My turkey disaster

Buying & Selling Real Estate
12yFollow

My turkey disaster

Will Spruill
Seattle, WA · Member since 2013 · 70 posts · 33 votes

I bought two turnkey rental duplex units in Indianapolis last year that came with a one year rent guarantee. The rent protection was thru AON and was paid for by the advertiser that markets turn key homes.

Out of the four units I own, I’ve had to use the rent protection policy on three of the units; yes 3 out of 4 in less than a year. Two of the claims were processed pretty smooth. The third claim was denied due to the turn key/sellers placing a tenant that was a felon. This voided the policy for that tenant and I’m out quite a large sum of money; no rent since August and court date is not till the end of this month.

The AON policy is great, just make sure your tenants meet all of the criteria. I’m pretty sure that AON will not insure me when the policy expires. I can thank the turn key seller/property managers for this.

5Reply
234 views

Most Popular Reply

Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
12y

Wow, I just found this thread and feel compelled to comment. I also invest in Indy and have done through @Mike D'Arrigo and Pinnacle investing. I have 6 homes so far and have had one really bad experience. So let me tell you the difference between Will's story and mine. I bought a package of 4 already rented homes through Mike. It was a sale from another investor who also managed those properties through his PM company. The first thing Mike ever told me when I started was 1. No Duplexes, 2. Nothing in Center Township. That kept me away from the D class properties.

In this property set of 4 there were 2 excellent properties and two average properties based on the numbers. I examined the rent rolls and saw that one tenant on the average properties was often late. I asked the current PM about it and they said she always caught up. I was skeptical but thought the worst I would have to do is replace the tenant. Well this tenant didnt pay and when I put an eviction notice she left but totally trashed the place in the meantime. My lesson was learned. But the PM company I used was quick and efficient in the eviction process which was good to know. Of course I told Mike about the issue. Now in no way can I say he was responsible for that particular tenant. It was not him that selected the PM that placed her. But he totally took the problem to heart. He spent countless hours screening contractors and finally found me one that would do it at almost half the price of the other bids. He supervised the contractor, coordinated with the PM company and stayed totally engaged until the property was fixed and a new tenant was in place. That was my definition of good turnkey service.

Yes it cost me several thousands in repair and lost rent. But still over the year I made money on my portfolio. I learned some important lessons in due diligence and I tested the mettle of people I am doing business with. Not a pleasant experience but actually going through it gave me confidence to scale up the investments because I have seen what is most likely the worst case scenario already. And I saw first hand the value of diversification. As a result I will probably add some B class higher end properties to my portfolio to balance the risk. I have implemented a stringent screening criteria for tenants and my due diligence list grows stronger after every purchase. Its a process and some learning is to be expected. It did not turn me off from the business model and in many ways made me more comfortable as an investor.

7Reply
See this reply in the discussion

157 Replies

Jump to latestLatest
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    12y

    @David C. - I think it is both, but you are definitely outsourcing the on the ground expertise to the TK company either way. No matter what, you are relying on them to listen to what you want and deliver it. AND HOPEFULLY, if what you want is not in their wheelhouse, they will tell you no or that they cannot help.

    Podcast Guest on Show #224
    REI Nation4.576 Reviews
    WebsiteView Page
    0Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y

    It’s been a couple weeks since I started this “Turkey” thread and thought I’d give an update. Yesterday we had a court date and were granted eviction on two of our units that stopped paying rent 1 and 2 months after we bought the turn key package from Norada, with one year rent guarantees.

    There has not been any further discussion with our property managers or Norada on the rent guarantee that was denied due to accepting a convicted felon as a tenant. This voided the rent guarantee policy. It seems as if neither of the two want to take ownership on this and are sticking us with the losses. I’m not giving up and will continue to keep everyone updated on how this turns out.

    We’ll be getting bids on what the two unit turns will cost and if we can find qualified tenants for the two units. This is a bit concerning as the last unit turn on another Norada turn-key cost us $2800 with a tenant that was only in place for three months.

    1Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    Thanks for the update Will.

    We've learned that it's critical for the property manager to only approve tenants with NO criminal records, otherwise it takes you back to the same issue as the first tenant, and AON will end up denying any new future claim on their rent-default policy.

    I've had that conversation with Aren over at IPM to make sure he understands the required tenant qualification criteria. Clearly, avoiding a policy problem down the road starts with the qualification and approval process.

    Also, based on the cost of the last turnover, be sure to get a quote or quotes from the property manager before they start or authorize any work. It's normal for management agreements to have a repair cost threshold before they start any work on your behalf. You want to see what is being quoted, be able to ask questions, and approve the work. Photos help too.

    0Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y

    I understand the process of doing good quality backgrounds checks and only accepting qualified tenants. This is what I do with my local rentals and it works well. I guess I had a little too much belief in the whole turn-key purchase, in that quality checks and rent guarantees would be included. This was obviously not the case with both of my turn-key purchases in May and July of 2013.

    Out of the four units in my two duplexes, all were setup with poor tenants not paying rent, three of the units being turned, and one unit failing to meet the rent guarantee criteria. This left me with a net loss in 2013 and starting 2014 well into the hole.

    Either way, I’ll persevere and fight on. Nobody ever made success without a challenge.

    1Reply
  • Liam Goble
    Rental Property Investor · State College, PA · Member since 2013 · 287 posts · 99 votes
    12y

    @Will Spruill Sorry to hear about your experience in Indy. That being said, I am/was considering investing via a TK provider in the Indy market. Do you have a new PM company that you're using, or is your TK providing a new PM? Are you planning to not invest out-of-state in the future, or was this simply a TK pushing the limits of the market w/ poor PM to back up the investment?

    Thanks.

    0Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y
    Originally posted by @Liam Goble:
    @Will Spruill Sorry to hear about your experience in Indy. That being said, I am/was considering investing via a TK provider in the Indy market. Do you have a new PM company that you're using, or is your TK providing a new PM? Are you planning to not invest out-of-state in the future, or was this simply a TK pushing the limits of the market w/ poor PM to back up the investment?

    Thanks.

    I'm still with the original property management company that was established by the turn key provider (Norada). Its a one year deal with one expiring in May and the other in July.

    I plan on investing again out of state in the next year or so. My goal is to have 10 properties in two years. These two turn key deals have been bad from the start and I will not be going the same route in the future. I will more than likely buy the properties on my own and establish a management company.

    These two turn key deals were bad from the start and only gotten worse along the way.

    In fact to update the process, we were granted evictions of the two newest units bought in July. The property management company was doing nothing to monitor rent or notifying me that rent stopped coming in, starting in August. They also stopped updating my invoices on their site with an excuse of doing an upgrade.

    As of yesterday both tenants were still in place and legally being forced out at noon. I haven't heard back from the property mangers; which make me nervous about what's coming next.

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    @Liam Goble: To add to @Will Spruill's comments above, I've been trying to reach the property manager (Aren) to get an update on things. I still haven't heard back from my voicemail of last week. I've also sent 1 or 2 emails in the last 7 days with no reply.

    It turns out we have another client experiencing the same lack of and/or delay in communication with this management company. they've gone consistently downhill over the last 6 months, even after hiring two new staff. I made the decision several months ago the stop working with them until they got back on their feet, but at this point I am getting to the point to never work with then again even if they do resolve their internal issues,, and they seem to have a many (slow response, poor tenant selection, etc.).

    0Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y
    Originally posted by @Marco Santarelli:
    @Liam Goble: To add to @Will Spruill's comments above, I've been trying to reach the property manager (Aren) to get an update on things. I still haven't heard back from my voicemail of last week. I've also sent 1 or 2 emails in the last 7 days with no reply.

    It turns out we have another client experiencing the same lack of and/or delay in communication with this management company. they've gone consistently downhill over the last 6 months, even after hiring two new staff. I made the decision several months ago the stop working with them until they got back on their feet, but at this point I am getting to the point to never work with then again even if they do resolve their internal issues,, and they seem to have a many (slow response, poor tenant selection, etc.).

    And as a purchaser of these properties, I am left with the bad product. This has been a very frustrating process from the start.

    0Reply
  • Shaun Reilly
    Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
    12y
    Originally posted by @Will Spruill:
    Originally posted by @Liam Goble:
    @Will Spruill Sorry to hear about your experience in Indy. That being said, I am/was considering investing via a TK provider in the Indy market. Do you have a new PM company that you're using, or is your TK providing a new PM? Are you planning to not invest out-of-state in the future, or was this simply a TK pushing the limits of the market w/ poor PM to back up the investment?

    Thanks.

    I'm still with the original property management company that was established by the turn key provider (Norada). Its a one year deal with one expiring in May and the other in July.

    I plan on investing again out of state in the next year or so. My goal is to have 10 properties in two years. These two turn key deals have been bad from the start and I will not be going the same route in the future. I will more than likely buy the properties on my own and establish a management company.

    These two turn key deals were bad from the start and only gotten worse along the way.

    In fact to update the process, we were granted evictions of the two newest units bought in July. The property management company was doing nothing to monitor rent or notifying me that rent stopped coming in, starting in August. They also stopped updating my invoices on their site with an excuse of doing an upgrade.

    As of yesterday both tenants were still in place and legally being forced out at noon. I haven't heard back from the property mangers; which make me nervous about what's coming next.

    It is mind numbing to think that they are still this messed up after all this.

    You'd think they would be kissing your a$$ so hard that they could tell you what you had for lunch yesterday...

    Tell them to screw and find a new company, if they say you have a contract tell them to sue you if they can pull their heads out of their a$$e$ long enough to figure out how.

    3Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    The product (i.e. property) is not the issue as they've had extensive renovation work done. The most important component in any long-term real estate investment are the property managers. They can make an investment passive and hassle-free or they can make it a frustrating experience. I've personally seen it all and had a property manager literally steal $6,000 of collected rents from me in the past with no recourse because she took payments in cash. I've come to say that one "lives and dies by their property manager".

    @Shaun Reilly makes a good point. I think it might be wise to break ties with Aren and their crew and simply replace them.

    0Reply
  • David C.
    Real Estate Professional · Mechanicsburg, PA · Member since 2012 · 319 posts · 167 votes
    12y

    @Marco Santarelli it must be a bit stressful to go through this problem out in the open like this, but its also a huge opportunity to show that you can turn an bad turnkey investment around. I bet that phone rings like mad if you end up with @Will Spruill happy in the end.

    1Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y
    Originally posted by @David C.:

    @Marco Santarelli it must be a bit stressful to go through this problem out in the open like this, but its also a huge opportunity to show that you can turn an bad turnkey investment around. I bet that phone rings like mad if you end up with @Will Spruill happy in the end.

    Thanks David -- Yes, it has been stressful. This is a very unusual situation and over the last 10 years of business I've only seen one other property management issue come up that was close to this. I intend to do whatever I can to help @Will Spruill get his units released with good tenants (even though the property management is done by another company separate from ours).

    In fact, Aren just called while typing this... that's a separate post.

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    I just spoke with Aren (the property manager) who returned my call. As usual there are two sides to every story.

    The latest from Aren is that:

    • as of today one tenant is officially out.
    • the other tenant has been granted a 3-day stay and will be back in court in 3 days. They are pending and eviction.
    • they have provided Will with a full accounting as of this morning via email (not on their website).

    I suggested Aren create a BiggerPockets account and jump in to this thread to provide some facts, comments and a little balance. :)

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    12y

    @Will Spruill you really need to get out from under this property manager right away. The only way you're going to get things stabilized and turned around is getting good management. In my experience, I've never seen a property manager get themselves back on their feet once the wheels fall off the bus. I had this happen once and stopped using them quickly. You can't be in the position of losing money while your property manager is getting their act together. My advice it to fire them and fire them fast. You're not contractually obligated if they are not doing the job. I have a good PM I an refer you to if you want.

    Best of luck.

    2Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y

    Upon entering the unit to perform lock change and inspection of property with Constable, Inspector found that water was coming for 1st floor restroom in large amounts. Water company was contacted immediately to turn water off, power company was contacted immediately and both services were off within 10 minutes of entering property. Unit needs immediate attention to extract water before any further damage occurs due to ice. Basement needs to have water pumped ASAP. Portfolio manager to contact owners ASAP.

    This is the message I just got from the property manager. Yes, it can and is getting worse.

    0Reply
  • Sharon Tzib
    Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
    12y

    Man, I'm just sick to my stomach about what you are going through, Will. The absolute opposite of what you'd expect purchasing turnkey.

    So yes, agree with the others - fire that PM pronto!! I can refer you to my Prop Mgr in Indy. I don't think he deals w/ D class properties, but he's been around forever and probably could refer you to someone who does. PM me if you want his contact info. Hang in there, my friend!

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    12y

    Hi Will, sell sell sell. Turnkey and D property are mutually exclusive - add long distance multi and that's a recipe for a disaster. Even the greatest PM in the world would be seriously challenged. Perhaps the TK operator can assist with that.

    Thanks,

    Matt

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    UPDATE: I spoke with a third investor client today that is also having issues with this property management company. He told me that he is having ongoing communication issues (slow response to calls and emails), missing online portal information, and now tenant issues due to partial payments.

    He called one of the owners of the management company just so he could speak to someone, and found that he got a return call quickly thereafter from the property manager.

    Based on several of my conversations with Will and these two other investors, I'm convinced that they are back-logged and "over their heads". It's not entirely clear why, but it's probably a combination of things including tenant issues, administrative work, calls & emails, along with their normal day-to-day management tasks.

    To quote one of my clients when I asked him if there was any news, he simply said, "No, not a single word. I'm not trying to be a dick to them...but I feel like this is 100% their fault."

    I will continue my efforts of checking up on this property manager as well as these three investors. I've already told them to pick a hard date when they will consider changing to another management company.

    As I've half-jokingly said many times in the past, "You live and die by your property manager!"

    @Will Spruill @Sharon Tzib @David C. @Shaun Reilly @Mike D'Arrigo

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    UPDATE #2: I got a call from AON, the insurance provider we used to provide our investors with complimentary rental default coverage. They called to notify us that they will no longer offer default coverage in the United States effective March 1, 2014. I asked them why the short notice, and they basically said their underwriter/carrier was not prepared to handle the business, or something like that. He also said they are looking for a new underwriter, but it could be next year before they are ready to take on new business.

    All existing policies currently in effect will NOT be affected.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y
    Originally posted by @Marco Santarelli:

    ...

    I'm convinced that they are back-logged and "over their heads". It's not entirely clear why, but it's probably a combination of things including tenant issues, administrative work, calls & emails, along with their normal day-to-day management tasks.

    ...

    Sorry but EVERYTHING in that quote falls under normal property management tasks. I don't see any justification for defending this operation ...

    2Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y
    Originally posted by @Steve Babiak:

    Sorry but EVERYTHING in that quote falls under normal property management tasks. I don't see any justification for defending this operation ...

    Agreed, there is no defense! The point I was trying to make is they are too busy for their own good. That's what I meant by "over their heads".

    0Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y

    So now the only tiny piece of good from this mess will be gone? At this point the only thing that would make this right is to buy the property back. This turnkey product is no where near what was advertised.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    12y

    @Sharon Tzib sorry for the slow response. I just saw your question to me which I've highlighted here.

    "I totally agree with you . So here's a question for you. Do you think a turnkey company should be offering D Class properties to their clients?"

    Personally, I chose not to offer D class properties. There's just too much headache for both the investor and the turn key operator. Typically, a turn-key buyer is less experienced and is not prepared to deal with the challenges that a D class presents. A turn key buyer usually wants a pretty passive income stream which is unlikely with the lower class properties. That's just my 2 cents on the subject.

    2Reply
  • Will Spruill
    OP
    Seattle, WA · Member since 2013 · 70 posts · 33 votes
    12y

    I spoke with the property management company who also did the rehab and sale of the last property (the one with the current water leak/damage). They offered to buy it back; we haven't agreed on a price nor have they offered one yet. We'll see how this goes.

    They also mentioned bigger pockets and found the posts here. I'm glad to see this information is getting around so everyone can be informed. I'm not about giving opinions on what people should and should not do, but I do like to give my experience so others can form their own.

    4Reply
  • Mark Pritchard
    Real Estate Investor · Baltimore, MD · Member since 2013 · 17 posts · 3 votes
    12y

    Will, you seem to be a calm, level headed guy and it looks from these posts that you are handling this pretty well given the circumstances...

    I would've blown a gasket and would probably be locked up right now.

    Sorry this stuff happened to you and I wish you luck getting it resolved. I'm also glad you put this out here for everyone to read and form their own opinions on it. It's definitely helpful information!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free