Some of the best real estate requires imagination, and it is difficult to sell someone on an idea alone.
Empty shells may be endlessly configurable, but they are hard to sell. It is another matter entirely when a commercial property is ready to use, or turnkey.
What Is Turnkey Real Estate?
Turnkey real estate is property that can be rented or leased.
When the property is ready for commercial use – as opposed to a hollow shell that needs improvements – that job is a little easier. This means that the flooring is down, the fixtures wired in, and the walls are painted. A business could move in immediately.
Investing in turnkey real estate involves buying turnkey real estate so that you can rent or lease it out.
In most cases, there is a property management company involved who handles everything for you in exchange for a cut of the rent or leasing fee, but there doesn’t have to be.
Also, there is no standard for what condition constitutes “Turnkey.”
To some property companies, turnkey means that they put a fresh coat of paint on the walls before listing the investment and that’s about it.
In contrast, to other companies, the term could mean that the place has been completely renovated and outfitted with nicer fixtures.
In other words, “turnkey” can mean different things to different people, so buyer beware.
Why Invest In Turnkey Property?
Turnkey real estate is an investment opportunity that some investors overlook, but don’t be too hasty.
There is real opportunity here as long as you invest in a good property, hire the right management company, or choose a turnkey investment property vendor who handles everything for you.
Diversification
Turnkey property is one way to diversify your investment portfolio.
Unlike stocks, real estate is not tied to fluctuations like buyer sentiment or even broad economic trends.
Once you find a tenant, you will have a lease agreement in place that could extend for years.
Simplicity
Turnkey property investment also tends to be very simple – buy the property and let a property management company handle the rest.
You get a tangible investment without having to do much legwork after you make the deal.
| ROOFSTOCK SPOTLIGHT | |
InvestorMint Rating 5 out of 5 stars |
via Roofstock secure site |
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Is Turnkey Real Estate Risky?
There are many reasons to love investing in turnkey real estate, but it is still an investment, and that means RISK.
In your research, you may find shady companies and hear a few horror stories alongside other reports of investors getting amazing returns on their investments.
Both are true.
Which one you get is going to depend on how well you manage your risk by doing the work.
Due Diligence
Start with basic due diligence.
Verify that the property they are trying to sell you exists and that it is in the condition they say it is in.
Tour the property if you can or consider sending in your own home inspector.
Look into the taxes for the property by checking with local authorities. Sometimes property companies quote the taxes that the previous owner had paid, but there could have been an owner-occupied exemption or some other special scenario.
Next, check the numbers. Make sure that any figures or math you are quoted come out correctly and do some research.
Dig in and see what property values are like in that area, where the rents usually fall, and how many properties in that neighborhood or zip code are vacant.
Compare the characteristics those properties share with the one you are considering buying.
You want to make sure that you are dealing with real-life numbers instead of best-case scenario figures.
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Ongoing Costs
With turnkey real estate, you are going to have some ongoing costs.
In addition to taxes and insurance on the property, there is a certain amount of maintenance work to be expected.
Depending on your rental agreement, you may also need to pay for specific utilities, handle lawn maintenance, offer snow removal, and more. Add these up and see how much money you would really be getting net of the ongoing costs.
If you can’t get enough rent in a worst-case scenario, you may need to pass or risk losing money every month.
Understanding Turnkey
Look into how long you may need to hold the property before it is truly turnkey and what your costs will be during that period.
There is no standard definition for what turnkey is in the real estate world. Some turnkey real estate companies are very above-board, listing out costs and expectations clearly.
Other so-called turnkey-real estate companies will sell you an unfinished property and charge you for all the repairs and maintenance, including a fee for them.
If work is necessary to make the property turnkey, make sure that you understand how long you may need to hold the property and the scope of the work involved.
If you have ever hired a contractor, you know that construction projects often go over budget – your turnkey investment could be no different.
That’s not to say you should never buy a property that needs some repairs or fixing up – you could miss out on big opportunities if you took that approach – but you should UNDERSTAND what needs to be done, why, and how much it will be for the repairs as well as your holding costs until it rents.
Understanding your Market
Remember that turnkey real estate is not terribly liquid. You can’t sell property in minutes the way you can certain stocks.
When you want to exit the investment, it is going to take time to find a buyer or otherwise sell the property.
There is a certain time commitment involved. Make sure that you figure those costs into your ROI calculations.
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How to Invest in Turnkey Real Estate
If you decide that turnkey real estate is a good match for your investment goals, there are three basic ways that you can get started.
Find and Manage Your Own Investment
The first is perhaps the most obvious. You could find a property that is ready to rent and buy it. Then, advertise the property and find a renter.
Whether you want to deal in commercial real estate or residential, it can be that simple.
However, you will need to handle all the maintenance, collecting payment, and generally overseeing the property yourself.
Go Through a Property Management Company
Alternatively, you could hire a property management company to do the work for you.
They can accept payments on your behalf, arrange for maintenance services, and even have a handyman on-call in case your tenant needs anything.
Property management companies make the entire investing-in-turnkey-real-estate process easier, but they take a percentage of the rent as a fee.
They may even inflate the cost of hiring a handyman or doing some other service to account for the time they spent arranging it.
Find a Turnkey Real Estate Company
Finally, you could go through a turnkey real estate company like Roofstock.
These businesses handle all of your property management needs and help you find properties to buy.
They also give you access to analysis and insights about the property and its comps.
Plus, when you are ready to sell, they can connect you with buyers via a secure marketplace.
You may get less net income from your investment through this route, but you will save a significant amount of time, and that could be worth the investment (as long as the gross income is there).
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Is Turnkey Property Right for You?
“Turnkey” can mean different things to different people, so buyer beware. There are good, safe ways to invest in turnkey real estate, but you have to do your research.
Start by choosing a well-established company or picking a more local property that you can tour before buying anything, then do your research.
With a little effort, you may be able to find a turnkey property that fits into your portfolio very well.
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