The term “turnkey” in simple words means space ready to move into – just “turn the key” and open the door. A turnkey property is completely renovated house or apartment that can be purchased and immediately rented out. The investor may purchase such property from the companies that specialize in the restoration of old properties. Such companies sometimes offer property management services to the buyers, which minimize the time and effort spent on rental. Turnkey also describe a home built by the developer on his land which is ready for the customer to move in. A “turnkey home” are planned and finished including the whole interior by completing everything down to the cabinets and decorations. “Turnkey” term is also used in the construction industry with reference to the building materials and labour by Home Builder or General Contractor to move into the home without owner involvement (D.Wallace, 1984).
Turnkey properties became popular after the housing market decline, when it turned out to be cheaper to buy homes rather than renting them. Such approach is a good investment for individuals who would like to be exposed to the real estate market, however they do not have time or interest to renovate a house or manage any maintenance issues. It is a common practice that the investor hires a separate company to manage the property. The term turnkey property is not only used by investors, very often real estate companies use this phrase to describe any ready to move in home that is up for sale (J.A. Griffin,2010).
Turnkey Property revenue
By purchasing the turnkey property, the investor has the opportunity to immediately make it available for tenants. In such case the tenant quickly generates the revenue through renting the property as quickly as possible. Any extra work needed to bring a residence to turnkey status may include plumbing, fresh painting and small electrical and flooring fixes. The shorter turnaround to rent the property, the faster a return on investment can be noticed. The effectiveness of the renovation of the property may be questioned depending if the goal is to put the property up for sale or for rent. The expenses made towards small fixes and painting might not be a selling point as future buyers may want to make the flat in their preferred style and in this case the investment made to refresh the property will not pay off (H. Koski, 1995).
Pros and Cons of Turnkey Property
The biggest advantage for choosing the turnkey property companies is the time that the buyer saves. It takes many hours to find the right property, contact attorneys to review real estate documents and have the homes inspected. For the investor with not much experience of the market and requirements, it could be easier to use the service of the turnkey company, which may save a lot of time. Another benefit for investors would be that they do not need to have any construction experience. Turnkey companies handle all of the construction before a property is put onto the market for sale. Another advantage is that turnkey companies find tenants. This creates instant cash flow upon purchase of a property.
However, a turnkey property may not be for everybody. If somebody is a do-it-yourself investor, the person buys the property “as is” and might not like the decorations, interior or exterior. Therefore, a turnkey property may not satisfy the buyer who prefers to dig in and do things all by himself having his hands involved in every aspect of property ownership (R.K. Vicino, 2008).
- Edwards J. L., Wiser, R. Bolinger, M. & Forsyth T. (2004). Building a market for small wind: the break-even turnkey cost of residential wind systems in the United States. California Digital Library, University of California, USA.
- Griffin J. A. (2010). Residential construction management, J. Ross Publishing, USA.
- Henriod E & Masurier J. (2002) The Contract in Successful Project Management Innovations in Contract Forms & Dispute Prevention and Resolution, Centre for Advanced Engineering.
- Koski H. (1995). Production planning and Management on a construction project. Tampere University of Technology, the Confederation of Finnish Construction Industries, the Finnish Building Centre Ltd, Helsinki.
- Vicino R.K. (2008). Method for Fractional Sale of Property - US Patent Ap. 11/960,608.
- Wallace, Duncan (1984). Contracts for Industrial Project. Building and Civil Engineering Claims. Kuala Lumpur. p. 3.
Author: Katarzyna Mamak