You guys probably have an initial idea about what real estate investing is, right? but what about turnkey investment property?
Well, if you’ve ever rented out an apartment or a business property, you’ve likely had to deal with your landlord. There’s even a strong chance that sometimes you wished you were in their place, considering the money they’re earning.
Let’s be honest; that’s one of the most common reasons why someone engages in property investment. When viewed from afar, it seems like a pretty good deal – but there’s much more to it than you initially thought.
To the future real estate investors ready to embark on this turnkey real estate investing journey, you clicked on the right article.
We’re going to save you the unnecessary research and cut right to the chase.
Stay tuned because we’ll be talking about the real estate market in general, what a turnkey investment property is, how it all works – and what are some pros and cons of turnkey properties you should know ahead.
Let’s talk turnkey property investing!
Real Estate Investing – Backbone Information
The first thing we should discuss here – as an introduction to the real estate market and the concept of turnkey real estate investing – is the general notion of real estate investments.
What is real estate investing, by definition?
We have to go back to “real estate” as an isolated term to understand the concept fully. Real estate is defined as any piece of land or property legally attached to that land. We can draw a simple conclusion for that:
Real estate investing applies to purchasing that property, i.e., real estate.
It’s not just buildings, though. It applies to any property – land, trees, and fences. Still, people freely use the terms “land,” “real estate,” and “real property” without paying much attention to the difference between them.
Let’s clarify that while we’re on the topic:
- Land refers to any natural surface and airspace. It’s connected to the earth.
- Real estate is land plus the property that’s attached to it.
- Real property, however, refers to the benefits of owning real estate.
Now that we’ve cleared this up, we can define real estate investing as the purchase of a property or land plus the man-made additions that come with it
Types Of Real Estate: 3 Most Popular Categories
The three categories you should be looking into when considering a turnkey property are:
- Residential/Rental Property Investing
- Commercial Property Investing
- Industrial Investing
Here’s a quick overview of each one.
Rental Property Investments
If you’re looking for something that’ll boost your investment portfolio, you should turn your attention to investing in rental properties. Make the right choices, and you can expect significant cash flow.
Before you embark on this journey and purchase properties, though, you should keep in mind several factors that could interest possible tenants coming your way.
For example, the neighborhood:
It’s all about the location. So, if you choose to invest in a residential property near preschools, your tenants will most likely be families with kids. Areas near universities will attract students, and so on.
Then there’s the crime rate. Regardless of your target tenants, you’ll want to invest in an area where the crime rate is considerably low – for both of your sakes.
Rent rates of other real estate investors in your area also play a crucial role. Consider competitor prices before you have your rent rates ready and out in the open. Your rental income might be good for you – but too expensive for people living on your property. Be realistic.
If you’re willing to invest in real estate, keep in mind that you’ll have to set aside a considerable amount of cash for a down payment. Roughly, you’ll be looking at 20% to 30%, depending on the area.
Commercial Property Investing (CRE)
Commercial property real estate, or CRE for short, is, in a sense, similar to the previous one. The main difference here is that the property you’re buying is exclusively meant for business-related purposes.
The property manager will likely lease commercial property to tenants who plan to conduct income-generating activities. For example, these can include office buildings, medical centers, hotels, malls, housing buildings, warehouses, garages – anything that generates income for your tenants and rent-related cash flow for you.
If you’re dealing with a building, usually there are several investors, and they collect rent from the business that’s occupying the property.
Unlike rental property, which can be both short and long-term, commercial leases are generally given on a 10-year basis.
An important note:
Investing in commercial property requires full property management services by the owner(s). Some opt for employing property management companies specializing in this; others choose to self-manage.
Frankly, the former has proven to be more helpful. Property managers have the necessary knowledge about the country, municipality, industry, facility size, and the people working there.
Industrial Property Investing
Finally, we have industrial property investing.
You could say that industrial real estate plays a vital role in supporting the economy.
How exactly?
Well, industrial real estate properties have the sole purpose of creating and manufacturing goods and services and supporting their movement and storage.
Unlike the previous two types of properties we’ve discussed, you should keep in mind that industrial real estate buildings are nowhere near fancy – but that doesn’t diminish their importance.
To have a full idea of what industrial property real estate is, we’ll list a few examples of how the space can be used:
- Office spaces used for research and designing new products
- Food manufacturing or facilities that produce goods
- Cold storage facilities used for storing goods under certain temperatures
- Warehouses or e-commerce companies
- Last-delivery stations
With this type of real estate investing, you’re generally looking at three classes:
- Class A: Properties in the best condition, rent-ready, have amenities, and are the youngest.
- Class B: Older properties, sometimes even a bit run-down in condition.
- Class C: Properties with the lowest rating, often requiring a full renovation.
What Is A Turnkey Property?
There’s always the possibility that this is the first time you’ve heard of the phrase “turnkey property.” If so, then let us explain.
Turnkey rental properties can be anything we’ve mentioned above. It can be a warehouse, a condo, or even a house ready for you to rent it out immediately.
Wait a second, immediately?
Yes. Turnkey properties have already been invested in, and they require very little to no effort from the investor, meaning they are rent-ready.
In most cases, turnkey providers take on the job of renovating such properties and then selling them to future investors. As a real estate investor, you get one advantage:
You’ll save a chunk of time and money you would normally spend on renovating and investing in the property.
Some businesses love to take this one step further and offer full property management services, which means that they’ll be fulfilling the duties of a property manager – and you get cash flow with minimal legwork.
Sounds tempting, right? And it should.
Given the combination of minimal repair costs and interest in the local real estate market, turnkey property investing is among the top investment goals of ambitious real estate investors.
Turnkey Business, Cost & Contract – Things You Should Know
It’s time to discuss the details of turnkey real estate investing.
In essence, individuals known as turnkey providers take on the full responsibility for the setup and provide the turnkey rental property to the future user – the investor.
As previously stated, a turnkey investment property requires minimal to no closing costs and labor.
The term “turnkey” in the real estate context denotes the action of giving the keys to the new tenant, so their life or business can start immediately.
Manufacturers and real estate developers usually determine turnkey costs. Here’s an example:
Let’s say that a builder is currently working on building a house, and as usual, there are a lot of costs here – including labor and material ones. Aside from those, certain costs need to be covered prior to buying that home, such as cleaning, inspection, etc.
The sum of ALL these expenses makes the total turnkey costs.
We’re left with the less interesting but still important aspect of every business – including investment properties – a turnkey contract.
A turnkey contract is a legal document stipulating that the contractor is – and will be – responsible for every aspect of the design and overall construction of the property. This contract aims for the contractor to provide working conditions to those who will use the intended facility.
The contracts include at least three components, some of which are:
- The design of the facility (by the contractor): It does not exclude the aspects that have already been defined and noted in the contract. The contractor should have a detailed design prepared even if the contract is solely tied to the construction.
- Patents: Also known as technology components, this applies to the completed work incorporated in the design. However, in some cases, the contractor may choose to use their own technology or as requested by the employer and engineer on the site.
- Supplies and construction: Although the contractor owns the construction, it is not uncommon for the employer to require the contractor to restrain from using certain supplies, thus ensuring the quality of the facility undergoing construction.
Is Investing In Turnkey Property Legal?
Buying and investing in turnkey rental properties is legal if you don’t deviate from the legal path and, most importantly – don’t choose shortcuts just to get the job done. Experienced investors know that the real estate business carries a lot of ups and downs.
Don’t let the first turnkey company trick you into buying the property.
The following “red flags” may help investors identify and avoid a fraudulent turnkey company:
- The turnkey company is claiming that there is NO RISK if you choose to invest with them. The chances are they’re just desperate.
- The turnkey company has poor property rehab. For you to receive a clean cash flow, the company should have a relatively new – or fully rehabbed – property. Otherwise, you’re looking at a poor-quality property because the company simply refuses to invest in it.
- The turnkey company is relying on a fully passive income. That’s just not possible; there is no such thing as fully passive real estate investing. Many turnkey providers WANT to be involved in the process, so it’s never 100% passive.
Also, be on the lookout for poor property management before you invest in real estate and purchase turnkey properties.
All in all, turnkey investment is legal. Still, if you’re out there wanting to buy turnkey properties, you should be aware of the possible drawbacks – which we’ll discuss later.
Should You Be Interested?
Yes, it’s a pretty good deal – and you shouldn’t pass on the opportunity to invest in a turnkey property, especially if you’re short on time or just don’t feel like going through the process of renovating and designing by yourself.
There’s the risk factor, of course, but you should bear in mind that there’s always going to be someone who needs a place to live or a property to rent out for business-related activities.
Based on labor and residence-related matters alone, you don’t have a lot to fear. Moreover, it’s a great opportunity to build passive income.
Strategies For Buying Turnkey Properties
To someone who just got into the game, investing in turnkey properties is still an unknown field. A beginner turnkey investor needs a fresh start – and that’s exactly what we’re going to focus on now.
We’ll be listing down a couple of effective strategies every real estate investment group should at least think about before stepping into the market.
Real Estate Wholesaling
It’s similar to house flipping, and there’s no doubt you’re familiar with that one.
Real estate wholesaling is a short-term strategy that provides turnkey property investors with a huge profit – if you find the right property.
The wholesaler contracts a house with the seller. It’s usually one that hasn’t been recently renovated. They then assign the contract to another potential buyer for a higher price.
In this strategy, the investor works as a middleman between the seller and the final buyer of the home.
Where’s the Profit?
It’s in the price difference. When choosing the property, fixer-upper houses are among the best deals because they already have motivated buyers.
This strategy isn’t for everyone, though. Although it’s short-term, it requires both on and off-market knowledge, commitment, and patience.
And one more thing:
Before making a purchase, you need to consider the median home price. That’s not the average price – it’s the middle price of the data set – exactly between the houses that are priced for more and the houses that are priced for less.
Real Estate Prehabbing
Prehabbing is actually the closest to house flipping. Currently, it’s the most popular – and effective – strategy within the real estate investing branch.
So, how does it serve the purpose?
Prehabbing is a mix of wholesale and rehabbing.
In essence, an attempt at rehabbing a property involves you buying that property and selling it for a higher price, per usual.
However, you’re not on the lookout for buyers who will make a living on that property. Instead, you’re looking for a rehabber who will take on the project of restoring the property, fixing it up a bit, and then – selling it.
As with the wholesale strategy, you’re acting as a middleman.
What’s Your Goal?
The goal is to provide the potential buyer with a clean slate – something they can work on. Because of this, you need to see the property in full and examine it thoroughly before you buy it.
Here, you’re provided with a bit more freedom than with wholesale. You can take on the job yourself and do a couple of touchups on the property before you sell it.
Real Estate Investment Fund (REIT)
Real estate investment funds (REITs) are a great opportunity for those new to real estate and are afraid of taking a bigger risk, such as wholesaling.
Equity REITs are companies that own income-generated real estate. A new turnkey property investor can buy shares and rely on regularly paid dividends.
REITs are becoming a popular choice among beginners and other investors that might not be ready to tackle real estate as a full-time job or are currently working on a tight budget.
How To Get Started?
First, look up publicly-traded REITs and evaluate their current situation and records. While you’re at it, check the companies’ growth, dividends, and Funds From Operations (FFO).
It’s also highly recommended to reach out and consult with a financial advisor before selecting your REIT.
Online Real Estate Platforms
Next, you have online real estate platforms and turnkey real estate websites.
These are otherwise known as crowdfunding platforms that aim at helping borrowers and investors – which is particularly beneficial for out-of-state investors.
It functions similar to your regular Facebook groups where developers post properties they need work on, and investors can reach out if they’re interested in financing it through equity or debt.
Can You Benefit From This?
Sure – but if you are already a member, you’d know that.
These platforms essentially offer investors the freedom of choosing their own market. They can also benefit from monthly or quarterly distributions – and, again, they can choose between standalone or portfolio projects.
The Ups & Downs Of Investing In Turnkey Projects
With any type of business, you must come to terms with the possible fluctuations; working with rental properties is never linear – and it’s not supposed to be. And since we’ve been getting into the business of investing in turnkey properties, we figured it’s time to look at the ups and downs of this venture.
What Are The Good Sides?
Let’s start off optimistic and focus on why investing in turnkey projects might actually be a good idea for you.
No Responsibility For Renovations
Trust us; this alone could save you from wasting tens of thousands of dollars.
Whatever strategy you decide upon, chances are you will not be responsible for any renovations on the property. That, of course, doesn’t imply that you won’t have to put in any effort – but knowing that it’s not your main focus certainly takes the burden off your back.
The Diversity With Out-Of-State Investments
Just like we said a minute ago – you have the chance to be in touch with out-of-state investors, which automatically opens the door for many more opportunities that would be harder to obtain within your local market.
Anything You Should Worry About?
There are some things that might not sit well with you – and we feel like it’s crucial to mention them here, too, and ensure that you do your due diligence and avoid the potential horror stories of turnkey properties.
Be Aware Of Bad Property Managers
We mentioned this a while ago – when we warned you of the possible scams.
The turnkey provider you work with won’t always have your best interest in mind. Yet, you’re expected to trust their property management knowledge and expertise. The required level of trust could be the biggest risk associated with turnkey properties.
The Danger Of Overpaying
Since the seller has already found below-market deals and done work to make it rent-ready – which might include extensive repairs, structural work, and redesigning – they will price the property at full market value. And that means you’ll be paying a premium for a turnkey property.
That’s not to say that the turnkey model is inherently bad; you just have to do your due diligence and choose the right turnkey provider.
Places To Look For Turnkey Properties
You’ve read through the strategies and possible ups and downs that come with turnkey investments.
So, where do you start?
Meetup Groups
Our number one advice would be to attend investor meetings; they will help you get in touch with other investors and gather valuable information that’ll certainly be of use in your future projects. It’s a great networking opportunity you shouldn’t pass up on if you’re interested in turnkey investing.
Surf The Internet For Turnkey Companies
Do not overlook the power of the Internet and the possibility of it leading you to the desired goal of getting into turnkey real estate. It’s high time you put your virtual skills to use and look up credible turnkey companies near you.
Mashvisor’s Property Finder tool can help you search for properties, analyze and compare them, and take the necessary steps to make a lucrative investment! You can also use the investment property calculator to carry out an in-depth investment property analysis and accurately assess the potential of these investments and determine the returns they can generate.
Turnkey Investment Property: Final Thoughts
It’s time to end this guide on investing in turnkey properties by looking back on some of the key points.
For one, turnkey investing blew up – especially in the last few years. Many real estate agents are turning their attention towards this type of investment because of the many opportunities it provides.
Investors who are thinking of investing in turnkey properties should take the time to read up on some effective strategies – such as Real Estate Wholesaling, REITs, and Prehabbing.
As with any other business, there are ups and downs that you’re bound to come across when dealing with turnkey real estate. For example, you could end up overpaying for your projects. But at the same time, you’re also presented with a number of possibilities, including out-of-state investments, passive income, and so on.
If you’re new to Mashvisor and you’re looking to expand your investment portfolio, sign up for our free trial and unlock real-time information and profit-making areas near you!