What Is a Turnkey Home?
Turn your key in the lock and move right in
Highlights
Turnkey homes are move-in-ready properties that don’t require any renovations.
The term is used for traditional, buy-to-rent, and new-construction homes.
Turnkey is often a subjective marketing term, so it's important to do your research.
You may pay more upfront for turnkey homes but less on renovations over time.
Whether you're ready to buy a home for the first time or starting the home-building process, the word "turnkey" can pop up in several contexts. This term simply refers to a move-in-ready home—all you have to do is turn the key and start living in it. For some buyers, this can be a huge benefit. But for others, a turnkey home can come at too high of a cost.
What Is a Turnkey Home?
A turnkey home is a property—usually a single-family home or apartment—that has been fully renovated and ready for move-in. In some cases, these properties are flipped or owned by a house company that specializes in home restoration and selling.
With a turnkey property, the sellers can easily and immediately “turn the keys over” to the renter or new owner without any necessary repairs. These homes are often much more expensive because the purchase price covers the cost of both the home and the improvements.
Types of Turnkey Homes
A turnkey house is used in three ways:
For a buyer to live in
For a buyer to rent out
As a construction contract
Buying a Turnkey Home to Live In
On the simplest level, a turnkey home is move-in ready for buyers who are not interested in DIY-ing any part of their new space, making it the opposite of a “fixer-upper’ home. The home should pass all structural, electrical, and plumbing inspections. It may have a new coat of paint, new appliances, and new finishes.
But keep in mind—and here's the kicker—that the term "turnkey" refers to a range of move-in-ready states. It also does not mean that the seller will make any requested stylistic changes to the home.
Buying a Turnkey Home to Rent Out
Turnkey homes are most often used as a real estate investment opportunity. They offer faster turnaround times on ROI, as they don’t require any renovations and sometimes come with additional benefits like property management. Buying a turnkey home also ensures that the recently built or flipped home meets all building code standards for that area.
Even if the investor lives across the country, they can purchase the turnkey home and know it's ready for tenants to move into right away.
Building a Turnkey Home
Construction companies and project managers may also offer turnkey contracts to prospective buyers. In most cases, the company will manage everything from the initial home design to adding the final touches.
Just like the other scenarios, your newly built home will be move-in ready and allow you to skip obtaining multiple loans for different stages of the process.
Pros and Cons of Buying a Turnkey Home
If you don't have a passion for fixing up a home yourself or are looking to transform it into an instant rental investment, this is a potential option. But in some cases, the investment might not make sense for you.
Pros of Turnkey Homes
These benefits may sway you toward a turnkey home:
Skip the renovations: Walking into newly painted walls, fresh kitchen cabinets, and even a new furnace sounds—understandably—enticing. Turnkey homes speed up the process of finding your dream home and settling in, plus you can skip the renovation process.
Ideal for rental properties: Turnkey homes are enticing to new and experienced investors looking to buy a home and immediately rent it out. Many investors will even hire a property manager to oversee the care and financial details of the rental. If you don't have to make major renovations after buying the home, your first tenants can move in faster.
Simplify home construction: The term turnkey is a bit more straightforward in the construction world. While contracts will differ, turnkey construction places the full design and building process in the hands of the company. In most cases, you will receive a clear timeframe and budget breakdown when everything is in the hands of an individual project manager.
Cons of Turnkey Homes
Keep these drawbacks in mind when purchasing a turnkey house:
Higher purchasing price: It should come as no surprise that turnkey homes typically cost more than homes that require renovation or repairs. The previous owners invested more money into making the home safe and comfortable, essentially taking that cost off your plate. Since the construction company handles the logistics, the cost of building a new home will be higher as well.
Turnkey definition can be subjective: While marketers and realtors should use the term as a guarantee that the home is ready for move-in, this isn't always the case. That’s why it’s important to hire a home inspector you trust before buying a home. A walkthrough of the space may look renovated, but be sure to have professionals look at unseeable structural issues.
Less design input: Some people would love the chance to customize their home to their heart's content. That’s not the case with a turnkey property. After signing the mortgage, you likely won’t want to spend the money to replace brand-new marble countertops—even if you prefer granite—since you essentially paid for them in the price of the house.
What Should You Look For In a Turnkey Property?
Buying a turnkey home is a major financial decision. When evaluating a turnkey house—regardless of your status as an investor or a traditional buyer—there are some things that you should look for to ensure you’re making a smart purchase.
Quality of Renovations
While most home renovations completed by a professional general contractor are up to par, repairs or renovations made by untrained professionals may not stand the test of time. Don't hesitate to request the details regarding recent projects, and always hire a home inspector to check out the integrity of the work, regardless of the turnkey status.
Age of Home Systems
Move-in ready doesn’t necessarily mean the home systems are up-to-date; rather that they are properly functioning. Assess the remaining lifespan of some of the most expensive mechanical systems, like the HVAC system, to determine whether they are brand-new or may require repairs in the near future.
Long-Term Investment Potential
Turnkey companies typically only look for a short-term investment opportunity. But as a buyer, you need to consider the long-term investment potential of the home. For example, if it’s a turnkey property in an up-and-coming area, its value will likely increase over time.
Rentability
If you’re purchasing a turnkey property with the intent to use it as a rental property, you should consider whether it’s a good fit for the long-term local rental market. Ask yourself: Are there already renters in place? Is there a lot of interest in rental properties in the surrounding area?
It’s important that you understand the neighborhood and its potential for rentability—now and in the future.
Cap Rate
The higher purchase price of a turnkey property may leave smaller margins for profitability as a real estate investor. You can measure your property’s earning potential through its capitalization rate (cap rate). To find your cap rate, use this formula: Net Operating Income (annual income minus expenses) ÷ purchase price x 100%. The higher your capitalization rate, the better, but anywhere between 4% to 10% annually is considered a good range.
Is a Turnkey Home Right for You?
For some home buyers, a turnkey property can be very appealing. Here are the most common situations where someone may prefer a turnkey home over a traditional house:
You don't want to do any home improvements
You have a family or job obligation that makes DIY difficult
You're looking for an easier investment opportunity
You're moving a long distance and don't want to worry about the house
But just like buying any home, it’s important that you conduct ample research and consideration with a turnkey property. While it may sound like a good idea, it comes with many factors to consider.
Hiring a trusted local real estate agent can help you navigate this process and answer any lingering questions or concerns you may have.