Clarification on turnkey definition

[Trevor Lohman]

Hey guys, I've posted a few deal analysis reports on properties I've found on the MLS or from an agent OOS I've gotten a lot of "don't do turnkey" which I'm sure is good advice generally. My question is though, if I find and buy a property on the MLS after making lots of offers and getting what I consider to be a decent deal, and then I find a property manager to manage it... is that turnkey? I put it all together. Granted it's not much work but I guess i thought turnkey was a little different. I thought turnkey was when someone rehabs a house, puts a tenant in it, then sells it to me. Maybe it isn't much of a distinction I guess... because either way I'm paying retail for an out of state rental that someone else puts a tenant in. Which is turnkey? Or are they both? And does it matter? Lol

[Clayton Mobley]

@Trevor Lohman I think the confusion (and you're not alone in it, by any means) comes from people correctly using the term 'turnkey' as both an adjective and a noun. Both are technically correct, but because the adjective form can be used to describe any property that is tenant-ready, it can be used in discussions of REI wherein the investor finds the prop themselves and hires a PM, like you're suggesting, which is more of DIY method (ok, not completely DIY, but more so than in the definition below). In this case, 'turnkey' is just an adj used to signify that no rehab work is needed prior to leasing.

The noun Turnkey (sometimes abbreviated on BP as 'TK') is what Tom is talking about. It is a specific type of investment wherein a turnkey company (or turnkey 'provider') finds a property that needs work, does that work, sells it to an investor (the sale should close after all rehab and inspection items are taken care of), and then manages it, passing on the net rental income to the new owner. The turnkey company makes money on rehabbing properties and selling them, capitalizing on economies of scale to create equity at wholesale rehab prices, and through a PM fee (often about 10%). The investor makes money from net rents each month, and doesn't have to do much else other than vetting the provider before cutting a check (though this is still labor intensive). It is considered one of the most passive investment styles, and there are lots of mixed feelings about it here on BP. 

Both uses are correct, and I would argue that the best way to tell the difference would be that the investment style (noun) should perhaps be capitalized - but that would required everyone on BP to adhere to the same grammatical rules, and that's just not how forums work ;)

What you're talking about would be a more DIY approach, wherein you buy a (lower-case) turnkey property and then find your own PM, not an (upper-case) Turnkey investment where one company does everything from scouting to rehab to management, all under one roof.

Hope that helps!