A turnkey property is one that is in livable condition and is move-in ready, meaning that it doesn’t require repairs. Turnkey properties often have tenants already in them and a company already managing them. Investors most commonly purchase these properties from turnkey real estate companies, but private individuals can also sell these seasoned units.
If you need financing to purchase a turnkey property, Visio Lending could be a good fit. They offer loans for turnkey rental properties up to $2MM. Their rates start at 4.7% and Visio offers terms of up to 30 years terms. Prequalify online in minutes.
How Turnkey Real Estate Works
Turnkey properties are all purchased in good condition and often have tenants. For this reason, they’re typically more expensive than properties that need rehabbing. Long-term investors buy turnkey properties to avoid the hassles associated with rehabbing and seasoning investment properties. Owner occupants sometimes buy them because they’re move in ready.
Turnkey real estate can include new construction homes as well as older homes that have been completely renovated. Turnkey homes that don’t have tenants in them and are geared towards owner occupants. Turnkey real estate for investors typically have tenants in place. Unlike other investment properties that are sold ‘as is’ or ‘subject to,’ turnkey properties have passed inspections and are sold with a clean title report.
Properties become “turnkey real estate” when turnkey real estate companies buy distressed properties at discounted prices. They typically find these properties by using their real estate wholesaler’s connections. These companies rehab the properties using tenant-grade materials such as no carpet, laminate flooring and no garbage disposals. After the renovations are complete, they put the property up for sale and find a tenant simultaneously.
Turnkey companies will then manage the properties after they rent and sell them. So, an investor typically buys the property with a loan or cash and then pays the turnkey company to manage the property from the rent proceeds.
Turnkey properties are generally sold to the turnkey company’s network of investors or to new investors that contact them from their website. They usually don’t make it on the Multiple Listing Service (MLS) since the companies have their own buyers. Let’s now take a look at who exactly is right for these turnkey properties.
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Types of Turnkey Properties
Although all turnkey properties are expected to have certain features, such as updated appliances, fresh paint, and new flooring, there are different types of turnkey real estate to consider. A turnkey property can be in the form of a condominium, single family home, multi family unit or an apartment building.
A turnkey condominium is a condo that has been renovated and is in move-in condition. It is either already rented to a tenant or ready to be rented. Single-family homes are also considered turnkey properties when they’re in move-in condition.
If a multifamily dwelling is considered turnkey, it’s up to code, livable, and usually has qualified tenants already renting it. The same applies to an apartment building. Even if these properties all claim to be in turnkey condition, it’s best to do full inspections of each one to be sure all systems are working properly.
How to Find Turnkey Properties
Now that you know what turnkey properties are and what to look out for, it’s time to find out where to locate them. The most popular place to find turnkey properties is through turnkey real estate companies. They’re full-service companies that typically have a portfolio of properties that buy, rehab, sell, rent out and manage.
Step 1. Do Your Research
Just like with any other real estate purchase, you need to do your research to be a well-informed buyer. This research will focus on the neighborhoods and the turnkey companies themselves. If you purchase a property outside of your city, you’ll still need to go there to see the property at least once.
During the first part of the research stage, you won’t be researching specific properties. Instead, you will be researching neighborhoods and the prices of homes in these areas using Zillow or something similar. Also, physically look for signs of distress such as multiple boarded-up properties, closed businesses and unkempt streets. FInd out how much comparable properties sell for to avoid overpaying for a turnkey property.
Once you identify a neighborhood, it’s common for turnkey real estate companies to purchase, renovate and resell investment properties so you need to investigate the company as well as the property itself. Find out their level of experience and how they do their bookkeeping. Know what fees they charge, who completes maintenance requests and how long it takes them to rent out properties.
Some common fees charged by turnkey real estate companies include:
- Property management fees from 10-20%
- Locating new tenant fees as high as 1 month’s rent
- Eviction fees which vary depending on the state’s filing fees etc.
- Commission to buy and or sell the properties
Gigi Luu, Realtor at Msquared Real Estate, works with owner occupants who buy turnkey properties in D.C., she says:
“Make sure you aren’t over-valuing the property during the research stage just because it is new construction or renovated. Certainly, there is a premium to purchase a new product, but you still don’t want to overpay, so be sure to pull comps. Pay close attention to properties that have sold close-by with a similar level of finish.”
Step 2. Work with the Right Turnkey Real Estate Company
Most real estate investors who purchase turnkey properties are buying them so they don’t have the stress of doing the renovations or management. They want a professional to take care of everything and therefore it’s important to find the right company to work with long-term.
Buying turnkey real estate can be similar to portfolio investing. When you decide to buy a property from a turnkey real estate company you’re buying the property directly from them. Choose a company you have researched and feel comfortable with and then look at their inventory. Most of the companies have large inventories spread over multiple states. You give them your budget and location criteria and they will send you available options.
Although not as common, turnkey real estate can also be found with local realtors. They have the capability to search the Multiple Listing Services (MLS) and filter them by the condition the property is in. Most of these companies don’t also manage the properties and don’t sell outside of their area, so it’s best to interview them before working with them.
Step 3. Finance Your Turnkey Property
After you’ve done your research on turnkey properties and found a turnkey company to work with, it’s time to decide how to pay for the property. Since these properties don’t need repairs to bring them up to code, they can be financed using a variety of loans, including conforming loans as well as non-conforming ones.
One option for investors is Visio Lending’s Rental360 loan. They can fund loans in 3-4 weeks for up to $2MM and 75%-80% LTV. Rates start at 4.7% and prequalifying online takes just a few minutes.
How to Finance Turnkey Properties
Turnkey properties are easier to finance than other properties that need repairs. Some investors choose to pay with cash, but it’s more common to leverage the properties with traditional financing. Conforming loans, portfolio loans and multifamily loans are the most common financing options. Short-term loans are also used in some extreme circumstances.
Conforming loans are mortgages that meet certain criteria in order to conform to Fannie Mae and Freddie Mac guidelines. They must fall under a specific loan amount, which in most areas is $424,100. They offer the most competitive interest rates in the market. Examples of conforming loans include FHA 203K Mortgages and Homestyle Renovation Loans.
If you’re purchasing in an area that has higher than average housing prices the conforming loan limits increase. The same happens when you purchase a property with more than one unit. For example, if you purchase a four-unit property in an average cost area the loan limit increases to $815,650.
Conforming Loan Rates and Terms
Conforming loans provide low risk, long-term financing for owner occupants and investors looking for single family homes, condos and multi family units with 1 to 4 residential units. Conforming loan rates and terms include:
- Interest rates generally from 4-7%
- 15-30 year terms
- Typically a 75% Loan to Value (LTV)
- Maximum loan amounts of $424,100 for one unit in most areas
- Certain regions have higher costs of living and higher property values so the loan limits are higher.
After finding out the rates and terms for conforming loans, you need to look at the qualifications to see if you meet them.
Conforming Loan Qualifications
In order to qualify for a conforming loan, the borrower must meet certain lending criteria. This criteria is mostly standardized and must meet federal guidelines. Conforming loan qualifications include:
- Credit score of 620+ (check your credit score for free here)
- Mortgage insurance which is required for loans above 80% LTV
- Having reserves of 3+ months for most lenders
- A down payment over 5% depending on the type of property, loan product, and borrower profile
After you’ve determined that you meet the conforming loan qualifications, it’s time to find out where to apply for conforming loans.
Where to Find Conforming Loans
Conforming loans are readily available and can be found at local banks, credit unions and by government-backed providers such as the FHA, Freddie Mac and Fannie Mae. Most banks and credit unions have separate departments that deal only with mortgages and will be able to offer knowledge on their loan products.
Visio Lending is a national lender that offers more flexibility to investors that conforming loan providers. Well qualified borrowers may qualify for up to $2MM with interest rates starting at 4.7%. Loan terms are 30 year and you can prequalify online in minutes.
Portfolio loans are offered by lenders who loan their money to borrowers and keep the debt on their balance sheet as an investment. Portfolio loans can be used to finance properties with single units as well as multi family units and apartment buildings. They can also be used to finance more than one property at the same time.
Portfolio Loan Rates and Terms
Portfolio loans offer higher maximum loan limits than conforming loans. They can be used to finance properties in turnkey condition, as well as properties that need rehabbing. Portfolio loan rates and terms include:
- 3%-11% fixed and variable interest rates
- 1 – 30 year terms
- Being able to have multiple loans at once
- A minimum property value of $100,000
- Maximum property limits exceed $2,000,000
After finding out the rates and terms for portfolio loans, you need to look at the qualifications to see if you meet them.
Portfolio Loan Qualifications
Portfolio loans offer more flexible qualifications than conforming loans. They also don’t put restrictions on the number of properties being financed at any one time. Portfolio loans offer a wide range of lending solutions but their qualifications can vary widely. Portfolio loan qualifications include:
- 600+ credit score (Check your credit score for free here)
- Minimum building occupancy of 90%
- Cash reserves of 6+ months
Now that you’re familiar with the qualifications of portfolio loans, you need to know where to find them.
Where to Find Portfolio Loans
Portfolio loans can be found at private lending institutions, as well as most banks and credit unions. Real estate investors take advantage of the more lenient lending criteria and the ability to finance larger projects that comes with obtaining a portfolio loan.
If you are ready to check out a portfolio lender, give Visio Lending a look. Their portfolio loans cover 3-7 rental properties and investors can get multiple loans to cover even more units. Each loan can go up to $2MM with interest rates starting at 5.575%. Fill out a quick online application to see if you qualify.
Multifamily loans are primarily used to finance properties with 2-4 units. They can also be used to finance larger properties such as apartment buildings, although apartment loans are more common for them. There are several types of multifamily loans which all have varying rates, terms and qualifications.
Multifamily Loan Rates and Terms
Multifamily loan rates and terms vary depending on the type of loan. There are short-term loans and longer terms open to investors. Multifamily loan rates and terms include:
- Interest rates between 4% and 12%
- 1-30 year terms
- Loan amounts usually start at $100,000
After finding out the rates and terms for multifamily property loans, you need to look at the qualifications to see if you meet them.
Multifamily Loan Qualifications
Multifamily loans have different qualifications depending on the type of multifamily loan. A higher credit score is generally needed to qualify for a multifamily loan and the property needs to be in livable condition for most loans. These loan qualifications include:
- A credit score of 650+ (Check your credit score for free here)
- 6 + months of cash reserves
- 2-4 unit building
- Property that is in good condition
Once you determine that you’ve met the qualifications to be eligible for a multi family loan, you need to know where to find these loans.
Where to Find Multifamily Loans
Multifamily loans can be found at banks, credit unions, and other lending institutions. Private lenders also offer products that cater to investors looking to finance multifamily properties. For example, multifamily loans can be found at Lima One Capital. Rates start as low as 8.99%. And own payments are typically 20%+.
Apartment loans are loans that are used to finance 5+ individual residential units. In order to obtain an apartment loan, there are certain loan rates, terms, and qualifications that must be adhered to.
Apartment Loan Rates and Terms
Apartment loan rates and terms vary depending on the institution issuing the loan. There are 3 major types of apartment loans. These include permanent government-backed apartment loans, permanent balance sheet loans, as well as some short-term loans. Apartment loan rates and terms include:
- 4-12% fixed interest rates for short-term apartment loans
- A minimum property value of $100,000
- Up to 90% loan-to-value ratio and 75% loan-to-cost ratio
After finding out the rates and terms for apartment loans, you need to look at the qualifications to see if you meet them.
Apartment Loan Qualifications
Apartment loans are geared towards investors looking to finance multifamily dwellings or apartment buildings. They have certain strict qualifications that must be met in order to qualify. These loan qualifications include:
- A credit score of 650+ (Check your credit score for free here)
- 9+ months of liquidity
- Occupancy rate over 85% to obtain permanent financing
- Seasoning of 90+ days to obtain permanent financing
Now that you’ve found out the qualifications needed in order to obtain an apartment loan, the next step is knowing where to find apartment loans.
Where to Find Apartment Loans
Apartment loans can be found at local and national banks, credit unions and government agencies. The most common multifamily loans are issued by government-backed agencies such as Fannie Mae, Freddie Mac and the FHA.
If you want to take advantage of the income-producing opportunities of buying an apartment building, then contact Lima One Capital. They can prequalify you online in minutes and they finance turnkey real estate investors of all experience levels.
Hard Money Loans
Fix and flip loans are generally used to purchase investment properties that need to be rehabbed. They aren’t common when dealing with turnkey properties since these properties can be financed with other lower rate, long-term financing products. The only time they may be used is if an investor purchases a vacant turnkey property and needs to season it before refinancing to a long-term loan.
If you decide to buy turnkey real estate and need to season it before refinancing, then contact LendingHome. They provide competitive rates that start at 7.5% and they qualify you online within minutes.
Who Turnkey Properties are Right for
Turnkey properties are most commonly right for hands-off investors looking for long-term, flexible and passive wealth-building strategies. They offer the opportunity to own real estate without having to be actively involved in managing it. For example, if the market you live in is too expensive, you can invest outside of your area by purchasing turnkey properties.
Turnkey properties are also right for owner occupants who want to move into a property right away. In these less common scenarios, owner occupants typically purchase a turnkey property because it’s move-in ready. There is usually not an existing tenant present.
Turnkey properties are ultimately right for:
- Landlords who want to buy properties that aren’t in the same place where they live and/or work
- First-time landlords who want to get their feet wet with real estate investing
- Hands off landlords who are too busy to manage their own properties
- Investors who want a long-term investment strategy with steady cash flow
- Low-risk investors who don’t want the risk of flipping a property and hoping it sells
- Owner occupants who want a property to move right into
- Investors doing a 1031 exchange since turnkey properties can be found and purchased quickly
Turnkey properties aren’t ideal for investors who want to do DIY repairs or who want to build sweat equity by fixing up a property with a fix and flip loan. They’re also not suited to investors who want to use a rehab loan to purchase a distressed property. Landlords who want to take a hands-on approach, meet tenants and visit the property also aren’t a good fit for turnkey properties since most of them come with a management company.
For those landlords that want to manage their own properties instead, check out our landlord tips article. If you don’t want to deal with the turnkey real estate company at all and are instead looking for a deal, you can buy a property at an auction or purchase an REO property.
Pros and Cons of Investing in Turnkey Real Estate
Investing in turnkey real estate can be a great wealth-building strategy but it does come with its own set of pros and cons. For example, buying turnkey real estate is generally a long-term investment strategy with fewer risks but the returns aren’t as high as fixing and flipping properties. Some of the pros and cons of buying turnkey properties include:
Pros of Investing in Turnkey Real Estate
- No rehab costs
- You don’t have to deal with contractors and a rehab timeline
- These properties are less time consuming than ones that need repairs
- If you hire a turnkey real estate company, you don’t have to spend time managing the property
Cons of Investing in Turnkey Real Estate
- You will spend more to acquire the property since it doesn’t need to be fixed up
- You’re leaving your cash flow up to when tenants pay the rent
- You have less control over the property if you use a management company
- The property isn’t going to have sweat equity in it since it’s sold in move in ready condition
After reading this article, you should have a better understanding of what turnkey properties are, what features to look for and where to find them. As is with investing in any type of real estate, turnkey properties have their pros and cons, but they’re generally a stable long-term investment and provide monthly cash flow.
If you need financing to purchase a turnkey property, make sure to check out Visio Lending. They offer loans for turnkey rental properties of up to $2MM. They offer 30 year terms with variable or fixed interest rates starting at 4.7%.