What is a turnkey property?
A turnkey property is the name for a property that’s already built, renovated and ready to be rented out immediately. It could be a house, an apartment complex or other community-style living. Turnkey properties may be enticing investment opportunities for those looking to own and rent out another property. The idea is that the investor can purchase and rent out quickly for profit, rather than doing all of the construction themselves. If you’re thinking about investing in a turnkey property, here are some things to keep in mind.
How a turnkey property works
There are companies that specialize in creating turnkey properties. These companies buy, build and renovate apartment buildings, homes or communities and then sell them to potential investors. If you’re looking to invest in a turnkey property, these companies often offer property management services as well, which can make it even easier to buy and operate the investment. This is especially helpful if you’re investing in an apartment building or community-style living where you will have multiple tenants. Management companies report to the investor and may be responsible for tenant queries, collecting rent and overall upkeep of the property.
Turnkey properties as investments
A turnkey property is looked at as an investment because the goal is to profit from renting out a property without the need to pay for renovations or updates beforehand. In an ideal situation, this is what a turnkey investment property purchase would typically look like:
- Research prospective properties to purchase
- Shop for mortgages and apply for preapproval
- Select and make an offer on a turnkey property
- Officially apply for your mortgage
- Close the deal
- If applicable, select a management company (oftentimes through the turnkey company)
- Start renting out the property
- Put rent money toward mortgage payments and begin building equity
- Once the mortgage is paid off, begin generating revenue from the investment
- Deduct overhead and other expenses from revenue and collect your profit
Generating revenue
Most of the revenue generated through a turnkey property is from rental payments. Once you’re finished paying off your mortgage, the goal is for rent to turn into profit, after subtracting the costs of paying a management company (if you opt for one) and other maintenance and operating expenses. Outside of rent, you may generate revenue through amenities (like laundry) and property appreciation if you plan on selling the turnkey property in the future.
Mortgages for investment properties
There are many different types of mortgages you can use to finance an investment property, depending on the type of property you’re financing and your personal qualifications. Note that investment loans do come with stricter qualifications, higher rates and higher down payment expectations because they’re viewed as more of a risk by lenders. Conventional loans and home equity loans are two examples of what you might use to finance an investment property.
In summary
If you’re looking to invest in a fully updated rental property but don’t want the headache of building and renovating yourself, then a turnkey property may be an investment opportunity worth looking into. Do note that mortgages for investment properties typically come with stricter qualifications and higher rates.
