If you want to start a quick debate on real estate forums today, post a question about how investors feel about turnkey real estate and then pop a bag of popcorn. The answers will come out, and the fierce opinions are sure to follow.
Turnkey real estate investing has garnered a lot of attention because it flies in the face of what many real estate investors think “true” investors should be. Over and over again, you read that if you are not physically investing yourself, doing the work with your own hands and feet, then somehow you are not a real investor.
Whether it is house hacking, wholesaling, rehabbing for rental, or rehabbing for retail sale, there is a strong bias that you have to be personally involved or you are not really investing.
I personally think that argument is silly. As a very experienced real estate investor, I have invested both passively and actively for almost 15 years. If I am risking my money (or my credit) in a real estate deal with the opportunity to make a return, then I am an investor!
Now, the real debate about turnkey real estate should actually surround what the heck turnkey really means. I often tell investors that there is no real meaning, at least not when you see it used online. The term has been hijacked into a marketing term meant only to capture eyeballs.
Perhaps that is what has so many people in an uproar. It is nearly impossible to compare two turnkey companies, or two turnkey properties, because there is rarely consistency in what is being offered. With that said, I am going to define exactly what turnkey is supposed to mean for investors. After being involved with nearly 5,000 turnkey transactions (and working with dozens of entrepreneurs wanting to offer Turnkey properties), this should be a pretty good start.
To be fair, unless you are prepared to have a third-party company find a property, renovate that property, and professionally manage it, turnkey may not be the right fit for you. To that end, here’s a quick checklist to help you determine if turnkey may work for you. Ask yourself these five questions:
You must be comfortable answering those questions affirmatively if you truly want to build a passive turnkey portfolio. So exactly how do you do that? Read on.
At the most basic level, turnkey real estate typically refers to investment properties that are already rehabbed, tenant occupied, have management in place, and are producing positive cash flow. The term comes from the idea that you can “turn the key” in the door and walk right on in. Unfortunately, many companies, and even individuals selling real estate, hijack the word to use in their marketing because they know it attracts eyeballs.
The word itself is like a shiny object because it implies simplicity, which is what many investors are after. The absolute safest route when buying a turnkey property is to make sure that the property is owned by a company, has been fully renovated before going under contract, and the management company is the same company selling you the property.
There are plenty of companies today that will try to convince you that the safer way to invest turnkey is by not buying a property that has been renovated or has in-house management. I will explain why it is always safer to buy a property already purchased, renovated, and under management.
For now though, just know that turnkey is meant to define a property that is ready to produce a revenue stream on day one.
With a traditional residential rental property, the investor would purchase it, fund renovations, find a tenant, hire a property management company, and then hopefully see profit. Turnkey real estate cuts out a lot of steps, making the on ramp to positive cash flow shorter.