8 Reasons to Add Turnkey Real Estate to Your Portfolio in 2024—And 3 Red Flags to Consider

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Are you searching for your next big wealth-building strategy? Looking for ways to strengthen your portfolio? If so, it may be time to add passive investments to your portfolio if you haven’t already, specifically through turnkey. 

Turnkey real estate is an increasingly popular option with a range of benefits, making it an appealing choice for individuals seeking passive income and long-term wealth accumulation. Typically speaking, a turnkey property is fully renovated and ready for immediate rental or occupancy, often managed by a property management company, either affiliated with your turnkey partner or a trusted third-party vendor. 

Compelling Reasons to Go All-In on Turnkey Real Estate

Produce income faster 

Turnkey real estate provides investors with the advantage of immediate income. Since the property is already renovated and typically has residents, you’ll start earning rental income on day one. 

This is particularly appealing for investors looking for a steady stream of passive income without the delays associated with buying, renovating, and marketing a property. When you already have residents, there’s no interim where you’re without rental income. 

Time efficiency 

Turnkey investments save investors significant amounts of time and effort. The biggest time saver is the fact that many of the intricacies that you must learn in order to be an active real estate investor require time and commitment. 

With turnkey real estate, finding, purchasing, and renovating a property, which are each of the most time-consuming aspects of real estate, are handled for you, so you bypass the stress. Additionally, investors won’t have to do so much heavy lifting on the front end. Your provider has already hand-selected rental properties for their market. 

Professional management 

Turnkey real estate investments often come with the added benefit of professional property management services. Property managers handle day-to-day operations, such as resident relations, maintenance, and rent collection. This relieves investors of the burden of managing the property—making it as passive as possible! 

We can’t stress enough just how valuable skilled property managers are. They keep things running smoothly so you can focus on the big picture. Since no passive investment is ever 100% passive, your biggest responsibility here is managing the relationship with your property manager. As an investor, holding a management company accountable is your top priority. 

Mitigated risk 

The risks associated with turnkey investments are generally lower than those of traditional real estate ventures. The property has already undergone renovation, reducing the likelihood of unexpected repairs or maintenance issues. Additionally, having residents in place at the time of purchase or, at a minimum, the property on the publicly available list minimizes the risk of extended vacancy periods. As you acquire more properties and diversify the income in your portfolio, this risk diminishes further. 

Diversification 

As an asset class, real estate has a low correlation with traditional financial instruments, such as stocks and bonds. That makes it a choice addition to your portfolio if you’ve relied on more conventional options. For investors, the addition of turnkey real estate—easily the most passive strategy involving full ownership of a property—hedges against inflation, generates passive income and grows in value over time. When done right, turnkey real estate is a phenomenally low-risk strategy to diversify your total portfolio. 

Predictable returns 

The stability of turnkey investments stems from the predictable returns associated with rental income. With a property management team in place, investors can anticipate a consistent flow of income without being directly involved in day-to-day operations. This predictability can be especially attractive for those seeking reliable long-term returns. 

Market access 

Turnkey real estate investments offer investors the opportunity to participate in real estate markets that may be geographically distant. This is particularly advantageous for individuals who want to invest in markets with strong rental demand or potential for appreciation without the need to be physically present. Your local conditions may or may not be conducive to successful rental investing; however, if you choose to partner with a turnkey provider, they will unlock market access with conditions better suited for immediate and lasting success. 

Hassle-free entry into real estate 

For individuals new to real estate investing, turnkey properties provide an excellent entry point. Professionals handle the complexities of property acquisition, renovation, and resident management, allowing novice investors to participate in real estate without the steep learning curve. You can reap the immediate benefits and take the time to acclimate to real estate investing without being left to make novice mistakes.

Red Flags to Consider 

At the same time, investors should consider these red flags when investing in turnkey real estate.

What does “turnkey” even mean? 

The biggest tripping point for many investors is defining and understanding what they are getting into when purchasing a turnkey property. Two decades ago, there was one definition, and only a handful of companies offered the service. Today, it is the Wild West when it comes to using the word “turnkey” for marketing, and there are as many variations to what turnkey means as there are companies. There is even a cottage industry that has developed involving turnkey promoters.

In other words, the word “turnkey” has evolved into a marketing term, meaning many different things to many different people. This means it pays to do your homework and exercise patience. As with any real estate transaction, there is no need to rush as you are learning and gathering information. It’s important to make sure you are speaking with a company that owns the properties they are selling and not simply marketing the strategy with a lesser definition than the full service you expect. 

In-house vs. third-party management 

When we first started marketing our company and used the phrase “turnkey real estate” in 2007, having in-house management was a value-added proposition. The point of having in-house management managing a home purchased and renovated by the seller was to prevent the typical finger-pointing that occurs when different companies handle different parts of the transaction. 

What is the motivation of a sales company to assist with an underperforming property six to 12 months after the transaction? Often, there is none. The same goes for a management company that inherits a poorly renovated or overpriced property that can’t possibly meet the expectations set by the sales company. What motivation do they have to improve the situation? 

I am adamant that the best approach for an investor is to work with companies that keep all the services and responsibilities under one roof. Over the past two decades, about the only thing 

One thing I can say with 100% certainty about real estate is that property management is the single most important element to your future success. 

Am I prepared to be passive? 

I love meeting with other investors, especially those who like to share and discuss all things real estate. As a property manager with a $2 billion portfolio under management, I have had quite a number of these conversations, and I am always amazed at how quickly I can turn an investor away from buying turnkey. 

I know that sounds backward, but I see it as my job to attract ideal clients—not clients who are never going to be able to be passive. If you love the day-to-day hunt for new properties, meeting with contractors, or even swinging a hammer or slapping paint, then you must ask yourself the serious question: Will you be able to give up all those decisions to someone else?

The color to paint the walls has already been decided. The flooring has already been picked out, and the resident has already been qualified and signed the lease. There is nothing left for you to do but connect with your management company each month and make the deposits match. 

It is not much, but it is important, and I have met two kinds of investors who don’t match up well: those who think that there is not enough decision-making for them and those who don’t understand why they need to manage the manager. If you can accept the limited but important role, then turnkey, passive investments may be a great route to take in building and diversifying your portfolio. 

Final Thoughts

While no investment is entirely without risk, turnkey properties provide a relatively headache-free way for investors to benefit from real estate investment. As with any investment decision, thorough research and due diligence are essential to ensure that the chosen turnkey property aligns with your financial goals and risk tolerance.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.