can be very difficult to get financing for a unit in an association where a percentage of units are not used as primary residences full time.I completely agree. I considered buying turnkey (meaning renovated home with a tenant placed in there) with a company that buys properties in Detroit area, Cleveland, and a few in St. Louis and got on a call with them. The numbers look good on paper and I still get their emails - one of them said "stress free ownership". There's nothing stress free about real estate investing. I decided against it because I didn't know those markets or neighborhoods in those cities. Since then I've heard mixed reviews about that company. I've heard turn key companies can range from terrible to good. I wouldn't buy a property based on numbers from a turnkey company, agent or wholesaler, but fly or drive out and look at the property and neighborhoods. Seeing it in person looks much different than video tours and Google map images
I also agree on buying a condo. HOA fees can increase with no limit and you can have special assessments. I sold a condo in the San Francisco Bay Area, really wanted to keep it but the badly managed HOA and all their HOA increases with a large special assessment, decided to get out of it. And most HOAs won't allow STRs.
Becca-Thanks for explaining this. I was mis-using the term "turnkey" and did not realize there was this type of property. I was actually referring to rent-ready properties and trying to decide if there are still benefits to buying something at its peak value. It is helpful to know that many HOA's don't allow STRs…I am also trying to source information about the STR regulations in this area to target the right small house. Appreciate the info, though!!
- New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @Matthew Kwan:
yes in theory turnkeys limits you to create/add value .If you do see a deal that makes the numbers work, you should still consider the deal and take advantage of it. The reason people seek for distress properties, so that they can acquire the property at a low price and renovate the house aka "value add" so that they can increase the property's value and create sweat equity, then pulling the money out or cash out we call out so that investors can liquidate their money and reinvest on the next project @Albert Bui @Carlos Valencia
Thank you for the info. Am I understanding that if you do not add value to the property you cannot liquidate the money to reinvest, or does it just mean you could only liquidate less than you put in unless you wait for the mortgage to be paid off?
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes1y
Quote from @Shelby McKean:
Becca-Thanks for explaining this. I was mis-using the term "turnkey" and did not realize there was this type of property. I was actually referring to rent-ready properties and trying to decide if there are still benefits to buying something at its peak value. It is helpful to know that many HOA's don't allow STRs…I am also trying to source information about the STR regulations in this area to target the right small house. Appreciate the info, though!!
I think the word "turnkey" can mean:
1) property purchased through a turnkey company with a tenant in place
2) property purchased through a turnkey company, no tenant, but they may have in house property management or refer you to PM companies
3) property bought off the MLS, usually with an agent, that is move-in ready/rent ready
With #3 I bought what was almost turnkey/move-in ready but after the inspection it needed about $1500 worth of repairs. An important point is that if you didn't do the renovation or weren't on site checking frequently as the property was renovated, you never know how good the repairs done were by the seller or previous owners (this requires a good bit of construction knowledge). I bought sight unseen out of state (Indianapolis) - I don't recommend this but I do know experienced investors who buy OOS and never see the property in person but they have a higher risk tolerance than me.
This "almost turnkey" house has had the tenant calling for repairs most months, was -$300 to -$500 a month. A number of contractors have told me though even if a house can pass most points of an inspection, but once an occupant (the tenant) is living there and putting daily stress on the house, things start to malfunction. And get a sewer line scope - if the house is newer and you have proof that it has PVC pipes, you might be able to skip this but to be cautious always get a scope. It's around $250. - 1yJames WachobBusiness MemberReal Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 887 votes
Hello @Shelby,
Turnkey is always a great option for new and seasoned investors as it requires minimal time and effort, as they come fully renovated and often with residents in place. If you have any questions, please feel free to connect.
- Lender · Seattle, WA · Member since 2022 · 482 posts · 768 votes1y
Quote from @Shelby McKean:
Quote from @Matthew Kwan:
yes in theory turnkeys limits you to create/add value .If you do see a deal that makes the numbers work, you should still consider the deal and take advantage of it. The reason people seek for distress properties, so that they can acquire the property at a low price and renovate the house aka "value add" so that they can increase the property's value and create sweat equity, then pulling the money out or cash out we call out so that investors can liquidate their money and reinvest on the next project @Albert Bui @Carlos Valencia
Thank you for the info. Am I understanding that if you do not add value to the property you cannot liquidate the money to reinvest, or does it just mean you could only liquidate less than you put in unless you wait for the mortgage to be paid off?
Once you add value or willing to add value, you will be able to improve the valuation of the house, and how would you know the exact value? It's by ordering an appraisal. Based on the appraised value from the appraisal, you will be able to liquidate x amount of money depending if it's a primary or non-primary house
- 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Turnkey properties can work if you're seeking immediate cash flow without renovations. While you can't build equity through improvements, the strategy can still be profitable if the numbers align. Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.
From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules. Means no STR loophole benefit.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®5241 Reviews - New to Real Estate · Nashville, TN · Member since 2024 · 19 posts · 11 votes1y
Quote from @Ashish Acharya:
Turnkey properties can work if you're seeking immediate cash flow without renovations. While you can't build equity through improvements, the strategy can still be profitable if the numbers align. Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.
From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules. Means no STR loophole benefit.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
This is a very important little nugget. Thanks-Shelby
- 1yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesI’ve bought 18 or 19 houses with tenants in place. I’ve done well off them and they were all easy transactions. I actually bought one last week and another one two weeks ago with families in place. For me, I prefer investing this way. I’ve also bought a half dozen houses that were vacant but only needed an appliance or two to get ready to rent. Those are easy too and they all appreciate the same over time. I target C+ class hoods that seem to have tenants that stay much longer so my turnovers are almost zero. Almost all of my tenants won’t ever be able to afford or qualify to buy a house. I keep them under market rent and hopefully they’ll stay for a decade or two. Turnovers within 3 or 4 years will crush your profits. It’ll cost you 5-10k to repaint and clean them up. Think long term and look for properties you can buy with tenants in place. Those are the properties I love buying because I know these people don’t ever want to leave and will be with me for a long time.
Quote from @Shelby McKean:
I think I am learning that I probably should have said rent-ready and not turnkey, but I think you have answered the subtle question I was asking which is, is it possibly worthwhile to invest in properties that give you only one type of revenue (paying down the mortgage) and maybe don’t give back the cash immediately for the next investment?
If I am understanding, you don’t (or can’t) refinance these properties for seed money for your next investments.
Thanks for your reply
- 1yMelissa JusticeBusiness MemberRental Property Investor · Phoenix, AZ · Member since 2024 · 518 posts · 1k+ votes
Hello @Shelby McKean
There are REI opportunities in different markets - markets in the Midwest and Southeast of the country are great - where not only are the purchase prices reasonable for most RE investors, but the homes are turnkey (new builds or completely rehabbed homes, tenant ready, systems 10 years of life remaining on them, property management teams in place) with appreciating home value AND appreciating rent. The amount of cash flow on a home will of course be contingent on the down payment. Putting less down may subsequently put you in a break-even scenario or possibly even a negative cash flow. However, some investors don't mind this strategy if they prefer not to put a lot of liquid in up front and plan to refi out within a few years of closing (which seems to be a great option with the talks of the FED reducing interest rates into 2025).
It really comes down to investing in a growing market, in a good neighborhood & building a great team to support you. It can be a lot of time and work if doing it on your own. It's helpful to work with a reputable team. That is what our team at Rent to Retirement has been helping investors to do for a decade now with BP. I'm happy to answer any questions you have about analyzing markets or getting started. Most importantly, choose a market that aligns with your goals!Wishing you the best of success!
Melissa
- 1yGary NelsonBusiness MemberReal Estate Agent · Branson, MO · Member since 2016 · 141 posts · 93 votes
Turnkey properties can be a solid choice if you're looking for a low-hassle way to get into short-term rentals, especially if you're new to investing or don't want to deal with renovations. While you might not build as much equity as you would with a fixer-upper, you can start generating income right away. For your situation, using a condo to shorten your commute and renting it out on weekends sounds smart. Just make sure the numbers work for cash flow and check local STR regulations.
Gary Nelson Real Estate, EXP Realty, LLC553 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.