What Is a Turnkey Property?

Disclaimer: PropStream does not offer investment advice. This article is for informational purposes only. Consult a financial professional before investing in a turnkey property.

As a real estate investor, you try to buy low and sell high. However, there’s one property type that you can often buy for less than any other: condemned homes. In this article, we’ll explain what they are, the risks they carry, and how to buy, finance, renovate, and flip them for a profit.

What Is a Turnkey Property?

A turnkey property is a fully renovated, ready-to-move-in property that’s often sold with a tenant and property manager already in place. The term “turnkey” means all you have to do is “turn the key” to start enjoying the property and its returns.

Turnkey properties are popular with out-of-state and first-time investors because they require minimal work or experience. With all the renovations, tenant placement, and management covered, you can sit back and relax to enjoy truly passive income.

How Turnkey Properties Work

Here’s how turnkey properties end up on the market:

First, an investor buys a distressed or undervalued property and renovates it to rental standards. Then they find a tenant to lease the home or offer tenant-placement services along with ongoing third-party property management services when selling the property.

Beginner, busy, or remote investors are then drawn to the “hands-off” nature of the investment and make offers. Eventually, the property is sold, and the new owner can immediately start collecting rental income from the property. 

Who Should Consider Turnkey Rental Investing

That said, turnkey properties aren’t for everyone. The best candidates for this investment strategy are often:

New investors who want training-wheel rentals. Investing in real estate for the first time can be intimidating. A turnkey rental lets you learn the basics without worrying about some of the more complex aspects of real estate, minimizing your risk.

Out-of-state buyers who want cash-flow markets without flying in constantly. Managing a rental from afar can be challenging, if not impossible. Why not buy a rental that comes with a local property manager who already knows the property?

Also Read: 8 Tips for Long-Distance Real Estate Investing

Investors who prioritize passive income over forced appreciation. Fix-and-flips can be profitable, but so can buy-and-hold properties. If you favor stable long-term returns over a quick one-time payout, turnkey properties can be an attractive option.

High-income professionals who want immediate occupancy and management. If you already have a high-paying job and want to invest on the side, turnkey properties can give you exposure to the real estate market without all the work. 

Benefits of Turnkey Properties

Here are the biggest benefits of investing in turnkey properties:

Minimal upfront work: Avoid the need to repair, renovate, and market the property. It usually generates income from day one.

Often sold with tenants: This saves you the time and effort required to market the property, eliminating costly downtime associated with leasing. 

Professional property management attached: No need to find a new property manager when your turnkey rental already comes with one.

Predictable cash flow: When you buy a turnkey property, there’s a good chance it’s already operating as a rental. By reviewing its financial history, you can better project future cash flow.

Access to markets outside your area: If your local market lacks rental investment opportunities, a turnkey can be an accessible way to break into a market outside your area. 

Pro tip: When buying your first rental property, you can use PropStream to evaluate turnkey opportunities by verifying comparable property prices, rental rates, ownership history, rehab activity, and market trends.

Risks & Downsides to Consider

Of course, every investment comes with risk, and turnkey rentals are no different. Here are some potential downsides to consider:

Overpriced turnkey markups. Sellers often markup turnkey rentals to make a profit. As a result, you may end up paying more than market value. 

Renovation quality varies widely between providers. Many turnkey property sellers perform top-notch renovations, but others may cut corners and fall short. 

Management quality can make or break the deal. Buying a property that comes with a property manager in place can be convenient, but if you’re not careful, they could be subpar. 

Lower appreciation potential in some cash-flow markets. Immediate cash flow is nice, but it may come at the cost of lower property appreciation. 

Investors sometimes rely too heavily on provider-supplied data. Though you may get helpful property information from the seller, relying on it too much could be risky. 

Pro tip: Always run an independent comparable (aka “comp”) study inside PropStream. This helps you avoid overpaying and getting stuck with a poor investment. 

Turnkey vs. BRRRR vs. Traditional Rentals

It’s also worth comparing turnkey properties to other popular real estate investment strategies.

For example, the BRRRR (buy, rehab, rent, refinance, and repeat) method requires more effort but also offers more sweat equity upfront. Meanwhile, traditional rentals offer an intermediate approach that requires medium effort in exchange for average returns.

Here’s a quick breakdown:

• Turnkey: Low effort, immediate rent, higher purchase price
• BRRRR: High effort, maximum equity, delayed cash flow
• Traditional rentals: Medium effort, balanced return

How to Evaluate a Turnkey Property Like a Pro

Now that you know the pros and cons of turnkey rentals, here’s how to evaluate one like a pro:

Review the neighborhood

First, ensure the property is located in a neighborhood with adequate rental demand, low vacancy rates, and a favorable rent-to-price ratio. This bodes well for the rental’s performance. Leverage PropStream’s market trend insights for a quick overview.

Evaluate Renovation Quality

Next, check the quality of any property renovations by reviewing contractor receipts and before-and-after photos. A shoddy rehab may not be worth it. You can use the PropStream Rehab Calculator and also review the property’s ownership and lien history.

Analyze Current Cash Flow

A property’s net operating income or NOI (income after expenses) tells you a lot about its viability as an investment. The higher the NOI and your cash-on-cash return, the better. Estimate cash flow with PropStream.

Compare Rent to Market Rates

See if the turnkey property’s current rent is up to market rates. If not, you may be able to raise the rent upon taking ownership. Use PropStream to compare local rents and filter properties by their estimated rental income.

Check Property Management Fees and Terms

Finally, don’t overlook property management terms. Carefully review the fees and any tenant-placement guarantees to ensure it’s a good long-term investment. 

How PropStream Can Help Build a Turnkey-Friendly Lead Pipeline

Although turnkey providers often market their properties for sale on the MLS, you may want to explore building your own lead pipeline of off-market turnkey opportunities. 

Fortunately, PropStream makes this easier than ever. 

For example, our platform lets you filter properties that are likely to be in turnkey condition, such as recently renovated, non-owner-occupied, and already tenant-occupied homes. You can also take advantage of our pre-built High Equity and Absentee Owner lead lists.

From there, you can further qualify turnkey leads by analyzing their cash flow, rental demand, and long-term appreciation directly within PropStream.

Ready to evaluate turnkey rentals with confidence?

Sign up for PropStream today to analyze markets, verify turnkey deals, and build a strong rental portfolio backed by real data.