If you’ve spent any time researching real estate investments, you’ve likely run across the term ‘turnkey’ more than once. But what does it mean?
We’d like to say there’s one hard and fast definition, but this term has actually come to mean a few different things within the Real Estate Investment space. We’ll break down the differences between common uses of this term, so you’ll always know what you’re buying into.
Lower-Case “t” Turn-Key
Many people use the word ‘turnkey’ to refer to any property that is rehabbed and tenant-ready. Here, ‘turnkey’ is used as an adjective to describe the condition of the property. We like to refer to this as ‘lower case t’ turnkey. This kind of turnkey property can be purchased on MLS, from another investor, or from the guy down the block.
While these properties can still make great rentals, you won’t have any long-term relationship with the seller. This means the seller is motivated only to close the sale, not to provide you with a truly quality property that will produce long-term returns. You may not have accurate or complete information about the condition of the house without paying for an appraisal, and the ball is in your court in terms of tenanting and management. If it turns out the rehab work is shoddy or the neighborhood is headed downhill, you have no recourse and no one backing you up.
Now, this isn’t to say that some investors don’t do well with this kind of turnkey investment. But there is an increased risk to you as the buyer, and many moving parts that require research and management long-term.
True Turn-Key with a Capital ‘T’
The investments we sell at Spartan are ‘Capital T’ Turnkey. Here, the term is used as a proper noun, so it means one specific thing. We also refer to this as ‘True Turnkey’. What that means is that it only comes from one type of source: a full-service Turnkey provider. True Turnkey means one company – whose employees live and work in the market they’re selling – is responsible for the entire investment.
From scouting properties and scoring deals in the neighborhoods they know will support solid rental cash flow, to rehabbing, marketing, tenanting, and management – a true Turnkey provider does it all from day one, long before investors ever cut a check. This means that the people you buy your investment property from are the same people who will be managing it. You have one team to vet, one office to visit, one relationship to build.
Marketers Masquerading
The other type of company you’ll often see referred to as a ‘turnkey provider’ is a marketing company that sells turnkey properties owned by other people or entities.
The marketer advertises the properties for the owners and then takes a cut of the sale price. A marketer is just a middle-man for real estate investments. They often sell properties in many different markets, but only have offices in one.
While marketing companies are a resource for finding rent-ready properties, there is often some confusion about what kind of investment is being sold. Some might be ‘lower-case t’ turn-key properties being sold by other investors. Others might be True Turnkey, owned and managed by a real provider – a provider you need to vet. Others may be rent-ready with an independent Property Manager already attached, which is one more company to look into.
Regardless of which type of property is being sold, there is additional legwork to be done when buying a property from a marketing company. Just like an independent agent, a marketer isn’t going to be responsible for managing your investment long-term – they just need to close the sale and move onto the next.
These properties may still be great investments, but make sure you ask the right questions. Who is selling the property? What services do they provide long-term? You’ll need to vet the marketer and the turnkey provider or property manager, if there is one, to ensure you’re making a smart investment decision.
Educate Yourself
None of the above investments are intrinsically better or worse, but some do require additional research and vetting to ensure you get what you pay for. Make sure you understand the different types of ‘turnkey’ and ask the right questions so you know what you’re buying into. To view “true” turnkey properties, click here to see our available properties.