If you’ve spent any amount of time searching through investment home listings, you’ve probably come across articles or forums that discuss the merits of turnkey properties. People are pretty passionate on both ends of the discussion.

In this article, we'll shed light on buying turnkey properties through two different types of companies, the pros and cons of each, and how to determine if this investment method makes sense for you.

First, let’s define our terms and ensure we're on the same page.

What is a turnkey property?

Definitions vary slightly, but most agree that a turnkey property is one that is rehabbed and rent-ready. All you have to do is quite literally “turn the key” to unlock the front door. Your new tenant can move in day one, and there is no delay from when you purchase the property to when you can execute your lease.

Pros of turnkey properties

• The property is fully rehabbed and ready for a tenant.
• There should be little to no deferred maintenance.

Cons of turnkey properties

• Turnkey properties have been fully rehabbed requiring a greater upfront investment.
• The higher price point of a turnkey property doesn’t leave much, if any, equity in the deal beyond the down payment.

There are companies that specialize in turnkey real estate investments all around the country. The greatest concentration of turnkey properties seem to be in Midwestern and Southeastern cities, such as Memphis, Kansas City and Indianapolis.

Turnkey properties are an excellent choice for those who live far from the markets in which they want to invest. Turnkey properties may also appeal to new investors who value acquiring a low-maintenance property that's rent-ready.

Lets take a look at the two types of turnkey companies:

Traditional turnkey company

Traditional turkey companies typically divide their operations into two factions:

• One that handles acquiring below market value properties, rehabbing the properties and finding turnkey buyers.
• One that handles property management.

Here’s how the process works:

The turnkey company buys below-market value properties that often need a fair amount of work. Then they rehab the properties, which might include replacing the roof, HVAC, electrical, plumbing, flooring, and major kitchen appliances. Finally, they market and sell the property to investors looking for rent-ready homes. Many also offer a property management component to their service that will place qualified tenants and manage any maintenance request that arise moving forward.

Turnkey companies typically operate in a specific price point of the market. Expect to find homes that range in price from $60,000 - $150,000. If you plan on financing your purchase, be mindful that most lenders typically require a 20% - 25% down payment for investment properties.

A typical turnkey property might offer 1,500 sq feet of living space with three-bedrooms, two-bathrooms at a price point around $125,000 renting between $1,000 - $1,250 per month. Something like this in an a decent area should have no trouble with vacancy.

Non-traditional turnkey company

The other type of turnkey company is relatively similar to the one described above, but instead of offering in-house property management services, they focus solely on acquisition, rehab, and selling. They then solicit their inventory directly to buyers or rely on third party marketplaces to market the properties and connect them with buyers.

Is a turnkey property right for you?

When considering if a turnkey property is good fit for your investment criteria, consider the following:

• Do you have resources to finance and manage the renovation process.
• Do you have time to locate and manage the contractors necessary to renovate the property.
• Are you willing to trade the time and effort required to rehab a property for the equity you loose when buying a turnkey property.

Many buyers scoff at the premium paid for turnkey properties and are intent to build out a team to handle all the renovations and earn that sweat equity.

Others might live a considerable distance from profitable rental markets or have their hands full with their primary job. Let's consider a busy professional in New York City who might not be able to afford investing in Manhattan, but could afford a rental property in a market such as Memphis or Indianapolis. That same person’s time might be better spent focusing on their work rather than orchestrating contractors, managing the rehab process or even trying to tear out walls and install toilets themselves on a holiday.

Most busy professionals tends to fall somewhere in the middle. They’re interested in investing in real estate, they like the idea of sweat equity but a prudent consideration for their time has left them interested in finding a company that will help them achieve their rental property goals.

Turnkey properties are a perfect fit for those who fall into the second and third groups.

Are you ready to buy a turnkey property?

Buying a turnkey rental can be shrewd investment. A rental with little to no deferred maintenance for the first few years of ownership can be a great way to get your feet wet without feeling overwhelmed. If you are ready to jump into real estate investing, turnkey properties could be a great path for you to reach your investment goals.