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What Is a Turnkey Property? How It’s Used as an Investment

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If “passive income” and “real estate investing” are music to your ears, it’s time to learn about turnkey properties. Turnkey rentals allow you to collect monthly cash flow without picking up a hammer or dealing with unruly tenants. They take the sweat and stress out of traditional buy-and-hold strategies. With a turnkey investment, the heavy lifting of finding, renovating, and renting a property is handled for you.

All that’s left for you to do as the owner is sit back, relax, and let the rental checks roll in. But how exactly does this hands-off investment work, and is it the right strategy for your portfolio? Let’s break down exactly what turnkey properties are, how they work, how they’re used as investments, and whether the returns justify the convenience.

What is the Definition of Turnkey Property?

Have you ever seen those “buy, don’t build” ads for rental properties? Turnkey real estate investing is the hands-off approach being advertised. But what exactly does turnkey mean in real estate?

The definition of a turnkey rental property is one that is ready for immediate occupancy upon purchase. The turnkey company has already overseen all necessary renovations to maximize the home’s rental appeal and income potential. That means new flooring, updated kitchens and bathrooms, quality appliances, and professional paint have all been done to make the same tenant-ready. This differs from a traditional “fixer-upper” investment, where you’d buy a distressed property and manage renovations yourself.

A turnkey investment means that there’s no work required on behalf of the investor. A reputable turnkey company should handle all work, whether it’s new construction or renovations, secure a quality tenant, and offer property management services. All the investor needs to do is buy the property and enjoy the returns, just like they would when buying shares in a company.

How Turnkey Properties Work

Turnkey properties provide a streamlined approach to real estate investing, alleviating the time and effort needed to get a rental property income-ready. But how does the turnkey process actually work? 

Turnkey companies should first have a target market that they work in. If a turnkey company has developments across many real estate markets, you should view it as a red flag. Renovating or developing turnkey real estate requires specialized local knowledge and relationships.

Turnkey renovators acquire properties in promising rental markets at discounted prices. Often, these are dated, distressed homes with good bones but require moderate to extensive renovations. The provider plans and oversees needed upgrades like kitchen and bathroom remodels, new flooring and paint, and electrical and plumbing repairs. Some updates cater specifically to tenants, like installing laundry machines, while others are for the longevity of the property, like roof repairs.

Once renovations are complete, the turnkey provider lists the property for sale to real estate investors. They market it as a “hands-off” rental, requiring no repairs or maintenance upon purchase and with a guaranteed tenant.

The appeal for investors is acquiring a cash-flowing rental without doing any of the legwork upfront. Turnkey providers handle sourcing, renovating, and preparing the property itself for occupancy. The investor gains a streamlined path to passive income through rent, with options to keep or outsource ongoing landlord duties. It enables investing in other markets and removes renovation hurdles for first-timers.

Turnkey Property as an Investment

Turnkey homes cater to owner-occupants who want a move-in-ready residence requiring no repairs or upgrades. Turnkey investments, on the other hand, are rental properties that generate passive income and are best for out-of-state owners. While turnkey assets offer convenience either way, the benefits and drawbacks differ based on your goals as an owner-occupant versus an investor.

Benefits of Turnkey Investments

Turnkey rental properties provide an accessible entry point for passive real estate investing, even if you lack market knowledge or renovation skills. The pre-vetted turnkey model allows novice investors to bypass the steep learning curve of traditional landlords.

The benefits of purchasing a turnkey rental include:

  • Access to expert knowledge of local markets and off-market assets.
  • Avoiding major repairs and maintenance headaches with a fully updated property.
  • Not needing real estate or tenant screening expertise as a new investor.
  • Ability to collect rental income early in the investment with no time spent on renovations.
  • Outsourced labor-intensive landlord duties to a property management company.
  • Freedom as an absentee owner to invest remotely in other states.

With turnkeys offering so much convenience, it’s easy to see the appeal for investors seeking hands-off income. The right turnkey investment property makes it possible for anyone to become a real estate investor.

Downsides of Turnkey Investments

A turnkey property as an investment might sound like the perfect way to become a landlord, but this investment source doesn’t come without its downsides. To limit your risk exposure when investing in turnkey properties, you need to make sure you’re working with an experienced and ethical provider with a proven track record. Research the company, talk to past clients, read reviews, and to your due diligence.

Here are the downsides to consider with the turnkey investment model:

  • Less control over property selection means you can’t hand-pick preferred properties.
  • Potential for higher purchase prices compared to traditional rentals.
  • Possible disconnect from not being directly involved in key landlord duties.
  • Less opportunity to add your own touches during renovations.
  • Subject to the management skills (or lack thereof) of the contracted company.
  • Still, fundamentally an illiquid asset that can’t be sold instantly like stocks.
  • Your investment success hinges on the abilities of the professionals you engage.

So, while turnkeys simplify the process, they reduce direct owner involvement and oversight. Investors have to weigh the trade-offs with traditional rentals to decide what works best for their risk tolerance.

The Best Turnkey Real Estate Investment Strategy Breakdown

If you’re dreaming of owning rental property but don’t know where to start, follow this 6-step guide to execute a turnkey real estate investment strategy that minimizes risk and maximizes rewards.

Step One: Pick Your Ideal Markets

When executing a turnkey real estate strategy, conducting thorough market research is crucial to identifying cities that offer:

  • Strong fundamentals
  • Affordable pricing
  • Growth potential

 The best turnkey markets have steadily increasing population and job growth to support ongoing tenant demand. They also tend to have constrained housing supplies and low vacancy rates, giving landlords a greater advantage when vying for tenants. 

Toledo, Ohio, has long been one of the best turnkey markets and was recently ranked the #1 real estate market in America. Despite high 2022 interest rates, Toledo home prices rose 7.6% last year, showcasing robust housing demand. With median home prices and rents 51% and 30% below national benchmarks respectively, Toledo provides affordable entry points for investors. Its diverse manufacturing, healthcare, and education sectors also bring economic stability.

Today, Toledo is the best market for turnkey real estate investing because investors can buy all cash, diversify their portfolio with multiple single-family homes, and benefit from the expected 8%+ appreciation over 2024. 

Other top cities to research include:

No matter which turnkey market you target, perform in-depth research on key economic and real estate indicators to verify its investment potential. Partnering with an experienced local turnkey company like Ohio Cashflow can further minimize risks when investing in unfamiliar areas.

Step Two: Connect with a Turnkey Provider

Once you select your target market, find a locally operating, reputable turnkey company. Be wary of nationwide providers making blanket promises without real community roots. A present, experienced partner gives peace of mind; a national provider has no investment in your or the investment property’s success.

Vet potential providers thoroughly before entrusting them with your money. Look for great reviews from current owners, not just slick marketing claims. Confirm they have strong market knowledge and relationships with contractors and property managers.

Evaluate the quality of previous renovations firsthand when possible. Drive by or tour finished properties to inspect finishes. Aesthetics matter for attracting top tenants. Also, verify they utilize proper permits and licensed contractors.

Ask about their tenant placement process. Multi-step screening and competitive rental rates boost occupancy. If they promise unrealistic rental rates, you’ll find your property will suffer high vacancy rates, costing you money. Quickly filled units start cash flowing quickly. Top turnkey companies like Ohio Cashflow even guarantee rents within 45 days of purchase.

Taking time upfront to vet providers reduces future headaches. A trustworthy turnkey company with proven systems is key.

Step Three: Review Investment Properties

Once connected with a turnkey provider you trust, start evaluating potential property listings in your chosen market. Verify that projected rents exceed all expenses like taxes, insurance, and management fees. Conservative rent estimates build wiggle room.

Crunch the math to confirm the turnkey meets your targeted cash-on-cash return threshold. Ideally aim for 8-12% or higher, depending on the area. Ensure the property and neighborhood meet tenant demand; drive-by or virtual tour listings before purchase.

If purchasing out-of-state, you need to be able to trust your turnkey provider’s local information. They know the neighborhoods, amenities, employment centers, and growth factors that impact a property. An experienced local partner makes remote investing possible and profitable.

Analyze each potential property meticulously to confirm its income potential and marketability before moving forward. Never blindly trust promised returns without verifying the supporting data yourself.

Step Four: Buy a Property

If you decide to finance you turnkey property as a remote investor, you’re putting yourself at risk. Initially, focus on purchasing turnkey assets with all-cash rather than financing. Paying properties off upfront establishes a low-risk foundation before adding leverage. Aim to own at least 3-4 paid-off rentals before financing additional turnkeys. Fortunately, in markets like Toledo, where you can buy turnkey homes for as little as $60,000, buying all cash is attainable.

All-cash buys also close faster, giving you an edge over financed offers when negotiating. And sellers may pass on great discounted deals to serious cash buyers that won’t fly with banks.

Don’t overextend yourself financially in a rush to scale up. Buy your your first few properties all cash. Once you have a stabilized portfolio, you can start using your cash flow to buy and finance new acquisitions.

Owning a few cash-flowing rentals debt-free provides stability before scaling and reduces your investment risk. Move deliberately, not carelessly.

Step Five: Start Collecting Income

The beauty of turnkey properties is that they come with a tenant in place. Quality providers have extensive networks for filling vacancies quickly. Unlike traditional rentals, you start collecting rental income weeks, not months, after buying and there’s no tenant screening required.

Ohio Cashflow guarantees rent within 45 days of purchase. Otherwise, we will cover the rent we promised until a tenant is secured. We stand by our promises. Guaranteed cash flow income separates turnkeys from DIY rentals.

Evaluate each potential turnkey provider’s tenant placement process and guarantees before investing. They should handle showings, applications, background checks, and lease execution per landlord-tenant laws. Having an experienced local team expedites occupancy, but you don’t want to get stuck with a bad tenant.

With nearly immediate income, you recoup your capital faster. The less time a unit sits vacant, the quicker you start earning returns.

Step Six: Ongoing Property Management

The work of owning rental property doesn’t end once it is leased – in fact, that is just the start of the journey. It requires ongoing oversight to protect your investment. Once you buy a rental property, whether you buy from a turnkey provider or off the MLS, you must decide whether to self-manage or hire a property manager.

Attempting to self-manage remote investment properties is risky. Property management requires deep local knowledge and relationships with local contractors to help care for your investment. Reputable property management companies already have trusted property managers integrated into their model. Engaging an established management firm provides consistency for tenants while ensuring attentive care of your assets. Make sure you research the recommended property management company and don’t just accept their services blindly.

Consider outsourcing these property management responsibilities, especially if investing out-of-state. The cost is well worth it for the expertise and time savings a professional provider brings compared to DIY landlord activities.

What are the Costs of Buying a Turnkey House?

When evaluating potential turnkey investments, an important consideration is accurately estimating your all-in purchase and ownership costs. Turnkey properties typically come at a premium price point compared to more traditional “fixer-upper” investment properties. Their premium pricing reflects the convenience and added benefits you receive with a fully renovated, tenant-ready turnkey rental.

The upfront purchase price of turnkey investments factors in all of the renovation and refresh work already completed. This includes improvements like upgraded kitchens and bathrooms, new flooring and paint, replaced roof or HVAC systems, etc. The turnkey company has already spent capital modernizing the property, which gets passed on in the list price.

The purchase price will also be higher because the provider has already sourced and placed a qualified tenant for you. Pricing usually gets based on a cap rate, meaning that the turnkey provider calculates your estimated return and then decides on a purchase price based on the cap rate. In essence, you pay extra for the turnkey company to have done the “heavy lifting” of readying the property for immediate rental income generation.

While a turnkey property may be more expensive, it’s the only safe way to invest in a market far from where you live. You’ll end up saving money and headaches in the long run versus tackling renovations yourself. The exact premium you pay depends on factors like location, property type, scope of upgrades, and provider’s reputation. More extensive renovations or popular areas raise costs.

In addition to the purchase price, estimate costs like property taxes, insurance, maintenance, and property management fees when budgeting for a turnkey rental property. While the convenience of these does come at a higher overall cost of ownership, they also give you the confidence to start investing. Working with experienced professionals reduces risks and learning curves for new investors.

Who Should Buy a Turnkey Investment Property?

Turnkey rental properties aren’t for everyone, but they are best for investors who are time-poor and who prioritize convenience and passive income over direct owner involvement. Everyone deserves to be able to invest in real estate, but not everyone has the time to take on the research and work involved in building a successful portfolio.

Turnkey investing is ideally suited for:

  • Busy professionals without the time for renovations or property management duties.
  • First-time investors lacking real estate or tenant screening expertise.
  • Remote investors who cannot directly oversee local renovations or maintenance.
  • Investors seeking geographic diversification across multiple out-of-state markets.
  • Hands-off investors focused who prioritize passive income.
  • Retirees seeking stable assets for extra retirement income.

Turnkey Investing Opens New Possibilities

If the idea of generating passive rental income without the typical landlord headaches of appeals to you, turnkey real estate investing delivers simplicity and convenience. When purchasing a turnkey property, you effectively outsource the heavy lifting to experienced companies. Investors can benefit from cash-flowing rentals without getting their hands dirty.

While turnkey properties come at a premium, the costs brought by convenience, speed, and expertise make these assets a worthwhile investment for investor profiles. However, it’s curcial to thoroughly vet any potential turnkey provider before entrusting them with your hard-earned capital.

If you’re ready to explore hands-off turnkey properties, the team at Ohio Cashflow can guide you each step of the way. Our proven track record and deep knowledge of the Toledo market position us as the premier turnkey provider in the Midwest. Let us supply the expertise while you sit back and collect rental income. Get started by completing our investor application today.

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About the author

Kelsey Heath
Kelsey Heath is a real estate content specialist with an extensive background in residential, industrial, and commercial property. She has been involved in the industry for a decade as a professional and personal investor, gaining a deep understanding of the market and trends. With a passion for written communication, Kelsey loves helping people understand the sometimes-complicated concepts behind real estate and is now a sought-out guest and ghostwriter.