For example, you might find a turnkey property on the market as a flip—an older home in excellent condition that the seller, likely an investor, has rehabilitated and upgraded before listing for sale.
Benefits of buying a turnkey property for real estate investors
Furnishings and accessories used to stage a fully turnkey property may even be included with the sell. And to make your job even easier, you might even get some existing tenants, too!
For an investor, purchasing a turnkey property expedites its earning potential. You can make it available for rental immediately after closing and start generating income on it right away.
Plus, because the home should be in excellent condition at the time of purchase, you can expect repair costs to stay low for the first several years, keeping your cash flow high throughout early ownership.
Whereas turnkey homes generally have less potential for appreciation than fixers—and are often located in areas with minimal appreciation anyway—investor-buyers with the intention to rent may find a turnkey property makes better financial sense than spending the time, money, and resources to renovate a property that needs substantial work.
Buying a turnkey property also works for upstart investors who want to get into the real estate rental game but lack the know-how or inclination to handle a major renovation or handle maintenance problems that may come from not doing one upfront.
Turnkey properties also give would-be investors a chance to hop into the real estate market in an area outside of the location where they live: You can buy in a lower-cost-of-living area and rent with more confidence that the property will need little attention. Turnkey properties tend to be located in areas with substantial stability in the real estate market, so the risk for depreciation is likely lower.
For experienced investors, turnkey properties can help diversify property type in a portfolio, or grow into new and potentially lucrative additional markets.
Downsides of turnkey properties
For this reason, buying a turnkey home is more likely part of a longer-term investment strategy right for people with more money than time. Buying a fixer, renovating, and flipping could result in a quicker resale and profit.
To that end, when you invest in a turnkey property, you’re buying a project that has already been done. You likely face the prospect of less room for appreciation in the near term. By comparison, buying a fixer means you are the one to put in the work yourself, thus allowing for the most significant possible appreciation.
And when you buy a turnkey property, the decisions have already been made—layout, appliances, aesthetics—so you’d need to front additional funds if you want to make any changes to details not to your liking. (And that seems like a wasteful pursuit when the existing features may be brand new.)
In the pros column, turnkey properties can be attractive for investors who want to own rental property in locations where they do not live. And while that can be true, the flip side is that you will need local professionals, such as a property manager and maintenance vendors, in the area, at your expense.
And if there does turn out that there are any major issues with the property that hadn’t been disclosed even though it was billed as turnkey, it can be a major challenge to handle those from a remote location. So buyers should make sure their inspections are especially thorough before making this type of purchase.