Can somebody please explain how a turn key works?

Question

Still in the initial stages of reading/soaking up information on real estate investing. What exactly is a turn key? Do you recommend them as a beginner?

Caleb Heimsoth · Answer

@Michael Spindler. It’s a company who buys, rehabs, finds a tenant and then sells the home usually at market value to a long distance land lord.

Do not confuse a turnkey provider with a turnkey marketer.  A turnkey provider owns, rehabs and sells the homes.  A marketer is a middle man, who is marketing homes that others own.  Very similar to a broker.  They earn a fee when you buy a home through one of their providers

Nick C. · Answer

Turnkey could work. Your risk can be mitigated by having a neutral 3rd party inspection and appraisal done. Even a realtor's opinion of the neighborhood could help. I've heard plenty of horror stories about TK providers who put lipstick on a turd and sold it for over retail to unsuspecting buyers. The pictures always look nice though.

But there's also plenty of stories like this with happy endings, just do your homework and you'll be fine.

James Wise · Answer

It's a good business for a beginner as the whole thing is someone else is providing you with a producing asset. Someone else has already taken care of the logistics of getting you a property with management in place. All you need to do is park your money & earn a return. With anything though you want to trust, but verify. Make sure to get a 3rd party inspection & appraisal on any property you buy.

Seth Ferguson · Answer

@Michael Spindler

You can also think about it as you're able to turn the key in the lock and everything's already done for you. There are people who prefer to pay a premium to have everything ready to go...completely renovated houses for example.

Randy Janoe · Answer

I thought this was going to be a post about Morris Invest. Shew.

Rich Lopes · Answer

I feel lot of those TK houses  comes with tenants who are paid-for-by-TK to stay in the houses for few months to keep the TK's 3/6-month contract guarantee valid. Once that's up, these so called good tenants either break the leases and leave or stop paying forcing the new owner to evict them. On top of that some TK companies hire third party management, thereby leaving the new owner at the mercy of this PM company who will just do whatever they want.

Having said that, it's always good to buy directly from TK companies with in-house PM, so you are not dealing with all the middlemen who are basically just there to complete the transaction. Some TK middlemen/salesmen are worst because once the transaction, they will just ignore you for as long as they can.

Mike D'Arrigo · Answer

@Michael Spindler Everyone has there own spin on what a turn key is, but in general, it's a property that has been renovated, has a tenant in place and under professional property management. It is cash flowing the day you close so you don't have to do anything upfront. Turn key is the easiest, least risky way to get in to a property, particularly for a new, out of state investor. that doesn't have the time, experience or knowledge to do everything themselves. There's an assumption that people can save a lot of money and have built in equity by doing it themselves instead of buying a turn key but more often than not, that's not the case for a newbie. Rehabbing is very difficult and risky to do remotely and mistakes are easily made, Also, turn key operators generally are acquiring properties further upstream at better prices than an individual can on the MLS. The also have significant economies of scale on their construction costs. Then you have to factor in all of the holding costs that you'll incur while renovating a property with no rent coming in and the fact that there usually isn't a lease up fee for the first tenant with a turn key, any cost savings disappear pretty quickly.

Jeff Schechter · Answer

@Michael Spindler

You'll still have to vet the providers...from what you learned from @Ali Boone, there are lots of different versions of the word "Turnkey."  To get the best results, find a company that does it all:  acquisition, rehab, passes a 3rd party inspection, offers a warranty on their rehab, places the tenant, and provides ongoing professional management.  This ensures that your provider has full "skin in the game" and is more accountable.  There are now even some providers that go so far as to only sell properties that are ALREADY tenanted and cash-flowing.

Jay Hinrichs · Answer

or its why we sell new construction..  and hopefully make a premium for us taking the time and risk to create the product.

just like buying a rental that is ready to go someone had to do that  someone had to borrow money to buy and rehab.. etc etc.

Just like when i sell one of my new builds .. can someone buy a lot and do it themselves..  Some could a GC could or someone deep in the trades but not likely a homeowner with limited to no experience.. they wont get the sub pricing i get.   So yes if folks want to risk buying a home 2k away and trying to do remote rehab.. they can save the middle man profit or a portion of it. but they can also get schooled pretty easy.

there are some turn key light guys I know that will facilitate the BRRR method for buyers IE buyers pay cash  then operator takes care of rehab and PM.. then they refi..  but again need to have a good amount of trust and faith in that model and that operator.

Ali Boone · Answer

Just to clarify, "turnkey" refers to the condition of a property--someone else mention just being able to turn the key in the door and it's cash-flowing. Then there happens to be turnkey companies who sell turnkey properties. Then there are turnkey marketers who support and promote various turnkey companies.

Just thought I'd lay that out so it's more clear.

I do think turnkeys can be great for beginners-

https://www.biggerpockets.com/renewsblog/turnkeys-...

I started buying turnkeys in 2011 and they were excellent for me as a beginner, for the reasons mentioned in the article.

If you need any help, don't hesitate to reach out!

Can somebody please explain how a turn key works?

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