Turnkey provider not allowing access to new construction home?

19 Replies

New investor here that's been using a turn key provider and I have what I hope is a newb question.  I am concerned by the fact that I have a deposit down on what's a new build construction home from a turnkey provider.   I happen to have a trip planned to the area around the time construction in targeted to complete and I asked about walking through the property.   I am being told that's not possible as a third party company is building the home and the turn key provider is also not allowed on the build site since it’s a hard hat zone and a liability.  I have never heard of a home being build where the buyer is not allowed access to construction site?   Needless to say this has the hair on the back of my neck up.   Other then walking from (unfortunately I already closed on 3 similar properties) the deal any suggestions from the BP community?   

I have never heard of a single family home being a hard hat zone. I have built two homes and each time I was able to freely access the site whenever I wanted. There is no reason they can't accompany you on a tour of the site. This is a red flag and I would tell the company you would like to see photos or video from the construction site. 

There have been high profile turn key providers that took down payments and never even started the job. Do you have the address? Even if you are not allowed inside, you should be able to drive by. I would have someone local drive by the construction site today. 

Who is the turn key provider and where is the property located?

Joe, Thank you for sharing your experience.  It is inline with my thinking on the push back.   I have family in the area and should be able to get a drive by.  The deposit is not a lot of capital at risk at this point but as you rightly called out my view is this a significant red flag.   Esp considering the property should be in the final stages ready for inspection at the time of my visit.    It also seems unlikely that at that stage of construction Hard Hat requirements would still (if they ever were) in place and if the deal was financed the lender would have appraisal requirements that would require entail more then a drive by.  I don't yet think its time call them out publicly as it might just be the team member I am dealing with just doesn't want to take time out of the office to hang out with me at the job site.  I feel its fair to give them a short window to address my request and have escalated internally.  If they hold a hard line I'll share the details.  

Wow...the whole thing sounds shady. I’d get boots on the ground ASAP.

Hopefully you’re not getting screwed over.

Michael, I already know that. I know the ROI on turnkey is lower but I felt it was a way to get into RE investing with a team I could learn from and at have a few doors to build from as I got more comfortable / confident. You know a small foundation to build from.

Derrick, me too.  

I'll keep you all posted.   

I sell turn keys, I'd be happy to show you my competitions work on their site and let you see my construction site any time without notice.... It's really not a big deal.

point being.... Just go to the site, poke around like you own the place, take lots of photos and ask questions. The subs and employees of the subs don't give a crap who you are.... This isn't top secret work.

what is your gc charging you? What's your expected profit per sqft where you are?

@Geoff Bolton  We have had single family build and we have NEVER been told we cannot go by and anytime with or without notice.  We have used Turnkey and we have shown up at the properties when they are being rehab'd and were NEVER told we could not see.  

I would be very cautious, you are the one buying it.  

@Geoff Bolton

So there is a legit concern with liability. If you get hurt walking around the site they may be concerned that you will sue.

With that being said, there are easy ways around this. You can wear work boots, safety glasses, and a hard hat. You can sign a waiver. They can escort you on the walk through to make sure you don’t accidentally wander into a dangerous area.

As others have said, this is a red flag, so definitely push back. At minimum, have someone do a drive by to check progress.

Originally posted by @Geoff Bolton :

New investor here that's been using a turn key provider and I have what I hope is a newb question.  I am concerned by the fact that I have a deposit down on what's a new build construction home from a turnkey provider.   I happen to have a trip planned to the area around the time construction in targeted to complete and I asked about walking through the property.   I am being told that's not possible as a third party company is building the home and the turn key provider is also not allowed on the build site since it’s a hard hat zone and a liability.  I have never heard of a home being build where the buyer is not allowed access to construction site?   Needless to say this has the hair on the back of my neck up.   Other then walking from (unfortunately I already closed on 3 similar properties) the deal any suggestions from the BP community?   

Geoff, I read two things that do concern me about you scenario, but I wanted to ask if the three properties you already purchased were with the same company?  If so, do they have a good track record with you as far as communication and meeting your expectations?  That would probably change my thoughts a bit, but here are two things that I flagged.

1.  Placing a deposit on the property while its being built.  This is a read flag for me.  A quality company offering a turnkey service will have financial stability.  They are not going to ask or deposits on new build properties.  They may ask for earnest money once the property is completed or closer to completion, but I look at upfront money on a new build as a poor sales tactic meant to keep an investor quiet and possibly nervous of losing their money if they complain or ask questions.  

2.  If whomever you are buying this property from is not allowed on site, then who is inspecting the progress of the property?  That is a crazy statement to make and rightly does nothing but sow doubt in your mind.  We build from the ground up as well and access to properties is never an issue for us or clients.  It is the only way to manage expectations.

Lastly, there is nothing wrong with public scrutiny.  Best business practices are never improved if you never get called out for poor ones.  I respect you for allowing them time to get you a better answer.  Hopefully you get one quickly, but understand that having your business practices discussed in public is not always a bad thing.  A strong company will take responsibility for mistakes or have solid responses as to why they operate the way they operate.  Either way, don't wait too long to react.  If they are not inspecting the project, then you need to.

 

 

Chris,

Great questions I’ll try and address them for clarity and so others can learn.

The three properties I already closed on where all new builds sourced by this same turnkey provider. In terms of track record those properties appraised close to the sales prices (1 over, 1 at and 1 under) and had tenants in place at the time of close. All positives. That said I only closed in March so there is not yet enough data to get a full picture. As these are also my first 3 investment properties I am learning as I go. Knowing that is why I chose a larger turnkey firm and felt they would have strong processes I could learn from.

The firm asks for a small deposit $1000.00 when you select a property from their deal sheets. I viewed this earnest money as a small amount to keep me motivated to close but as you point out it also put a little pressure to accept things and move on rather then walk away.

Your last question is a great one that I should have thought of and put in my response to their pushback. Effectively, they are saying that they accept properties for their clients without performing any due diligence or care? If that is the case that’s makes it all the critical that I force independent inspections prior to close on the true seller as I need to cover the risk that their lack of diligence exposes me and their other clients to.

I agree public scrutiny can be a good lever to pull. That said, if customers have to that lever to get action / resolution to issue it not a sustainable process. I am also wondering about what each of my tenants are experiencing. My guess if a buyer has issues of this nature the tenants are experiencing worse. That’s not how I operate and as my property manager is my agent, they are an extension of myself.

Overall, my expectations of larger turnkey firm are that while their properties might not as good a deal and the Property Management fees might be higher those costs would come with a higher level of service and diligence.

David, 

Had I gotten a response that we would love to show you this great property your buying but for liability we need you to, wear work boots, safety glasses, a hard hat and sign a waiver before we can escort you on the walk through.  I would have been very happy to comply.   That's a reasonable set of precautions and would have demonstrated they are not only thinking about risk but taking is seriously.   Something I want from my partners.   





@Geoff Bolton

I think you have your head on straight in this scenario and have what I would call familiarity.  They haven't earned your full trust yet, but enough familiarity with their processes to keep moving forward.  My advice based on everything you've shared is to call them back and let them know the answer isn't acceptable.  I would let them know you are already going to be in town and will be visiting the house.  They can go with you if they would like and I'm sure you would prefer that so let them know.  Either way though, I would let them know that saying you are not allowed to visit a project that you have under contract and claiming that they cannot visit either is not an acceptable answer and doesn't meet your expectations of customer service.  

I would bet and certainly hope for you that this was just bad communication and poor messaging.  Best of luck with the three you've bought and this one as well.

Well I am going to take the builders position on this.
OK for me its not turn key rental my homes are 500 to 750k owner occs.. I have 25 of them in process with another 75 to build in the same community.

WE ABSOLUTELY do NOT allow the buyers to just wonder into the project..

I have to pay big money for insurance and part of it is a safety plan.. you get hurt on my job and I just let you walk willy nilly out there I am going to get stung big time.  

Lennar who is active and is building next to us will not allow you out there your allowed 3 visits during construction on a Sunday PERIOD>  

We allow buyers by appointment only and MUST Be accompanied by their agent and only once a month.

WE take 10,000 Non refundable deposits up front.  We charge for extras that the buyer may want and they have to cut us a check for those .. and those can be 50k per house and up.. so a client might have 60 to 100k paid up front ALL NON REFUNDABLE>  

Now I understand the turnkey rental houses are not custom homes etc.. but I am sure the GC has the same concerns.. Kids running around big equipment moving and they dont see someone.. someone trips and falls.

However U should and will get i suspect a walk through when its done before you close and if you only have 1k up front big deal.. but getting decent deposit on a new build is pretty normal in our area.

So thats the flip side.

there are insurance requirements
No GC wants anyone getting hurt
Subs really dont like to get pestered at least I know mine dont I want them working not getting into 50 questions with a buyer.

Originally posted by @Geoff Bolton :

Michael, I already know that. I know the ROI on turnkey is lower but I felt it was a way to get into RE investing with a team I could learn from and at have a few doors to build from as I got more comfortable / confident. You know a small foundation to build from.

Derrick, me too.  

I'll keep you all posted.   

 You know the actual price they are pAying for the house?


I am curious how much less than you are paying?

@Chris Clothier man you usually have great advice, but we have to push back on your statement about not putting down a deposit on a new build. 

We require a Holding Fee on a rental, 97% of real estate sales require an EMD, and we don't know of a builder that doesn't require a deposit in our area.

Hopefully, an oversight on your part and not an over-sale ploy:)

Due to insurance liability worries, wWe would NOT allow a buyer to randomly wander a construction site. Would want to do it by appointment AND when contractors are not present, to further lower the chance of an accident.

Nothing would stop a buyer from wandering around the PERIMETER of the job site and take whatever pics/video the wanted.

Originally posted by @Drew Sygit :

@Chris Clothier man you usually have great advice, but we have to push back on your statement about not putting down a deposit on a new build. 

We require a Holding Fee on a rental, 97% of real estate sales require an EMD, and we don't know of a builder that doesn't require a deposit in our area.

Hopefully, an oversight on your part and not an over-sale ploy:)

Due to insurance liability worries, wWe would NOT allow a buyer to randomly wander a construction site. Would want to do it by appointment AND when contractors are not present, to further lower the chance of an accident.

Nothing would stop a buyer from wandering around the PERIMETER of the job site and take whatever pics/video the wanted.

Hey Drew, I was writing specifically on Geoff's issue and the turnkey aspect of it.  In this case and what I should have been more direct about, the turnkey company is the buyer of the home.  They would have EM deposited on the property.  You are correct in that a builder is going to require this.  The Turnkey company should have their money up as a EM deposit.  

At whatever point a company decides to sell that property, of course they can and should require a deposit.  My point was that if you are required to put that money down before the property is finished, it raises risks.  It has been a red flag marker in the past that turnkey companies that ask for money in advance, before a property is finished, should make a buyer be focused and aware.  Many companies today wait to sell properties until after they are finished and it simply lowers risk for a buyer, that was my point there.  And remember, that turnkey is a key word here.

As for the inspection of the home, I think everyone should re-read what Geoff was told.  @Jay Hinrichs as a builder who is doing projects around the country, what would your reaction be if the builder of your project told you that you could not visit the site?  What if you were buying a long-term investment property from me that I was building and I told you that when you came through town you were not allowed to visit the project?  Again, how would you react if I said that even I could not visit the project because of liability?  

I don't really need to ask the question, because in the context of what Geoff shared, we would all say the same thing.  Get to that location and review what is going on.  None of us would say go wander the project freely.  But, we would all caution that something may be amiss.  According to what the OP shared with us, all he asked was to visit his property when he passed through town because it is scheduled to be nearing completion and he was told that he could not visit his property even with the seller because they are not allowed to visit.  For me, that answer wouldn't fly.

 

I think something might have been lost.   As Chris pointed out my request was not to randomly walk around the project.   My request was to walkthrough the property (about 1 week before our planned closing) as that's when I will be intown for vacation.  

At that point I would expect the property to be in the final punch list stage of construction.  Keep in mind I am also giving them a full month's notice to arrange a site visit. 

I fully understand not wanting future owners disrupting a job site, sub contractors, getting hurt, etc I still don't understand the seller's position given the big picture and timing of my visit.      

@Chris Clothier thanks for clarifying:)

ALL, see how amicable Chris and I settled this! 

Have seen several posts with members being less than professional at taking swipes at each other. Let's avoid that:)