Turnkey Properties

10 Replies

Hello everyone,

Are turnkey properties just homes that don't require any work to be done to them? What are the cons of buying a home that doesn't need work as a rental?

Also, I've seen a lot of properties for sale with tenants already in the, I'm a little skeptical as to why someone would want to sell a cash flowing property. So what are some pros and cons to buying a home with a tenant already there? I get this feeling people are trying to dump a negative flowing property or a bad tenant.

Yes, turnkey are properties that you could move into day 1 of buying. I wouldn't necessarily say there are cons to it as everybody is a little different, however, you may get that immediate fixed appreciation when you fix up the property yourself. 

There are a lot of reasons why people sell a property with a tenant already in place. I had a client who became an accidental landlord and just wanted to sell so they could buy their next home for themselves. The pros are that it will start cash flowing from day 1. The cons are you could inherit some really bad tenants so better be weary of who they are.

Thank you for the response Colin. Is it acceptable to get history on the tenant before you submit an offer?

The term turnkey gets thrown around a lot in today's industry. Turnkey means that you are able to buy a rehabbed, rent ready property with management in place. All you do is do your research and purchase it. Its geared for buy and hold investors, and offers a great way to build passive income.

If you are planning on purchasing a turnkey property with a tenant, I would definitely get a rent history. I'm a little weary about buying a property with a tenant in place, unless they just moved in. If 6 months go by and they move out, you are stuck paying for the rent ready costs. And that can suck a lot of your cash flow out.

Yes it is. It should be part of "due diligence" when writing the offer.

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Ok so I just have to make sure I dot my I's and cross my T's if I find a good deal with a tenant currently in place. 

Thank you for the help gentleman.

@Kwame Searcy

Welcome to BiggerPockets!

Turnkey real estate investing and turnkey investment property are related but different things.  I covered this extensively in the recent podcast (see below).

Simply put, a turnkey property provider is in the business of buying, renovating, and reselling those properties in like new condition.  Of course if they're smart they will keep some for themselves personally but that's separate from their transactional business.

I don't see how there could be any cons to purchasing a property that doesn't need work. If you're buying in the right market, in the right neighborhood, with a property that is in good condition and no deferred maintenance, then you have the start of a winning formula.

You should never buy the first property you come across,  Due diligence will always be required.  Consider the source, the location, the condition, the property management, etc.

There's much more and I could go on, but you get the point…

Continued success!

@Kwame Searcy to answer your 'why don't they keep them all' question, turnkey sellers usually do keep some, but they don't necessarily have unlimited capital so they can't keep all.  I believe there are a few blog posts on this, do a search for 'turnkey' and you should find them.  This is a common question for people looking in to turnkey investments.

I wish I could keep them all, but as @Kevin Trumbull says, there is only so much capital. I keep 2 or 3 a year and ironically, they are typically the ones with the least amount of cash flow and heaviest equity position.  Thought process is why sell it and make a couple thousand when I can keep it and cash low.  Good luck.

Hey Kwame! I asked pretty much the same questions when I started buying turnkeys for myself. I've since learned all about them (and then some). The big answer to the 'why they don't keep them for themselves' is, if you are talking about a turnkey provider at least, turnkey providers are essentially just flippers. They do keep some of the properties for themselves, for sure, but holding properties isn't their business model....flipping is. In this case they just happen to be flipping investments properties to investors, versus your normal flipping to primary homebuyers. 

As far as the cons, the only con is if the turnkey provider you buy from did a rehab job that isn't up to what is advertised or promised, if their management team isn't good, or if they in some way otherwise false advertise. But the good news is, there is literally nothing you can't check up on with a turnkey property in terms of due diligence and verifying everything they are promising. But all of that will be minimized if you make sure you get connected with the good teams. 

Not everyone likes turnkeys, and especially not everyone on this site, but I love them! They are all I will buy.

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