What to know about selling 'turnkey'

stir_fryiOctober 28, 2011

A family member is selling a second home (condo) "turnkey". Most condos are sold that way and they have to use for the extra stuff.

Anyhow, is there anything they need to know about doing this? I told them the safest thing to do is to remove what you want before showings begin -- rather than making a list of excluded items.

Also, are their any tax implications to this? Does the IRS even care? This condo was a vacation home, not rented.

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c9pilot

"Turnkey" is a term usually used for businesses or services - meaning that it includes the real estate, business furnishings and inventory - you simply "turn the key" and you're in business.

I've seen it used in residential where it doesn't mean anything - same as "ready to move in" as opposed to "fixer-upper".

My first guess from your description was that this was a rental condo and includes all furnishings and appliances, and probably kitchen necessities (pots & pans, dishes, coffeepot, etc), possibly linens. Generally these types of places are weekly rentals at the beach or resort areas. It would be called "turnkey" because it's ready for rental, which is sort of a business.

But yours (by which I mean your family member's) condo is just an ordinary furnished condo? Most condos here are not sold "turnkey" as in your description unless they are just saying that it's ready to move in. If it's furnished, it will say "furnished" in the listing and then you have to be clear what stays and what goes because there is no definition of what is "furniture". If you're also talking about non-furniture such as wall hangings and pots & pans and throw rugs, then I'd definitely remove anything that's not going as part of the sale. Otherwise, even if they are excluded, they will be seen as a negotiating tool.

Yes, there are tax and loan implications because there is a difference between real estate and personal property. The contracts I write are for real estate, so I'm reluctant to include personal property (such as a riding lawn mower as discussed in another thread).

    Bookmark   October 28, 2011 at 2:57PM
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stir_fryi

Well, in the area they are in, they use "turnkey" to mean all the furnishings, decorations, pots and pans, etc... This is mainly because the condo is in FL and most owners live in the north. When they sell, they have no use for the Florida style furnishings up north. It is also rental ready, but in this case the unit was never used as a rental.

My father seems to think he has to make a list of everything in the condo and what he paid for it. Something to do with taxes and I am trying to figure out what it is all about. The furnishings are included in the purchase price.

    Bookmark   October 28, 2011 at 8:18PM
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c9pilot

I just checked MLS here in my part of FL and did find a few condos where the listing agent specified "turnkey and furnished" (redundant?) and one where they excluded a few items (flamingo lamp? really?).

They were all rentals, so the tax implications are probably much different coming off a second home vice an investment property.

I think most Snowbirds end up moving into the second home in the warm climate of our no-state-tax state rather than selling it and staying in their "first" home in the frozen north. Hopefully your father has a smart (experienced in this type listing) agent and/or a real estate attorney that is advising him on this particular sale. It sounds weird to you, but hopefully I've been able to give you some context.

I thought the Snowbirds were down here a bit early this year, but seeing the weather across the country this weekend, maybe they knew something that we didn't!

    Bookmark   October 29, 2011 at 4:43PM
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deborah_ps

I live in a resort area of southern California where the term "turnkey" would mean furnishings, bedding, towels, stocked kitchen etc. It could mean pictures on the walls, tchotchkes, or simply sofa and beds.
When purchasing a place that is turnkey the real estate price would be written up separately from the furnishings as one would not want to pay interest on a couch over a thirty year loan!
Let's say the price was set at $200,000 less $20,000 for furnishings, (which seem to always be way overpriced) so that you'd be taking out a $200,000 loan but paying $180,000 for the home and whatever else you've negotiated to pay for the furniture (the supposed $20,000, wink wink).

    Bookmark   October 29, 2011 at 11:19PM
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stir_fryi

After some researched, I think he may be making a list to determine his "cost adjusted basis" since he will be paying the evil capital gains tax. The only thing is, you cannot include furnishings in this.

C9 -- the term is "turnkey furnished" and is used extensively in SW FL - don't know about other areas.

    Bookmark   October 30, 2011 at 7:45AM
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c9pilot

Not by any means a tax lawyer or very knowledgeable about this kind of transaction, but I thought capital gains only applied to investments, or investment property. And I didn't think that this would count as an investment property if it wasn't being rented out, unless of course, there is some creative maneuvering.
Who's smarter on taxes that can explain this to me?

stir-fry: I see "turnkey", "Turn-Key", "turnkey furnished", "turnkey and furnished", "designer furnished down to the coordinating flatware" ...you name it, there's a variation on it. It's unfortunate that there isn't an MLS code for it (as least not in Mid-Florida MLS), so that there would be a definition and standardization for what it means.

    Bookmark   October 30, 2011 at 12:33PM
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brickeyee

"And I didn't think that this would count as an investment property if it wasn't being rented out..."

Most likely correct.

If the property was held as an investment you would need to show that it was rented out, depreciation was taken, etc.

If it was for personal use only it is NOT an investment property.
Capital gains still applies though, just not losses on a personal use property.

If the place was held as an investment you can use the losses against other gains, and a few thousand a year against earned income.

If it was for personal use there is no deduction for a loss.

If it was rented all the furnishings can also be depreciated.

    Bookmark   October 31, 2011 at 2:02PM
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