A turnkey property is one that has been acquired, fully rehabbed, and rented out to a tenant prior to it being handed over (sold) to an investor. As a further selling point to the investor, the turnkey company typically also runs the property management that oversees the day-to-day operations of the property after you purchase it. The whole point of using a “turnkey” company is to make investing EASY for busy people.
The turnkey company is supposed to do all of the work for you. All you should have to worry about is collecting the cash flow each and every month. A good turnkey company will guide you every step of the way. From the very beginning, they should present you with good information (sales flyers, proforma sheets, scope of work/pictures, etc.), testimonials, and be willing to answer all of your questions.
Once you decide to purchase, they will send you over a contract with all relevant fields filled out. There is no need for you to hire a real estate agent (although you might want to consider a real estate attorney). In most cases, if you are using financing, they will also set you up with their preferred local lender. So, you don’t need to find your own lender. This is high recommended simply because many lenders do not know how to underwrite and fund a turnkey property. We at Highland Residential Mortgage embrace these type of loan and do them better than most.
Turnkey companies provide a great (convenient) service to investors. With turnkeys, you should not expect to pay below market price. As a matter of fact, you should purchase one with the mindset that you are paying retail price for your property.
Turnkey companies make their money by “flipping” the property over to you, the investor. They start off by acquiring dirt cheap properties from the courthouse steps, or foreclosures. It’s typical for the turnkey company to also own the construction company that performs the rehab. Due to economy of scales, they are able to save on rehab costs. They will only target properties that they can acquire for very cheap, and that will appraise for top dollar after rehab. In other words, the after repair value (ARV) of the property must have substantial upside. Otherwise, the margins wouldn’t work.
There are good turnkey providers and bad ones. Even though these companies perform the rehab, don’t trust them completely. Always do your due diligence and make sure you hire an independent inspector to double check their work. Even if the turnkey seller has a great reputation and the pictures look magnificent, you still have too much to lose. An inspection typically only costs between $400 to $650… a very small price to pay to insure the rehab done is up to par. Most of the good turnkey providers will owner any items that have to be cured to make the property habitable and in good rental shape.