Buy land, come up with a design, construct, furnish and move in. This is the most common path to owning a house. You can also buy an already constructed apartment, which is known as a turnkey home. This is where you buy an already furnished house and move in.
Turnkey is quite a new concept in the property market. It simply means that once an investor has acquired a turnkey house, he or she will literally turn the door key and start using it immediately, because all fittings are in place.
When Bernard Macharia, a Nairobi businessman, sought to buy a house in 2016, his friend, Muigai Thumbi, a real-estate developer and owner of the expansive Waiyaki Ridge Gardens, a residential development on Waiyaki Way, suggested to him that he could invest in one of the houses he was building.
Mr Macharia, who then had the means to acquire the property, promptly paid for it, and has since been earning rent income from a tenant who currently lives in the house.
According to Mr Macharia, buying a house that had already been fully built has been beneficial to him because all expenses had already been catered for by the developer, while he, the investor, was afforded an immediate opportunity to start earning from the investment.
“I immediately got a tenant who remits monthly rent,” he says, adding that would recommend to people with sufficient finances that they buy a home that is already fully developed. He adds that getting a tenant almost immediately after purchasing the property has enabled him to earn enough money to fund the acquisition of a second property.
According to Robert Simiyu, a realtor and unit manager at Home Afrika, a Nairobi-based realty firm, home buyers have a number of options open to them when purchasing property.
They include turnkey, off-plan, solid performers, flipping as well as “something special” properties, which involve acquiring property, say an old godown, and turning it into a block of flats, or something enhanced and more profitable.
He further notes that off-plan properties are the most used in the country, with many investors not being very conversant with the turnkey concept.
A pleasant departure
Previously, it used to be mostly the case that buyers would secure land and hiring a developer to build a home on it. In recent times, however, many investment experts vouch for the model where the buyer simply purchases an already finished property, saying it is more beneficial to the investor.
The experts define these ready-to-move-in homes as turnkey homes, and note that they are an ideal way of acquiring a home. “A turnkey property is fully done when you acquire it. As a new owner, you do not incur extra costs in fixing this home, but rather, just open the door and move in,” says Simon Ng’ang’a, a real-estate consultant, who is also the managing director of Granite Capital Kenya Ltd, a Nairobi-based real-estate firm.
Inside a turnkey house
Mr Simiyu says it is the kind of home whose fittings are all complete. At a time when work-related matters sometimes compel people to transfer and move from one place to another, without ample time in which to build a new house, turnkey homes come handy.
The investor just has to have enough capital at hand to buy the property, according to the real-estate consultant.
He or she does not have to go through refurbishing the home, as all tasks like fixing window stoppers and handles, fitting door knobs and bulb holders, painting the house, setting taps, including furnishing the house are already taken care of by the property developer or seller.
Off-plan, on the other hand, takes the investor time, and is costlier in the long run, says Mr Ng’ang’a. This is because the developer will be working at a pace that is linked to the funds available, which every so often come in instalments.
“Such properties tend to take longer to complete, and this means an increase in expenses on the materials, workmanship, and mending some parts of the house occasionally damaged during the course of construction,” observes Mr Ng’ang’a.
Noting that these properties or homes are largely popular with investors based on their schedules and who have limited time to set up a home from scratch themselves, Mr Ng’ang’a says an investor in a turnkey home requires ready capital.
A plus for them, however, is that as their description says, they are ready to move into, which makes them attractive. This is because if an investor decides to rent it out, he can immediately start earning from it.
So when looking for a relatively stress-free source of passive income, investors say turnkey properties (houses) come handy as they afford one an opportunity to earn instant returns, minus additional costs.
Due diligence before purchase
Mr Ng’ang’a advices that before settling for a turnkey apartment, buyers must do background research well in advance and be well-versed with the intrigues involved.
“All applications therein should therefore be in good working condition; fixed by the developer. There should not be any apparent or concealed structural, mechanical or electrical shortfalls needing to be addressed,” Mr Ng’ang’a says.
One thing to note, though, is that because these homes come entirely finished and in good condition, they tend to be costlier.
“However, these costs hardly exceed the aggregate sum of expenses one eventually incurs in off-plan home acquisition. Besides, the high costs involved in turnkey properties, cover for what the buyer would have used in doing maintenance in the home,” Mr Simiyu adds.
The benefits of not having to fund the construction or deal with building issues, according to him, means the buyer gets a new home with all the finishes without the stress associated with construction.
This concept does not mean that the houses automatically come with a clean bill. Sometimes they tend to have concealed dysfunctional features such as faulty wiring or leakages, besides other structural problems, which may have been overlooked by a developer. These could be difficult to identify by the ordinary buyer at first glance.
An investor in turnkey homes, therefore, needs to do a comprehensive inspection of the property, an exercise that should involve certified property inspectors.
This eventually saves them a great deal, as some shortfalls in the property tend to exhibit themselves months or even years later, when the purchase has already been made, requiring investors to fix the errors themselves, which is an additional expense for them.
Mr Ng’ang’a, in effect, advises that structural engineers, property valuers, plumbers and drainage experts, general fitters and even a property lawyer are experts that an investor works with in the transactions that come with acquiring a turnkey home.
A cast on stone option
Among the most attractive features in buying a turnkey property is the fact that one saves time, which applies to both the developer and the investor.
Real-estate markets tend to be unpredictable and being able to save time in such markets by quickly selling or acquiring a fully finished property is a plus.
“A home that is ready for one to move in and is just ‘waiting’ for inhabitants is an ideal one, as it also saves the investor the time of waiting for a house to be built to completion, like in the case of off-plan homes. At the same time, due to their appeal to investors, the developer does not have to wait for long to sell the property,” observes Mr Simuyu.
Then there is also the fact that one does not need to worry about taking care of maintenance, as well as addressing issues on building codes, which are taken care of by the developer.
The downside in investing in turnkey properties is that there could always be a chance that the property market is unfavourable, and hence developers are not able to sell their property as quickly as they had envisioned, or investors could end up spending too much time looking for a ready property, time that they may not have.
The tax on the properties could also unexpectedly sharply rise, or natural disasters in the property’s location could upset the market by causing investors to have second thoughts about investing in that area.
When it comes to their acquisition, one should always understand that turnkey properties hardly come cheap. They are costly because developers have to recoup everything they incurred in developing the property.
“The developers include costs of any facelift or land taxes incurred, in the final cost of the home. This could be even more expensive if the home is in prime and high-value areas”, offers Mr Simiyu.
As a buyer of a turnkey home, one also has less control over the appearance of the property and its layout or style, as all these are done by the developer beforehand.
“In case the investor later wishes to have something different in terms of design or appearance, they will cater for the redecorating costs themselves, after they purchase the home.”
In addition, despite the guarantees that the property is in good condition to move into, one still needs to pay an inspector to check and certify it, as well as other specialists involved in the transaction, adds Mr Ng’ang’a.
How to be on the safe side
Before venturing into these property markets, one has to keep several factors in mind to be on the safe side. So what are these steps that one has to follow to ensure they get their money’s worth?
“By all means, ensure you get the true value of the home you are purchasing,” says Mr Ng’ang’a, emphasising the need to work with trustworthy property developers, and inspectors, as well as other specialists in the property sector.
He also stresses the importance of having a good relationship with the developer as this will help to make the entire process more transparent, meaning buyers can readily ask any questions for clarifications and be given the information they require.
It is also a good idea to study the location of the property to ensure there are no underlying environmental problems and that the location is properly planned and has good infrastructure in place.
“These could be a location close to a centre with shopping amenities, schools, hospitals and other social amenities within [a reasonable]distance from where one wants to purchase the home,” he adds.
Investors should also have a clear picture of the kind of property they are looking for, and be straightforward about it to help real-estate consultants they are working with to easily identify the desired property in good time.
This indicates the importance of fact-checking what is included in the property catalogues, as some developers tend not to provide all that they showcase in the catalogues exhibiting the property.
Investors should also inquire about any additional costs involved in sprucing up the turnkey home. These could include costs like what is incurred in doing landscaping, as well as designing and setting the pathways and driveways, and any additional activities that make a home habitable.
“They should also understand the contracts between them and the developer and ask questions upfront where they do not understand,” recommends Mr Ng’ang’a, noting that it is always sensible to understand what is included in the package.
This, he adds, eliminates the risks of one spending time and money doing what a developer should have done.
Investors should also look out for hidden clauses with the potential to vary or increase the home’s price, excluded items and fittings as well as unfair terms and conditions, which are also likely to emerge in such transactions.
“This is why it is wise to have a certified, and trustworthy property lawyer to explain and guide one through the process,” Mr Simiyu states.
If investors opt to finance the purchase of a home with a loan from a bank or sacco, property consultants advice that they should ensure that their credit score is in good shape, and that they have a high credit score, which they say helps in securing lower mortgage rates, translating to lower monthly mortgage payments.
Seeking the counsel of financial consultants about how buying the property will factor into one’s overall financial plan is also essential, experts say, and investors should ensure they can buy the property without sacrificing their other more important financial goals, unless acquiring a property is paramount.
It is always essential that investors make sure that the turnkey property fits their current and future needs and goals before jumping right in.
While it is undisputable that one may save money and time spent on contractors, buying a turnkey home will cost a premium price, the more reason investors need to physically visit this property first, as well as find a good inspector to ensure that the property is worth that premium price.