What is a turnkey home?

A turnkey home is move-in ready, with little to no need for renovations or repairs. You can expect to pay more cash for such a home. If a turnkey property appeals to you, read on to learn more about what to expect, who they’re right for, the pros and cons, and how to invest in one.

How do turnkey properties work?

So, what does turnkey mean in real estate? A turnkey home is in great shape and ready for you to move in. It requires no renovations, repairs, or other maintenance to make it livable.

Turnkey homes often are marketed as a way to start investing in real estate. For example, turnkey homes may be offered with an attachment to a management company that would handle finding tenants, renting out the property, collecting rent, and managing ongoing issues and maintenance. The investor just needs to buy the home and pay the mortgage.

The hands-off approach appeals to many first-time real estate investors, who may be concerned about the nitty-gritty aspects of real estate management, such as finding and screening tenants.

How much is a turnkey house?

A turnkey house often is more expensive than a comparable home that needs repairs or renovations, for these reasons:

• No need or only a minimal need to renovate. Updating a home can be expensive, time-consuming, and stressful. Homes that already include newer features, full-room renovations, or other improvements may mean the seller is incorporating these costs into the listing price.
• The home is being used as a rental. Homes that are turnkey may also be managed by a professional property management company and used as short- or long-term rentals. As an investor, you might need to pay more for homes with current tenants and a management company.
• Low inventory. In a real estate market with high demand and low supply, a turnkey home may be more appealing and more in demand. This one-two punch of low supply and high demand may mean higher prices.

Who should buy a turnkey home?

While investors may lean toward buying a turnkey home, first-time home buyers or any buyers who don't want to do a lot of renovations or repairs before moving in also may prefer them.

First-time landlords

First-time and inexperienced landlords may gravitate toward purchasing a turnkey home, as they won't have to fret about managing renovations or rehab work. And because they're move-in ready, turnkey homes can also offer a faster turnaround for rentals. These low-maintenance homes allow landlords to focus their attention on finding tenants for the rental property.

People who don’t want to renovate a property

If you're a new home buyer or someone who doesn't have a ton of experience or know-how with renovations or hiring contractors, you may find turnkey homes appealing. The higher price tag may be worth it if it means less work and hassle than buying a fixer-upper house.

What to consider when buying a turnkey house

To gauge whether a move-in home is the best option for you, you'll want to get your head around the advantages and disadvantages.

Pros

• No renovations: Turnkey homes are move-in ready, so you won’t have to do any additional work after you close on the home.
• Quicker cash flow: You can rent out a turnkey property as soon as you find a tenant. Other properties may take weeks or months of rehab before they’re ready to rent out and start earning money.
• Passive income and diversification: If a turnkey property comes with a management company, you don’t have to worry about most of the day-to-day aspects of being a landlord. It also makes it easier to invest in different real estate markets because the management company can handle issues at properties far from where you live.
• Appealing to potential tenants: Many renters find turnkey homes appealing because they’re in good condition. Investors should be able to charge higher rents and find high-quality tenants more easily.

Cons

• Cookie-cutter designs: If you’re looking for a property with character, a turnkey property may not be the best option. Many turnkey homes are new and often have the same template as the homes around them.
• Smaller profit margins: Management companies can handle a lot of the work for you, but they do charge for their services. The money you spend on management services directly reduces your profit.
• Less direct control: You’re reliant on the management company to handle the day-to-day aspects of owning rental property. You have less direct control over how the property is managed, so you need to make sure you trust your management team.

How to find a turnkey house

One of the easiest ways to find a turnkey property is to comb through descriptions and images in listings.

Real estate agents usually highlight renovations and updates to a property. They also may point out that the property needs TLC or has good bones.

When shopping for a turnkey, don't decide to buy based solely on pictures. Tour the property in person and inspect it with a real estate agent. Ask when the updates were made. You might also find this information in the online listing or in other disclosures.

You might find companies online that offer turnkey properties with tenants and existing property management. These online platforms also may serve as the property management company for the home.

How to successfully invest in turnkey properties

Learning more about investing in turnkey properties can help you get your head around exactly what it entails.

Research turnkey companies  

Many turnkey homes are sold and then managed by businesses that specialize in such properties and market them to investors. It’s important to do your due diligence. Real estate is an industry that has its fair share of scams and fraud, so keep an eye out for companies that might be committing mortgage fraud.

Make sure to have a lawyer review all paperwork, and don’t be afraid to ask for references from other buyers to make sure a turnkey company is legitimate. It's a red flag if a company can’t answer your questions or seems evasive.

When you’re comparing turnkey companies, consider putting together a list of the qualities you want in a turnkey company and property manager, and look for the company that matches the most qualities.

Inspect the turnkey property

The main feature of a turnkey home is that it is in good condition and needs no maintenance or repairs. That means that it’s essential to inspect the home before you buy it to verify it's in good shape.

Consider hiring a professional real estate inspector to look at the home. If you’re working with a real estate agent, they should be able to recommend a reputable inspector.

The inspector will carefully examine the property and report on its condition. For a turnkey home, the inspector should turn up very few issues. Should the inspector find multiple problems or any major issues, don’t be afraid to ask the seller to fix the problems or walk away from the deal.

Secure your financing

Many buyers – investors included – typically need a mortgage to purchase a home.

Buying an investment property usually comes with higher mortgage rates, and you’ll need to show the lender how you’ll earn a return on the investment. This is doubly true if you’re trying to finance multiple homes at once.

Many lenders set a cap on how many investment properties you can finance at once and will charge a premium if you’re buying multiple homes.

Further, obtaining a mortgage for an investment property may entail additional underwriting requirements.

The bottom line: What is a turnkey house?

Because turnkey homes are move-in ready – requiring minimal to no updates or work – they have strong appeal for first-time homeowners and investors. That said, they also may carry a larger price tag. If you're looking for an investment opportunity, a turnkey home may have existing tenants and a property management company, which can minimize the legwork for you.

Are you ready to buy a turnkey investment property, or are you interested in using one as your first home? Explore your mortgage options today with Rocket Mortgage.