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.
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.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
12y
@Mark Pritchard i agree it's good to get this kind of stuff out on these forums to help educate people on what can happen. I just hope people don't form the wrong opinion of turn key companies or Indianapolis as a market. Indy is a great cash flow market and this shouldn't give people the wrong impression of it. It is however a very tricky market for duplexes and you really have to know the areas very well with a duplex. I generally don't recommend duplexes for people without a lot of investment experience because too often the expectations don't match reality and they have a bad experience. This is not indicative of Indianapolis and could happen in any market just as well.
Seattle, WA · Member since 2013 · 70 posts · 33 votes
12y
I offered $80,000 as a buy back price to the original turn key seller. The property was bought in July at $73,523 thru Norada. We had an appraisal done which came back at $85,000.
The turn-key seller email me back and said we're not even in the same ball park. I'm hoping for some assistance from Norada and this can get worked out. I've also given the option of exchanging this duplex for a single family unit.
I'm also cautious that they are trying to steal this property back and make another quick buck.
Seattle, WA · Member since 2013 · 70 posts · 33 votes
12y
"I would at least like a counter offer to know what ball park you guys are in. Another option we would consider is an exchange for a single family house."
Above was my reply to them. I would like to know their ballpark as well.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
hi Will, I think if you get 73k or the equivalent sfh appraised value exchanged that would be a fair resolution. Glad to see they understand and looking to resolve this for you. Perhaps other TK sellers will offer a buy back policy as standard practice one day.
Seattle, WA · Member since 2013 · 70 posts · 33 votes
12y
Its been a back and forth game the past couple days. We should know more by Wednesday.
I agree if we were able to sell it back for what it was bought at in July of last year or a single family equivalent, it would make for a good outcome. I'll be proceeding very cautiously. Nothing has been good since day once with this investment.
I've been in contact with Marco at Norada the past couple days and hopefully together with him and the turn key seller we can get it resolved.
Real Estate Agent · Orlando, FL · Member since 2013 · 270 posts · 40 votes
12y
wow what an ordeal, stick it out tho something good hopefully will come from this. I have not had any experience with TK dealers, but do things like this happen often? Them just throwing tenants in the units just so they can charge turnkey pricing ? Was it just the area ?
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
My guess is the seller was all in around 50k ish. Somehow they got to stomach breaking even. The TK company could utilize this story to demonstrate reaching out to an investor in an unexpected tight spot. Use your exact example as proof to how complete their service is. Turn a lemon into lemonade and it should be worth it for them. I know if I was looking for a TK and this above example was given as to reflect the TK company's integrity - my confidence with them would be increased knowing that they have a "no ones left behind philosophy."
Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
12y
The real question here is - very, very simply - how many of you would purchase a class D rental property where rent was paid by the week. Not throwing stones at anyone..including the author of the post...but how many hands will go up? ZERO. This is basic slum-lording...no matter how great the property was renovated. Slum-lording can pay extremely well if you are a thug and comfortable collecting rent with a gun. Only way it will ever work. If the buyer was aware of precisely what he was buying...and it sounds like he was....I don't really see the beef. I don't know the Indy market well but it is similar to any hood market...few good spots and the rest rough, rougher or roughest. Sounds like this property is in the roughest part of town. You have to understand what you are buying before you buy and it doesn't matter the caliber of the property management talent leveled at a property like this...it's a pay by the week property. For the most part, no one but those at the very bottom of the rental food chain pay by the week.
I hate that the investor got drilled on this....but guess what, somewhere on BP or elsewhere is someone right now wanting a pay by the week property. My suggestion is to get out of all of them and redeploy in either better quality or better turn-keys.
There are a ton of models out here and I'm not sure what kind of guaranty came with the properties. It sounds like the PM is trying to buy Will out here...but it isn't very clear to me. Duplexes on the lower rent scale can be risky....I usually turn them into shared housing to minimize my risks and max the returns. That's what my JV partners are after.
The $2,000 repaint on a 600sf unit does sounds high but we don't know the condition of the place. I recently took over a unit from another investor where it took 3 guys an entire week of scrubbing and prepping to just have it ready to repaint. It was absolutely disgusting...people were in there for a year and NEVER washed their hands in fact, the sinks were the only clean place in the entire house. Everything from 6' down on the walls was covered in crayon, dirt, spit, boogers and god knows that else. The tenant had gotten a great reference from the previous landlord so the owner went for it...nice! Ask your PM or contractor to video the property or project before & after...it doesn't take long to do and video will never lie....pics lie all the time and might not even be your property.
You have to look for turn-keys that have skin in the game at some level. Those that either put $$ in the deal with you are have their returns tied to performance. In our JVs on the front-end side, we get the bulk of our return by performing...no performance then no gold nugget either. Our JVs on the back-end get a 10% net rent guaranty or we have to come out of pocket to make them whole. I'm sure there are other models similar to our in the markets you are looking to invest.
The 2% rule comes up all the time on BP and it's a metric that many of you tout but you can't usually hit it except in the worst markets...unless its some smaller mid-west or northern town where a $30k purchase can rent for more than $600. All of my properties hit 2% on net numbers but that's only because of how I am able to rent them. I have a $60k property that would rent for $800 as a normal rental but will rent for over $2k in our program and net about $1,500. I like net numbers as it's the true bottom-line. Just remember that whatever metric or measuring sticks you are using....there can be a huge difference between what you "measured" or expected on the front-end and what was actually yielded to you in time.
You will live or die by property management but, if you buy properties where you would never even consider laying your own head...then you probably got the trouble you didn't realize you were asking for. I've had decades of experience with hood properties and rarely bother with them anymore....just way too much effort to manage them and keep the rents coming in.
When I read the first page of the thread...it seemed like the buyer got burned but once I saw it was a weekly rental...forget about it. Lesson learned and it sounds like the parties will get it worked out. Hopefully Will can find better markets and products to invest in and I'm sure there are plenty of us on BP to assist with that. Happy Investing!
Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
12y
Hey @andy luck. I'm not sure where you got the idea this was a weekly rental, but it was not. Per the OP,
"The rents are $1300 for the ($70k) and $1400 for the ($72k."
One was in a C Class area and the other a D. I would encourage you not to stop reading at the first page of this thread - there are a lot of pieces to the puzzle you are missing, and it seems you may be making some assumptions about the OP.
Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
12y
@Sharon Tzib - Actually I did read the whole thing.....it's a 2-year lease on a weekly payment...which in anyone's book is a weekly rental. I didn't stop reading at the first page. Anyone or anything paying rent by the week is high risk....add class d and you've got about the riskiest thing you can buy in real estate...even if this one was the best renovated in the neighborhood. I hate that Will landed where he did and hopefully it will get worked out. Sounds to me like he fully understood what he was buying when he bought it. Yes, the managers stunk but also look at what they were working with. Some landlords will do a weekly rental because it's easier to evict depending on your state. The tenant signed a completely worthless 2-year lease that became week-to-week from the very beginning. It's hard enough to collect a monthly rent...let alone a weekly rent even if you are right on the scene. I can't imagine any property manager or owner beyond a slumlord doing this and doing so brings on a whole different batch of risks...including getting shot when you collect the rent or go to kick them out. Just MHO but it is what it is. What other pieces am I missing?
Will wrote - "I’ll add a little bit more to the rent story as I think it’s a bit confused. The property management company I bought into thru the turn key package charges rent weekly. My D class duplex charges $160 per week rent for a 1200 sq ft unit. In fact here’s the link to the site for a better ideahttp://www.indypm.com/available_homes.html
Seattle, WA · Member since 2013 · 70 posts · 33 votes
12y
Thanks Sharon for explaining this. I should have more to update in a couple weeks. One of the properties is under contract and hope to close in the next 3-4 weeks.
One of the tenants is still in place after being legally evicted three weeks ago. Again the property management is no help at all.
The other property is now having an eviction for our last tenant that was in place when bought as a turn key. So to update, all four of the original tenants that were in place when we bought have had to be evicted. The management company is an absolute mess.
Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
12y
@Will Spruill - Hate that you are in that mess, truly do. At least you are getting rid of one of them. If you can find someone to help you turn these into shared housing...it's the best way I know to turn a loser into a winner. We do it all the time in Atlanta and I can't tell you how many of these we have taken over for investors and got them cashflowing again after months or years or trouble. Our model isn't easy and I'm just now venturing into the inner city again to see how the model works there. We will keep you posted.
It's just an idea but there are a ton of folks on fixed income in the inner cities who need affordable housing with utils included. I don't mean rooming or boarding houses where anyone with a pulse can stay....but something with quality housing, fully screened and vetted tenants and furnished entirely or just the common areas. It takes away a lot of the risks of landlording....and you get better rents with little vacancy. I'd be happy to chat with you about it and help if I can somehow. Hang in there!
Seattle, WA · Member since 2013 · 70 posts · 33 votes
12y
Both of my rentals would have been great success with an adequate property management company. They spoke a good story as did the turn key seller. It was all a bunch of lies and ended up a mess.
I'm keeping the other duplex and going with a different management company. Lesson learned I guess; to make it in an out of state rental you must have a good management company.
Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
12y
Sorry @Andy Luick , I misunderstood this sentence in your original post and thought you only read the first page (guess I need to read more closely):
"When I read the first page of the thread...it seemed like the buyer got burned but once I saw it was a weekly rental...forget about it."
I followed this thread pretty closely, but somehow I missed the weekly rental part. Wow, that is absolutely a recipe for disaster, I 100% agree. @Will Spruill I'm very happy to hear you are selling at least one of them, hopefully at not too much of a loss.
I'm also glad to hear you have hired a new PM - hopefully you can right this ship.
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.
Both of my rentals would have been great success with an adequate property management company. They spoke a good story as did the turn key seller. It was all a bunch of lies and ended up a mess.
I'm keeping the other duplex and going with a different management company. Lesson learned I guess; to make it in an out of state rental you must have a good management company.
I voted for your post because you are spot on about property management. I don't know for sure how successful they would have been with better property management, but you would have dealt with a lot less headache and had fewer issues for sure.
What blew me away about your comment was that you used the word "adequate".
What a crazy, sad statement to show how poor the reputation is of the property management industry - and ALL self-inflicted by the way. When investors just want "adequate" it speaks volumes about how low the bar is to make an investor feel like you care and have at least a little bit of their best interest in mind.
I look forward to the day when the bar is set higher and the expectations of more investors becomes "exceptional". An exceptional experience is what every investor who hires a property management company should expect. They should get great communication, proper expectations and the proper amount of respect for the fact that they have invested thousands of dollars. It is possible - I know - because we are managing close to 2,400 properties right now in 3 cities and while it is not always perfect, it is easy to communicate. It takes daily effort to get better and keep clients happy, but it is possible. It will take a while for real estate investors to realize that adequate is not good enough and exceptional should be the rule.
Hopefully, Will, you get a better property management company in Indianapolis and at a minimum are able to get a time period of consistency with your investing and are able to catch your breath. Once you do, you can re-evaluate and focus on what you now know you have to have in place to buy properties in other cities.
All the best to you and thanks for sharing this long journey.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
12y
I've seen a lot of people get taken with some unscrupulous turnkey sellers, particularly to out-of-staters and sometimes foreign nationals. Be very careful with such things.
Rehabber · Fishers, IN · Member since 2014 · 17 posts · 1 vote
12y
@Account Closed that's how turn key should go. I'm impressed. Mike didn't have to take any responsibility for that incident but he did. From what I read on these threads, we need more people like that.
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
12y
Great topic. @Will Spruill What is the extent of the water damage? Is there an insurance claim?
@Chris Clothier Way back when you mentioned 6 quality of life issues. Please elaborate.
I finally made it through the whole thread. To summarize most people seem to agree that duplexes in D class neighborhoods are problematic. PM companies need to be great communicators and have proper screening.
I think there has been too little discussion on what seem to be high rents. I don't know the Indy market, but several people thought the rents are high.
Our PM company turns down management services to people who are asking way over market. The owners tend to be upside down, high-maintenance, and will have high vacancy rates or bad tenants. All problems.
Even though the props were delivered in good condition, where was the guidance from @Marco Santarelli or the PM company on rents? It is both the responsibility of the TK provider and the PM to provide this kind of guidance. Would you have these problems at $1000/property? Would you have even bought these properties with projections based on those kinds of numbers?
I'm very impressed by how level headed the players are. I've posted it before, but property management is just a series of opportunities to drop the ball. IPM seems unusually good at seizing these opportunities ;)
