The exact definition of “turnkey” when it comes to investment property means different things to different people.
Some investors consider turnkey investment properties to be fully renovated and ready to be rented out upon purchase. Another may consider turnkey properties to already have tenants and property management in place. And another investor may consider a property as turnkey if, after selling it to an investor, he helps coordinate the rehab and hiring of a property management company.
So, what is the best method of purchasing a turnkey rental property?
Different Types of Turnkey Rental Property
Let’s briefly discuss the difference between these 3 types of turnkey investment properties.
In short, the difference in these types of investment property is at which point the investor takes possession of the property. The earlier the investor takes possession of the property, the more risk he takes on and the higher chance he has of retaining more of the equity.
#1 Rehabbed, Tenants, Management Company
The investor takes possession of the property after everything is done, and the property is generating cash flow. As a result, though, these turnkey properties often have no equity.
#2 Rehabbed, No Tenants or Management Company
A turnkey investment property that has been rehabbed but does not have any tenants has more risk, and it might have a little equity.
The investor takes on the risk of getting good property management in place that will get tenants in the property and generate cash flow.
#3 Not Rehabbed
The turnkey property that has the most risk and highest potential of retaining the most equity is one that is purchased before being rehabbed.
The investor takes on the risk of rehabbing the property, and getting a property management company in place that will get tenants in the property and generate cash flow.
Though many investors do not consider un-rehabbed properties to be turnkey, there are other investors who use the term “turnkey” to describe them; so, we are considering this property type for the purpose of this article.
It is, therefore, important that when an investor is considering purchasing a turnkey property to know exactly how the term “turnkey” is being used, and to understand exactly what he is purchasing.
At Graystone Investment Group, we began helping clients long before the term “turnkey” was popularized, by finding properties that we resell to investors at discount prices. Then, we help investors by coordinating with rehab and management companies at no extra charge.
Risk vs. Equity
What is the best method of purchasing turnkey rental property? It depends on the goals of each investor, and his desire to take on risk in order to retain an equity position in the property.
It’s a matter of choice whether an investor wants to:
- Purchase a rehabbed property that already has tenants and a property management company in place.
- Purchase a rehabbed property without tenants and no property management in place.
- Purchase an investment property that will be rehabbed after it is purchased.
An investment property that is already rehabbed typically has less risk, but there is little to no equity left in the property. However, an investment property that has not been rehabbed has more inherent risk, but there is more opportunity to own the property with immediate equity.
Each investor must decide whether he prefers less risk with no equity, or taking on some of the risk so there is equity in the investment from the beginning.
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.