If you are a house hacker, the turnkey properties in Canada is an essential term for anyone to be familiar with. This rising trend is taking root passively among investors and home buyers alike. For investors, it offers a low-effort path to consistent rental income, while home buyers benefit from the convenience of move-in-ready homes without the hassle of renovations. Many developers believe that turnkey homes allow buyers to move in easily, which is what home buyers exactly want these days.
Buying turnkey properties in Canada is a reliable source of a steady passive income with very little work on your part. Investors usually prefer these advantages over the properties for a quick profit. It gives you the perfect choice for hassle-free real estate investment that promises convenience and instant gratification. But is it really as perfect as it sounds? Let’s dive into the exciting realm of turnkey properties and explore the upsides and the pitfalls.
Understanding Turnkey Properties in Canada : Move-In-Ready Homes
The term turnkey properties in Canada refers to move-in-ready homes that require little to no additional work or renovations. These properties are becoming an attractive option for buyers looking for convenience and immediate occupancy. They are also attractive to investors because they can purchase a property and rent it out right away without spending time or money on major renovations and repairs.
In simple terms, these are pieces of real estate- be it a house, duplex, or apartment building – that are fully functioning and ready for you to rent out or sell immediately and watch the cash flow. In the context of assisted living facilities, turnkey properties are usually already established, with residents and staff in place. Previous owners often provide necessary training to investors to help them successfully operate the facility.
In conclusion, turnkey properties in Canada are like the pre-packaged meals of the real estate world.
Let’s take a real-life example to understand the term better: If a person wants to invest in real estate but doesn’t have the time to deal with renovations. You must go to the turnkey property. It gives investors a home that’s been fully renovated, tastefully decorated, and ready for occupancy without any additional work needed from you. These properties are often marketed towards investors who want seamless real estate. The property you chose has been recently updated with modern amenities, and there’s even a tenant ready to move in. You decide to buy the property, and from day one, you will start receiving rental income without lifting a finger.
How Turnkey Properties Work: From Purchase to Profit
When you buy a rental property, you purchase an asset that can secure your future. Because as your property value increases, it will also be reflected in your net worth.
Here’s the magic behind turnkey properties:
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- Acquisition and Renovation: Individual investors or real estate firms search the market for distressed or undervalued properties. Once they find a potential gem, they purchase it and renovate it. These renovations are comprehensive, covering everything from fixing structural issues to modernising interiors and ensuring all systems (like plumbing and electrical) are up to code.
- Tenant Placement: Many turnkey properties come with tenants already in place. This is particularly appealing for investors because it means immediate rental income. The best part is that before you even buy the property, it is promoted, renters are chosen and screened, and leases are signed.
- Professional Management: One of the biggest perks of turnkey investment properties is the inclusion of property management services. These companies take care of everything from collecting rent and handling maintenance requests to dealing with any issues that might arise with tenants. This means investors can enjoy a truly passive income.
Turnkey properties can be a dream come true for investors looking for a low-effort, high-reward venture. However, they come with their own set of pros and cons that need careful consideration before making a move.
How to Profit from Turnkey Properties?
Buying turnkey properties can be a smart way to grow your wealth, especially if you’re looking for a hands-off investment. Let’s explore how you can make money from a turnkey property in a way that’s straightforward and easy to understand.
Immediate Rental Income
One of the biggest advantages of a turnkey property is the potential for immediate rental income. Since these properties are often sold with tenants already in place, you start earning rent as soon as you take ownership.
Property Appreciation
Turnkey properties are typically located in desirable areas that are expected to appreciate in value over time. As the property value increases, so does your investment.
Tax Benefits
Owning a turnkey property can offer several tax benefits. You can deduct mortgage interest, property taxes, and operating expenses from your taxable income. Additionally, depreciation allows you to deduct the cost of the property over time, reducing your tax liability.
Leveraging Equity
Equity is created as the value of your home increases and the mortgage is paid off. This equity can be leveraged to finance additional investments, such as purchasing another rental property.
Passive Income
Turnkey properties are designed to be low-maintenance, especially with the professional property management services often included. This means you can enjoy passive income without the stress of daily management.
Ready to invest in turnkey property? Here, we have pointed out some essentials to guide your decision:
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- Cashflow : The “right” amount of cash flow per property is subjective. It is good to ask yourself what an extra $100/$200/$300+ cash flow could do for you. Don’t let anyone tell you what threshold to accept because only you can answer what is depending on your goals and what you are looking to achieve.
- Cash on Cash Return : Another metric used to assess a property is cash on cash flow. It tells us the return on investment by looking at the all-in cost to purchase the property as it relates to the net profit the property gets. As with cashflow, a healthy cash-on-cash return is typically anywhere from 6% to 12%. However, this depends on many factors, like the level of repairs.
- Level of Repairs : The level of repairs done to a turnkey property is crucial when selecting a rental investment because it directly affects both the immediate financial return and the long-term value of the property. Those properties that have undergone thorough and high-quality repairs typically require less maintenance in the near term. This also ensures a more predictable and stable rental income. Most turnkey properties have tenant leases ranging from 12 months to 2-3 years, ensuring stable rental income and reducing the risk of frequent tenant turnover. Additionally, it also reduces the likelihood of unexpected repair costs, which can erode investment returns. Sometimes, properties with more thorough renovations have lower ROIs, but it makes it worth it because they do not need to repair the property so much in the future. Hence, it indirectly increases its overall ROI over the years.
- Type of Property : A single-family home in B-class neighbourhoods makes for great rental properties because of the stability of the tenants living in more recently built-homes. On the other side, most duplexes are older with more transient tenants. Furthermore, single-family homes are also easier when it comes to tenant turnovers, needing minimal repairs to put them bacon the market for rent after the tenant vacates.
Top Reasons to Choose Turnkey Properties
Let us understand why one should opt for turnkey properties above other traditional rental real estate deals:
It’s Quick Process
One of the main advantages of buying a turnkey property is the simplicity and speed of the process. Since these properties are already renovated and ready for occupancy, you avoid the lengthy and often stressful renovation process. This means you can focus on the investment aspect without worrying about the logistics of fixing up a property. This is beneficial, especially for busy executives who have decided to invest in property. Within a few weeks, you can easily find a fully renovated apartment, sign the paperwork, and become a landlord without ever stepping foot in a hardware store.
Immediate Cash Flow
As mentioned earlier, turnkey properties often have tenants already in place, providing immediate rental income. This instant cash flow is a significant advantage, allowing you to start earning from day one. Data shows that turnkey properties have an average maintenance cost of $20 per month compared to $87 per month for non-turnkey properties, saving approximately $800 annually per property.
Example: If someone buys a turnkey duplex, she gets two tenants who have already signed year-long leases. From the moment she takes ownership, she begins receiving monthly rent checks. Thus ensuring a steady cash flow that helps cover her mortgage payments and other expenses.
Quickly Build Your Real Estate Portfolio
Turnkey investment properties make it easy to build a real estate portfolio quickly. Because they require minimal time and effort to manage, you can purchase multiple properties and diversify your investments without becoming overwhelmed.
Example: Suppose an investor starts with one turnkey property and is impressed by the seamless management and steady income. Encouraged by this success, she buys three more turnkey properties over the next two years. Each property adds to her portfolio, generating rental income and building her wealth without requiring a significant time commitment.
Easy Tenant Management
Professional property management is often part of the package for turnkey properties. This means you don’t have to deal with the day-to-day tasks of being a landlord, such as handling maintenance issues or collecting rent. For these, the management company is liable for taking care of everything and making it an ideal investment for those who want a hands-off approach.
Example: If you are an investor who lives in another state but wants to invest in real estate for that particular reason in case of a booming market. You have the option of buying turnkey properties, which a reputable company will manage. The management team handles tenant relations, maintenance, and rent collection, allowing you to enjoy the benefits of property ownership.
Why Turnkey Properties Might Not Be for You?
While turnkey properties offer many benefits, there are also some drawbacks to consider before diving in. Here are a few key disadvantages you should be aware of:
Divided Income
One of the primary downsides of turnkey properties is that management fees can reduce your income. These properties often come with professional property management services that look after the property. Hence, a portion of your rental income goes towards paying for these services. On one hand, this can save you time and effort, but it also means you receive less profit from your investment.
Example: If you invest in a turnkey property and hire a management company to handle the day-to-day operations. The company charges a 10% management fee, which reduces her monthly rental income from $2,000 to $1,800. While she appreciates the convenience, the fee cuts into her overall
You Control Over Tenant Screening Process
Another potential disadvantage is that you have little to no control over the tenant screening process. Since the property management company typically handles this aspect, you must trust their judgment and standards. If they place a problematic tenant, it can lead to issues such as late payments, property damage, or even eviction proceedings. Hence, it’s crucial to decide which management partner you want to trust.
Example: If an investor buys a turnkey property and relies on the management company to screen and place tenants. Unfortunately, the first tenant they select turns out to be unreliable by frequently missing rent payments and causing minor damage to the property. Despite not being involved in the initial screening process, the investor has to deal with the consequences.
Offers Higher Value, But at a Higher Cost
Turnkey properties are often more expensive than other real estate investment options. Because these properties are fully renovated and ready for occupancy, they come with a premium price tag. Additionally, you may pay more for the convenience of having everything handled for you.
Example: If you are comparing investment properties and notice that turnkey properties in her desired neighbourhood are priced 15-20% higher than fixer-uppers. While you might like the idea of a hassle-free investment, you also realise the higher cost means a lower initial return. This is in contrast to buying and renovating a property yourself.
Final Thoughts
Turnkey properties are a smart and rewarding investment if done carefully. Many investors in the market constantly look for convenience and instant income, making them an attractive option to invest in turnkey properties in Canada. However, the higher costs and reduced control are important considerations. By understanding both the pros and cons, you can decide if turnkey investing aligns with your goals and risk tolerance.
In Canada, turnkey properties have gained popularity, especially in cities like Toronto and Vancouver, where demand for rental properties remains high. Investing in turnkey properties in Canada can provide you with a steady income stream while tapping into the active real estate market. Whether you’re a local investor or looking to diversify internationally, Canada’s turnkey options offer a compelling opportunity.
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Frequently Asked Questions (FAQs)
A turnkey investment is a fully renovated property ready for immediate use. When you buy it, everything is already set up for you, including any necessary repairs or upgrades, so you can start renting it out or living in it right away without any extra work.
The benefits of a turnkey investment include immediate rental income, minimal effort on your part since the property is already in good condition, and professional property management if included.
It's called turnkey because it is like turning a key in a lock, where everything is ready and operational as soon as you take ownership. You simply turn the key, and the property is ready to use, with no additional work needed.
An example of a turnkey property is a renovated apartment that comes with new appliances, updated fixtures, and a tenant already living there. You buy the apartment, and you start receiving rental income immediately without having to do any repairs or tenant searches. What is a turnkey investment?
What are the benefits of turnkey?
Why is it called turnkey?
What is an example of a turnkey?
