How the Turnkey Process Works
Turnkey investing is a relatively new concept in the real estate industry. The word "turnkey" is often misused or misunderstood, so let’s go through how the process typically works.
The Standard Turnkey Process
The turnkey model came about to simplify the process of finding, rehabbing and leasing rental properties and to make real estate investing more accessible to those who work full-time or would like to invest out of state.
Instead of you (the investor), doing all of the work that is required to acquire and rent out of a property, the turnkey company does most of the heavy lifting for you.
Here is how the process usually works:
- A turnkey company (which essentially is a large-scale home flipper) finds and buys a run-down house. These houses are often foreclosures, short sales, bank-owned properties or bought at auction. They are cheap, but often need significant repairs before they can be rented out.
- The turnkey company uses its in-house rehab team to renovate the house and bring it to a rent-ready condition (which just means it will be competitive on the rental market).
- Oftentimes, the turnkey company will find and place a tenant in the property before selling it. This isn’t always the case, but most turnkey providers will do this.
- The turnkey company sells the rehabbed rental to you, the investor. These sales are usually off-market, meaning they are not listed on the MLS or available to the general public, so you don’t have to worry about a bidding competition. You buy it for the advertised price.
- Once the purchase process is complete, you own the home and can start collecting rental income. The turnkey company will often set you up with their in-house or preferred property manager, or you can pick your own.
A variation of the above process is when the turnkey company doesn't buy and rehab properties ahead of time, but instead waits for you to purchase them first. In those cases, you become the owner of the property right off the bat, while the turnkey company offers their services to help you rehab and lease the home.
It's even more important to vet the company in these cases, as you may be stuck with an incomplete rehab if they bail on your half-way.
The Turnkey Market Isn't Regulated
The biggest source of all controversy surrounding turnkey investing is the fact that turnkey companies are not regulated by any standards or organizations. What this means is that they are in complete control over how they do business.
While the process outlined above is usually the standard, the details can vary from company to company. The quality and scope of rehabs tend to vary by a wide margin, not all turnkey companies will be willing to place a tenant in the property and not all of them have in-house property management.
But the most important thing to remember is that their business values may not align with yours. Just because a company calls itself a "turnkey provider", doesn't mean it has high standards, a good reputation or is worth working with. That's why it's so important to interview and vet any company you will buy properties from and be very selective.