Cleveland turnkey vs "true turnkey" investment property

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Cleveland turnkey vs "true turnkey" investment property

Allison Mueller
Turnkey Real Estate Provider · Cleveland, OH · Member since 2017 · 52 posts · 23 votes

I see that the term "turnkey" is being widely used these days by seller and agents alike in their marketing.  So I thought I'd take some time to point of the difference between "turnkey" and what we are now having to call "true turnkey"...

Through my discussion with many of my fellow BP investors, I realize that when online research is being conducted it is extremely difficult to decipher what TRULY makes an investment property "turnkey".  Unfortunately these findings are often never realized until the surprise expenses pile on, or once an inspection has completed and costs already incurred.

*There is a major difference between a rent ready property and a "true" turnkey property.  Cosmetically a property may have new paint and flooring, but we are talking Cleveland here and many of the best investable areas are 1950-ish construction - so what's under the hood is extremely important to know!

"True" Turnkey signs to look for:

  1. Plumbing - have the plumbing and plumbing lines been repaired or replaced?
  2. Windows - does the property have old windows? (this is very important because tenants notice this immediately, as Cleveland winters are frigid and tenants typically pay their own utilities (heat)!  - You will want to make sure that the properties windows are either in good shape or new.
  3. Flooring - has the flooring been updated with water-tight flooring?  (Cheap flooring fixes can result in hidden dangers)
  4. Mechanicals - have they been updated?  Water heaters typically have a life span of 10 years and furnaces approximately 25-30 years. TRUE turnkey should make sure you have atleast 5 years left on the water heater and 10 years left on the havoc - (make sure the vac has been cleaned and certified if it is not new!)
  5. Basements/Waterproofing - Cleveland properties typically have basements.  Age and condition are always important as waterproofing can be a very large maintenance ticket! - TRUE turnkey will either have waterproofed as needed, replaced or cleaned the gutters, and properly routed all water dispensing channels.  Dry-locking basement walls for unfinished basements should be standard for "true" turnkey.
  6. Concrete - again many of the best price-to-rent ratios in Cleveland are found in suburbs which have POS inspections.  These typically require needed concrete repairs/replacements to be addressed - make sure the repairs were done professionally and don't look like a city repairing a pothole!!
  7. Landscaping - landscaping is typically a budget expense add-on which most rental property flippers will avoid. True-turnkey will have addressed landscaping....after all, the front of the house is the first thing a potential tenant will see...and if they move into the property and the outside has not been taken care of, I would feat they would be less concerned on how they will take care of the inside!

Feel free to send me a message if you'd like to discuss more about the difference between turnkey and true-turnkey. 

Good luck to everyone!

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Tom Ott
Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
7y
Originally posted by @Allison Mueller:

I see that the term "turnkey" is being widely used these days by seller and agents alike in their marketing.  So I thought I'd take some time to point of the difference between "turnkey" and what we are now having to call "true turnkey"...

Through my discussion with many of my fellow BP investors, I realize that when online research is being conducted it is extremely difficult to decipher what TRULY makes an investment property "turnkey".  Unfortunately these findings are often never realized until the surprise expenses pile on, or once an inspection has completed and costs already incurred.

*There is a major difference between a rent ready property and a "true" turnkey property.  Cosmetically a property may have new paint and flooring, but we are talking Cleveland here and many of the best investable areas are 1950-ish construction - so what's under the hood is extremely important to know!

"True" Turnkey signs to look for:

  1. Plumbing - have the plumbing and plumbing lines been repaired or replaced?
  2. Windows - does the property have old windows? (this is very important because tenants notice this immediately, as Cleveland winters are frigid and tenants typically pay their own utilities (heat)!  - You will want to make sure that the properties windows are either in good shape or new.
  3. Flooring - has the flooring been updated with water-tight flooring?  (Cheap flooring fixes can result in hidden dangers)
  4. Mechanicals - have they been updated?  Water heaters typically have a life span of 10 years and furnaces approximately 25-30 years. TRUE turnkey should make sure you have atleast 5 years left on the water heater and 10 years left on the havoc - (make sure the vac has been cleaned and certified if it is not new!)
  5. Basements/Waterproofing - Cleveland properties typically have basements.  Age and condition are always important as waterproofing can be a very large maintenance ticket! - TRUE turnkey will either have waterproofed as needed, replaced or cleaned the gutters, and properly routed all water dispensing channels.  Dry-locking basement walls for unfinished basements should be standard for "true" turnkey.
  6. Concrete - again many of the best price-to-rent ratios in Cleveland are found in suburbs which have POS inspections.  These typically require needed concrete repairs/replacements to be addressed - make sure the repairs were done professionally and don't look like a city repairing a pothole!!
  7. Landscaping - landscaping is typically a budget expense add-on which most rental property flippers will avoid. True-turnkey will have addressed landscaping....after all, the front of the house is the first thing a potential tenant will see...and if they move into the property and the outside has not been taken care of, I would feat they would be less concerned on how they will take care of the inside!

Feel free to send me a message if you'd like to discuss more about the difference between turnkey and true-turnkey. 

Good luck to everyone!

I agree! For years I have seen people call a property a "turnkey" when all it has is a fresh coat of paint on the walls. Often times it is just a listing they have on the MLS! A property on the MLS that looks nice is not a True Turnkey.

A True Turnkey investment should, ideally, be owned by the Turnkey Provider, completely renovated by the provider, AND there should be a tenant in place at the closing with the Turnkey Provider staying on as the property manager! 

Some just throw the word around and not understand it is an investment strategy and not just an adjective. 

I always suggest people look at:

What to Ask When Working With a Turnkey Provider

and

The Best Types of Markets for Profitable Turnkey Properties

and

How to Find the Right Turnkey Real Estate Investment Company for You

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  • Austin Tam
    San Francisco, CA · Member since 2008 · 77 posts · 41 votes
    7y

    I would add roof on this list.  The majority of the properties I've seen have older roofs.  Literally all three properties I've purchased needed new roofs, and it's a fairly large expense depending on wood damage and how many layers there are. 

    2Reply
  • Allison Mueller
    OP
    Turnkey Real Estate Provider · Cleveland, OH · Member since 2017 · 52 posts · 23 votes
    7y

    P.S. If you've had any experiences you'd like to share regarding turnkey vs true-turnkey and you thin it can be helpful for all BP followers, please contribute!

    0Reply
  • Allison Mueller
    OP
    Turnkey Real Estate Provider · Cleveland, OH · Member since 2017 · 52 posts · 23 votes
    7y

    @Austin yes I probably should have included roof as a major item, thanks!  I suppose that one is usually the most obvious one so was focusing on ones investors usually may not think about....thanks for contributing.

    0Reply
  • Bob CollettPro Member
    Property Manager · Brecksville, OH · Member since 2014 · 486 posts · 464 votes
    7y

    Tal

    Thank you for your post.  I would like to suggest that the the differences you describe regarding "Turnkey vs True-Turnkey" are somewhat of a misnomer in your post, where instead you are describing various levels of "renovation". You make good and important points, but a renovation does not a turnkey make.

    I was expecting that you would instead be describing various components of a Turnkey Property as known in the investment industry, of which the renovation or rehab is just one component.

    A Turnkey property :

    • Has been fully renovated to a standard such as the one you described
    • Has paying tenants in place with proper long turn leases and documentation in place
    • Tenant ledgers with payment history
    • City permits for competed work, Point of Sale documentation, violation free
    • An established and documented rate-of-return based upon actual sales price for the property (not simply a cash-on cash return calculation). Every investor has, or should have a require Rate-of-return for any potential investment.
    • A statement of expected 5 year operating costs including actual taxes and expected property taxes based upon the improved property value from the renovation, insurance costs, etc.  
    • Note: most investors get into trouble because they do not take deferred maintenance into account, and do not establish a reasonable "reserve fund".  For example what is the annual cost of a brand new hot water tank.  We all know what life expectancy of a hot water tank is... so if the cost of the tank is $800, then there should be a annual cost of $80.00 associated with that line item.

    For the record, I do not typically get involved in "turnkey" projects.

    Thanks again for your post. I look forward to seeing the follow-up.

    Bob Collett
    Remax Trinity Property Management

      1Reply
    • Bob CollettPro Member
      Property Manager · Brecksville, OH · Member since 2014 · 486 posts · 464 votes
      7y

      Tal

      You touched on plumbing... one thing I see quite often, is the old style gas and water shut-off valves.  Replacing these (especially at the meter... before and after) should be a must do on a full renovation.

      0Reply
    • Allison Mueller
      OP
      Turnkey Real Estate Provider · Cleveland, OH · Member since 2017 · 52 posts · 23 votes
      7y

      Thank for contributing, Bob!  You've added some great points, although I think that some of your bullet points sway outside of the turnkey detail discussion and into certain due diligence points.  Most of the properties I deal with are brand new rehabs after years of sitting distressed, so historical evaluations are not available.  Our investors therefore make calculated and/or appropriate assumptions and the Sellers offer warranties, etc.

      Regarding your comment on plumbing, in particular the valves - yes!  These are quite often rusted and a primary source for leaks.  These items are the "nuts and bolts" of plumbing, so replacing them along with plumbing lines helps ensure proper plumbing for the future - and help make the property TRUE TURNKEY!

      0Reply
    • Tom Ott
      Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
      7y
      Originally posted by @Allison Mueller:

      I see that the term "turnkey" is being widely used these days by seller and agents alike in their marketing.  So I thought I'd take some time to point of the difference between "turnkey" and what we are now having to call "true turnkey"...

      Through my discussion with many of my fellow BP investors, I realize that when online research is being conducted it is extremely difficult to decipher what TRULY makes an investment property "turnkey".  Unfortunately these findings are often never realized until the surprise expenses pile on, or once an inspection has completed and costs already incurred.

      *There is a major difference between a rent ready property and a "true" turnkey property.  Cosmetically a property may have new paint and flooring, but we are talking Cleveland here and many of the best investable areas are 1950-ish construction - so what's under the hood is extremely important to know!

      "True" Turnkey signs to look for:

      1. Plumbing - have the plumbing and plumbing lines been repaired or replaced?
      2. Windows - does the property have old windows? (this is very important because tenants notice this immediately, as Cleveland winters are frigid and tenants typically pay their own utilities (heat)!  - You will want to make sure that the properties windows are either in good shape or new.
      3. Flooring - has the flooring been updated with water-tight flooring?  (Cheap flooring fixes can result in hidden dangers)
      4. Mechanicals - have they been updated?  Water heaters typically have a life span of 10 years and furnaces approximately 25-30 years. TRUE turnkey should make sure you have atleast 5 years left on the water heater and 10 years left on the havoc - (make sure the vac has been cleaned and certified if it is not new!)
      5. Basements/Waterproofing - Cleveland properties typically have basements.  Age and condition are always important as waterproofing can be a very large maintenance ticket! - TRUE turnkey will either have waterproofed as needed, replaced or cleaned the gutters, and properly routed all water dispensing channels.  Dry-locking basement walls for unfinished basements should be standard for "true" turnkey.
      6. Concrete - again many of the best price-to-rent ratios in Cleveland are found in suburbs which have POS inspections.  These typically require needed concrete repairs/replacements to be addressed - make sure the repairs were done professionally and don't look like a city repairing a pothole!!
      7. Landscaping - landscaping is typically a budget expense add-on which most rental property flippers will avoid. True-turnkey will have addressed landscaping....after all, the front of the house is the first thing a potential tenant will see...and if they move into the property and the outside has not been taken care of, I would feat they would be less concerned on how they will take care of the inside!

      Feel free to send me a message if you'd like to discuss more about the difference between turnkey and true-turnkey. 

      Good luck to everyone!

      I agree! For years I have seen people call a property a "turnkey" when all it has is a fresh coat of paint on the walls. Often times it is just a listing they have on the MLS! A property on the MLS that looks nice is not a True Turnkey.

      A True Turnkey investment should, ideally, be owned by the Turnkey Provider, completely renovated by the provider, AND there should be a tenant in place at the closing with the Turnkey Provider staying on as the property manager! 

      Some just throw the word around and not understand it is an investment strategy and not just an adjective. 

      I always suggest people look at:

      What to Ask When Working With a Turnkey Provider

      and

      The Best Types of Markets for Profitable Turnkey Properties

      and

      How to Find the Right Turnkey Real Estate Investment Company for You

      2Reply
    • David Leggett
      Real Estate Broker · Cleveland, OH · Member since 2018 · 227 posts · 133 votes
      7y

      This is an outstanding article, I never really considered any of this!! It's blowing my mind, but it makes perfect sense.  I'm going to have to disagree with Bob, however insightful, I don't think people consider man of those financial aspects when talking about turn-key properties.  Those are all very important, and essential to any good real estate investment deal, but I think the majority of investors when talking about turn-key properties are talking about the physical structure, mechanicals and renovations and updates, instead of rent rolls, operating costs, payment history and so forth.  

      1Reply
    • Clayton MobleyPro Member
      Birmingham, AL · Member since 2014 · 875 posts · 947 votes
      7y

      @Allison Mueller Awesome post! This is an issue I talk about allll the time because you're right, this term is thrown around like crazy these days and it's hard for new investors to know what they're buying if it's all called the same thing. I've been referring to these two different concepts as 'Capital T' Turnkey (true turnkey), which is a noun describing a specific investment model; and 'lower case t' turnkey, which is an adjective describing any rent-ready prop. 

      One point I would drive home for any investors reading this thread who are learning about the turnkey model:

      The reason this distinction is SO important is because your long-term returns absolutely DEPEND on it! Two identical properties may look the same, may get the same tenant, may bring in the same gross rent, but the property with new/nearly new Capex items (roof, flooring, HVAC etc) is going to have farrrrr fewer maintenance call outs.

      Not only does that keep your maintenance rate low long-term, but you're also more likely to keep that tenant longer. The house that looks great but has aging capex items is going to tire the tenant out, constantly having to have the maintenance guy come out to fix leaks etc. The one that's truly turnkey is going to provide a much better, safer, and more relaxing home for the tenant, which means they'll stay longer. Move out costs are no joke, so whatever you can do to minimize turnover is a huge plus. 

      As has been mentioned before, it's not enough just to have the true turnkey rehab, you also need to keep your turnaround time for maintenance call outs you do receive to the minimum. Deferring maintenance is a sure-fire way to end up with a much bigger bill down the road. Real turnkey investments aren't just a product, they're a long-term service.

      Again, great post! Love seeing providers adding real value to the forums!

      1Reply
    • AJ Singh
      Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes
      7y

      @Allison Mueller

      great thread.. good post

      0Reply
    • Tom Ott
      Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
      7y

      Oh yeah, I just thought of a few more good posts that explain more about the True Turnkey

      How Turnkey Properties Drive Passive Income: The Hands-Off Approach

      An Ideal Economic Destination: Turnkey Properties in Northeast Ohio

      A Simple Guide for Buying Out of State Turnkey Investment Property

      0Reply
    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      7y
      Originally posted by @Allison Mueller:

      I see that the term "turnkey" is being widely used these days by seller and agents alike in their marketing.  So I thought I'd take some time to point of the difference between "turnkey" and what we are now having to call "true turnkey"...

      Through my discussion with many of my fellow BP investors, I realize that when online research is being conducted it is extremely difficult to decipher what TRULY makes an investment property "turnkey".  Unfortunately these findings are often never realized until the surprise expenses pile on, or once an inspection has completed and costs already incurred.

      *There is a major difference between a rent ready property and a "true" turnkey property.  Cosmetically a property may have new paint and flooring, but we are talking Cleveland here and many of the best investable areas are 1950-ish construction - so what's under the hood is extremely important to know!

      "True" Turnkey signs to look for:

      1. Plumbing - have the plumbing and plumbing lines been repaired or replaced?
      2. Windows - does the property have old windows? (this is very important because tenants notice this immediately, as Cleveland winters are frigid and tenants typically pay their own utilities (heat)!  - You will want to make sure that the properties windows are either in good shape or new.
      3. Flooring - has the flooring been updated with water-tight flooring?  (Cheap flooring fixes can result in hidden dangers)
      4. Mechanicals - have they been updated?  Water heaters typically have a life span of 10 years and furnaces approximately 25-30 years. TRUE turnkey should make sure you have atleast 5 years left on the water heater and 10 years left on the havoc - (make sure the vac has been cleaned and certified if it is not new!)
      5. Basements/Waterproofing - Cleveland properties typically have basements.  Age and condition are always important as waterproofing can be a very large maintenance ticket! - TRUE turnkey will either have waterproofed as needed, replaced or cleaned the gutters, and properly routed all water dispensing channels.  Dry-locking basement walls for unfinished basements should be standard for "true" turnkey.
      6. Concrete - again many of the best price-to-rent ratios in Cleveland are found in suburbs which have POS inspections.  These typically require needed concrete repairs/replacements to be addressed - make sure the repairs were done professionally and don't look like a city repairing a pothole!!
      7. Landscaping - landscaping is typically a budget expense add-on which most rental property flippers will avoid. True-turnkey will have addressed landscaping....after all, the front of the house is the first thing a potential tenant will see...and if they move into the property and the outside has not been taken care of, I would feat they would be less concerned on how they will take care of the inside!

      Feel free to send me a message if you'd like to discuss more about the difference between turnkey and true-turnkey. 

      Good luck to everyone!

      one thing if you do all of those items the rehab work would exceed the value of the home.. there is a fine line there.

      unless your talking higher end houses to flip to homeowners. but for rentals were you need to back into a return with a 800 to 1200 dollar rent there is a limit one can do.. and with all these folks running out and wholesaling deals these days and adding in their fee's its darn hard to find price points that allow all of the above.. although it makes perfect sense.

      and thats why for me in my personal stuff I only do new construction now so i can do all of the above and know exactly whats under the hood firm bids to start contractors that dont need draws.. can buy their own materials etc.

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    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      7y
      Originally posted by @Bob Collett:

      Tal

      You touched on plumbing... one thing I see quite often, is the old style gas and water shut-off valves.  Replacing these (especially at the meter... before and after) should be a must do on a full renovation.

      do you do sewer scopes.. when i was in my day of owning hundreds of these.. I always replaced the waste line if it was not PVC.. i could get that done for 1500.. as opposed to emergency 5k.  You never know how good they are until the family starters using the waste lines in earnest. they all work at home inspection.

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      WebsiteView Page
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    • Barry Cohen
      Inspector · Freeport, NY · Member since 2013 · 136 posts · 36 votes
      7y

      This is a really great thread with great insights of what true turnkey investment properties should be. With that said, can anyone recommend a provider in the area that fits this model?

      0Reply
    • Tom Ott
      Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
      7y
      Originally posted by @Barry Cohen:

      This is a really great thread with great insights of what true turnkey investment properties should be. With that said, can anyone recommend a provider in the area that fits this model?

       A provider in what area? Cleveland?

      0Reply
    • Bob Prisco
      Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
      7y

      @Allison Mueller if the roof has , 5 years or more we leave it.  Our avg property gets a new heating system, windows IF needed, electrical upgrades  of course all cosmetic and any issues are taken care of . All our props are " sec 8 ready, " so they have to be darn near perfect. The inspections are very thorough as is the city POS.   Must keep in mind these are rental rehabs , and only 60- 80k props, NOT 600k, - 800k, props. The time to  spend more money and upgrade to granite , SS ,  tile baths, etc is when its time to sell, (My clients have a 5 year time frame. ) NOT when renting, you will only have to do it all again when they leave and its time to sell,

      Good luck 

      0Reply
    • Bob Prisco
      Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
      7y

      @Barry Cohen for where ????? 

      0Reply
    • Barry Cohen
      Inspector · Freeport, NY · Member since 2013 · 136 posts · 36 votes
      7y

      @Bob Prisco yes the Cleveland area.

      0Reply
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