There are lots of turnkey property companies out there, and some are more reputable than others. This question deserves a fair shake. I’ll try to give it one, but I have some strong opinions about this.
WHAT IS A TURNKEY PROPERTY – DEFINITION
A turnkey property is a fully renovated home that is purchased by an investor. It can either be rented out immediately by the investor, or more commonly, comes already rented out with a property management company in place.
In essence, it’s answering one of the most common real estate needs out there:
I live in an expensive area, and I can’t invest here, but I want to invest somewhere, what should I do?
Use a turnkey property company!!!
It’s a potential solution to long distance investing. Turnkey property providers usually buy distressed properties in good rental markets (not high cost of living areas). They buy at a discounted price, and then rehab the property so it’s move-in ready.
At this point, they can either sell it to an investor, or go a step further. They’ll find a local management company, get a tenant placed, and sell the property to investors with tenants and property management in place.
It’s supposed to be a win-win. The turnkey property company flips the property to the investor for a mark-up, but there is still supposed to be enough “meat on the bone” for a decent return on investment (ROI) for the investor as well.
Typically, these companies will estimate an ROI of 7-12%, although that’s if nothing ever goes wrong (stuff always goes wrong).
Let’s show the numbers on what a turnkey property might do:
TURNKEY PROPERTY NUMBERS
They buy a house for $35,000 that needs lots of work.
They fix it up for $15,000
They sell it to you for $100,000
It rents out for $1000 a month.
As you can see, they profited $50,000 on the flip to you, but you still got a house that rents for $1000 a month. Doing some very simple math, you could estimate this ROI to be about 6%.