Turnkey property

From CEOpedia | Management online

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).

Examples of Turnkey property

  • A turnkey property is a house that has been completely renovated and is ready to be moved into. For example, a developer may purchase an old home, demolish it, and build a new one in its place. The developer may then finish the entire interior of the home, down to the cabinets and decorations, and offer it as a "turnkey" property.
  • Another example of a turnkey property is a newly constructed home that is sold by a home builder. The home builder will typically provide a package of services that includes the construction of the home, the installation of the appliances, and the finishing touches such as the landscaping.
  • Another example of a turnkey property is a condominium or apartment complex. In this case, the developer will typically provide a package of services that includes the construction of the building, the installation of the common amenities, and the finishing touches such as the paint and decor.
  • Finally, a turnkey property can also refer to a property that has been purchased by an investor and is ready for tenants to move in. In this case, the investor may purchase the property from a company that specializes in the restoration of old properties. The company may also provide property management services, which minimize the time and effort spent on renting out the property.

Advantages of Turnkey property

One of the main advantages of purchasing a turnkey property is that it is ready to move into and does not require any additional renovation or construction. This saves considerable time and effort for the investor, as well as eliminates the hassle of dealing with contractors and other related issues. Other advantages of buying a turnkey property include:

  • Lower purchase price - Generally, turnkey properties are priced lower than similar properties that need to be renovated or refurbished, making it a better value for the investor.
  • Higher rental income - Turnkey properties are usually in better condition, which makes them more attractive to tenants and can result in higher rental income.
  • Quicker return on investment - Since turnkey properties are ready to move into, they can be rented out quickly, which allows the investor to start earning returns on the investment sooner.
  • Low maintenance costs - Since turnkey properties are already in good condition, they require less maintenance and upkeep than properties that need to be renovated, resulting in lower costs for the investor.

Limitations of Turnkey property

One of the limitations of turnkey property is that they may be more expensive than buying a property and doing the renovations yourself.

  • The costs associated with purchasing a turnkey property can be significantly higher than purchasing a property and doing the renovations yourself.
  • The quality of the finished product can vary greatly depending on the quality of the contractors used.
  • In some cases, the turnkey property may still require some work or repairs after purchase, which can be costly and time consuming.
  • The location of the turnkey property may be less than optimal, and it may not be in an area that is desirable or close to amenities.
  • There is no guarantee that the turnkey property will appreciate in value over time.
  • The investor may not have any control over the design and layout of the property, and may be unable to customize it to their taste and preferences.

Other approaches related to Turnkey property

A turnkey property can also be achieved through different approaches. These include:

  • Developing a property from the ground up: This approach involves buying land, securing the permits and licenses, and then constructing the property from the ground up. This type of turnkey property can involve a lot of time and money, but it can also be very rewarding.
  • Buying an existing property and renovating it: This approach involves buying an existing property and then renovating it to make it suitable for rental. This approach can involve a lot of time and money, but it can also be very rewarding.
  • Partnering with a company that specializes in turnkey properties: This approach involves partnering with a company that specializes in turnkey properties. This can help reduce the amount of time and money that is needed to create the perfect rental property.

In conclusion, turnkey property can be achieved through several approaches. These include developing a property from the ground up, buying an existing property and renovating it, and partnering with a company that specializes in turnkey properties. Each approach has its own advantages and disadvantages and it is important to consider all of these before deciding which approach is best for you.


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References

Author: Katarzyna Mamak

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