What are the pros of a Turnkey property?
Let’s start with the pros of a turnkey property.
#1 – Turnkey properties have fixed prices (mostly)
Turnkey contracts are usually fixed-price. You agree to pay a set amount (e.g. $1 million) and that price typically won’t change.
It doesn’t matter if the building costs rise or the project is delayed. You pay the same price, so the developer takes the risk.
This appeals to first-home buyers and new investors.
It also makes the bank’s mortgage approval process easier since banks often prefer fixed-price contracts.
However, some contracts do allow limited price increases, but we’ll cover that under the cons.
#2 – Turnkeys typically have low deposits
You generally only put down a 10% deposit when buying a turnkey property.
You then don’t pay the rest until the property is completed.
Some investors use this time to save the rest of the deposit (that the bank needs) while the home is being built.
So, if you need a 20% deposit to get your mortgage approved, you might use the construction period to save the other 10%.
#3 – Less risk if the developer goes under
You pay your turnkey deposit when you go unconditional on the property, but the developer doesn’t get the money straight away. Instead, your deposit is held in a solicitor’s trust account.
So, if the developer goes bankrupt, you get your money back and walk away.
What happens if you’re on a progressive payments contract and the developer goes under? You could be stuck owning the land and (potentially) a half-finished house.
You might be covered by insurance (like a Master Build Guarantee) but it’s a lot more hassle.
#4 – Lower interest costs during the build
Because you pay most of the money at the end of the project, you don’t take out most of your mortgage until the property is nearly finished.
That means you’re not paying interest on a large loan while no-one’s living there.
In contrast, progressive payments builds require you to make staged payments. If you borrow this money you need to pay interest throughout the entire build. But, you don’t have a tenant paying you rent over that time.
#5 – You don’t need to find the land
Turnkey properties are typically part of a development the builder has already scoped out.
That saves you the time and effort; you don’t need to find land to build on.
