Turnkey in real estate is a marketing term to indicate that the home or apartment is move-in ready. It is not a fixer-upper. While this can mean different things to different people, you should expect a property that is in good shape, not needing any expensive repairs.
- Move-in ready – Everything is in working order. There are no electrical or plumbing problems. Also, there are no obvious structural issues.
- Fixer-upper – need renovations and updates before the house is ready to move into.
Be sure to ask the owner or landlord what it means in the context of their listing. Does it mean new carpets and paint, or just that it has carpeting? Does it mean the lawn is landscaped, or just that the grass is mowed? Most of the time what you see is what you will get.
Are Turnkey Properties a Good Investment?
Whether turnkey properties are good investments depends on your situation. Do you want to live in the home or rent it? If you want to find a home to live in here are some things to think about:
- Are you handy – Do you want to just move into a house already remodeled, or do you want to renovate the house exactly the way you want?
- Are you willing to pay more for a house that is already renovated?
If you want to get dirty and make a fixer-upper your dream home, then don’t buy a move-in ready house. On the other hand, if you need a house you can move in immediately, or you can’t make repairs yourself, then this type of property may be right for you.
For investors, it all depends on the bottom line. You need to have a business plan in place before you purchase the property. This type of investing is complicated and risky, but the basic factors are:
- How much will repairs cost?
- How long will the renovation take?
- Will it be profitable when you are finally able to collect rent?
If you can’t recoup the cost of renovation (both time and money) then it’s not a good deal to buy a fixer-upper. On the other hand, if the turnkey price is higher than your projected rents, then a move-in ready is also not a good deal. Both types have the potential to be good investments, whether they are good depends on the financials of each deal.1
What is Included?
You should expect a turnkey house to be ready for you to move in and live in immediately. There should be no problems, and everything should work properly. Here are some things to expect:
- Plumbing and electric services should be up to code and working properly (yes, even all the lightbulbs should work)
- No structural problems
- No immediate, pressing repairs
- Clean and tidy
The house should be ready to move in. You don’t need to change tiles or carpets. You don’t need to clean the ceiling fans or change the filter on the furnace. Everything should be ready for you to move in and use immediately.2
Whether a turnkey property is a good investment depends on your personal preferences if you want to live in the home. It depends on the bottom line if you are an investor. Sellers price move-in ready properties higher because they don’t need any work. On the other hand, you don’t have the time or expense with renovations. The important things to remember are:
- What appreciates is the land
- The improvements are all depreciating
- If you are an investor, rents must recoup costs, including the sale price and any needed renovations
This means that the factors that determine whether it’s a good investment are location and price much more than condition whether you want to live in the home, or you are an investor. If you want to rent the property you have the added due diligence of return on investment (ROI) calculations.3
Turnkey in Real Estate Construction
Turnkey in construction means the builder takes on the burden of completion, not the buyer. The builder manages everything about the project from conception to completion. Many builders also offer design and build projects, where the buyer collaborates with the builder to design the home. Some important aspects of turnkey projects in construction are:
- There is a set price that the buyer and builder agree upon from the beginning
- The builder is responsible for any cost overruns
- Buyers don’t have input on the design
A turnkey project is a better solution than a design-and-build if you don’t have much experience with construction. It gets very complicated, and if you don’t understand what designs are best it is usually better to let the expert do the project.
Furnished Turnkey in Real Estate
In the context of buying a home furnished turnkey combines two terms for different aspects of the property. The first means that the house includes furniture. The second means that the condition is move-in ready.
For rentals, it can mean a variety of things depending on the type of property (vacation, corporate, long-term). It also depends on where you are. Different parts of the country define it differently. Generally, though, it means that it includes sheets, towels, pots, and pans. Everything you need for your stay. However, ask the owner. Don’t just assume. What you think is everything may not be the same as what he/she thinks.
Final Thoughts on Turnkey in Real Estate
Turnkey in real estate means move-in ready. If that still sounds ambiguous, it is. It can mean different things to different people. It also varies in meaning geographically and according to what type of property it is. So, the best thing to do is to ask the person selling or leasing the property what it means for their house or apartment.
Generally, it means that you won’t have any problems. Everything works and the structure is sound.