Grandville, MI · Member since 2015 · 79 posts · 17 votes
In the process of purchasing my first turnkey property out of state. Just got the home inspection report, and it sounds like a disaster. Water damage on the ceilings, wood rot, old HVAC, questionable roof, dead mice, thick vegetation near the slab, broken outlets, dripping drainage pipes, etc.
I'm a little surprised since I expected a turnkey to be relatively "fixed up" and not to have what I consider major issues.
I'm planning to pull out of the deal and ask for my earnest money back, but the seller is insisting these problems can be fixed. My take is that these issues should have been addressed *before* presenting the property as a turnkey!
I looked at the home inspection ( boring Sat and I have a cold so nothing better to do) this house in my estimation was not a "turn key" fresh rehab.. it had a tenant living in it. And there was no evidence of any real overhaul of the property... So I think what most think of turn key product IE a brand new REhab with a new tenant.. this was not the case..
this looked like most rental houses that have been lived in for a few years.. tenants as we know are not the best at keeping the landscaping cut back and reporting little leaks and plugs that don't work or facia board that is peeling etc etc.
I looked at the home inspection ( boring Sat and I have a cold so nothing better to do) this house in my estimation was not a "turn key" fresh rehab.. it had a tenant living in it. And there was no evidence of any real overhaul of the property... So I think what most think of turn key product IE a brand new REhab with a new tenant.. this was not the case..
this looked like most rental houses that have been lived in for a few years.. tenants as we know are not the best at keeping the landscaping cut back and reporting little leaks and plugs that don't work or facia board that is peeling etc etc.
What really sucks for investors, especially out of area investors buying across the country, is that Turnkey does not mean anything! It is a marketing term that any Tom, Dick & Harry can use to SELL their properties. That is the real problem. I - have not looked at that report yet, but I think you would agree that a property like that should never be sold Turnkey. That is just an existing rental property - not much more.
10 -4 that's exactly what I am saying.... the OP said he bought a turn key.. my original comment was I don't think in the definition of what most expect a turn key to be or one bought from a company such as yours.. that this home is not that.. its simply an exsiting rental.. nothing more nothing less so the home inspection is no shocker...
Its like the posts on the ethics of wholesaling there are no ethics in wholesaling ... in turn key there Is no standards other than what is marketed.. AS you know I have seen my fair share.. some of my guys do full gut jobs new wire new plumbing brand new HVAC and Water heaters windows roofs , new sheet rock all new kitchens bathrooms the only thing usually original is the flooring if its nice hardwood... e.. those are full rehabs in my mind and generally are 40 to 60k per unit to do. ... then you have other that take existing homes and do what I would consider industry standard ( if you can call this an industry that has standards) rehab... IE new water heater if it needed.. new Hvac if its older but may not if its 5 to 10 years old. Roof over lay maybe maybe not... refinish floors maybe new counter tops and rehab bathroooms.. spruce up landscaping and paint in and out.. usually a 10 to 20k job.. that is what I see kind of the middle of the road.. then you of course have others that will try to do the least possible. like this one they brought in a Used condenser unit.. that was a huge red flag and it was no good to begin with.
Most turn keys have there standards and your right there is no parity to it.. so a buyer should get a rehab scope of work and compare exactly what was done and then have a 3rd party inspection verify that its done as noted.
Turnkey means that the lock works on the front door . Rehabbed , turnkey , updated , renovated , like new , freshly done . All mean nothing . You need to see the house
Without being able to fly out and see the property, I'm at their mercy.
Exactly!
Why can't you go look at what you are going to buy, Peter?
This is a $30,000 PIG someplace in the Mid-West, I bet. Poster is looking toward TK specifically on the premise that he will not be involved. Going to see it is sort of being involved... I understand the hesitation :)
Run, as fast as you can. Get your EMD back if you can, but even if you can't - RUN. And consider this an education...lol
I looked at the home inspection and I don't think this is your version of a 30k Ohio pig.
the home is only 15 years old... its a track home of newer construction.. its just been a rental for time and has a lot of little differed maintenance like any rental will have over time.
and actually Ben anyone considering buying a rental anywhere should look at this home inspection this is what your rental will look like in a C to B area 90% of the time after a few years... some may fair better some worse but this is pretty par for the course for what I have seen over the last 20 years in the space
and actually Ben anyone considering buying a rental anywhere should look at this home inspection this is what your rental will look like in a C to B area 90% of the time after a few years... some may fair better some worse but this is pretty par for the course for what I have seen over the last 20 years in the space
Jay - I don't disagree. However, I'm not sure you realize that you just proved my points:
a. CapEx has to be done. The seller doesn't want to do it, because it'll eat up whatever profit he has made over the years on this house as a rental, or tk flip. But, it has to be done, and the buyer will have to do it...therefore:
b. SFR - even B Class that are 15 years old, do not work well in the Mid-West. The seller is always looking for a sucker who won't know any better.
c. C Class SFR that is a biliion years old is a non-starter all together.
One could say the same about any rental anywhere when there is no appreciation. same with multi family if rents are stagnant and your multi gets run down it becomes a target for the next buyers to buy it low do some rehab stabilize and sell it to the next sucker !!
One could say the same about any rental anywhere when there is no appreciation. same with multi family if rents are stagnant and your multi gets run down it becomes a target for the next buyers to buy it low do some rehab stabilize and sell it to the next sucker !!
I was going to say Multis where there is rent control ... but I guess that's just another form of stagnated rent ;-)
Can you clarify that you are considering buying this from an outfit that is marketing their properties as turnkey or simply some landlord/owner that is selling their investment property?
The reason I ask is that the answer greatly affects how I would look at the inspection. For example, I have never personally purchased a property in this good a condition. Also, when I was doing property management, this is condition is pretty typical of owner managed properties that were turned over to us--some better, some much worse.
The problem comes when there's a company involved claiming to be your "boots on the ground" and providing some value-add to a property they found with deferred maintenance. If I was 1500 miles away, I would want to have a great deal of confidence that my partner knew what they were doing. The inspection reveals that they:
Are not an adequate PM company as the inspection reveals some safety/liability issues that could and should easily be fixed
Are not good flippers because they are marketing the property before it is ready, losing the initial surge of interest (and potentially clients like you)
Are perhaps not up front with you by making you find the problems for them to fix to close the deal, instead of the other way around. As @Chris Clothier put it, what if you didn't get an inspection?
I would have a very different opinion of the outfit if they provided this exact inspection to you and said, "As-is is one price, problems fixed is another, here's what we recommend..."
I've bought 5 "turnkey" rehabed properties in 3 states (texas, Indiana, Tennesee) from three different providers in a span of 1 year.
Here are the things I learned:
#1 WORD OF MOUTH - buy from providers based on word of mouth and based on the proven experience of other buyers who have had positive experiences with that turnkey provider.
So many things can go wrong with any property. You have to trust the provider - not just trust the numbers or the property itself. REAL estate is a PEOPLE business more than a property business. I would rather buy a property from a proven person with lower cash flow than from a unknown provider (higher risk) with higher cash flow numbers.
#2 Home inspection is key. "turnkey providers" should address every single problem item found on the home inspection- from minor issues to major ones (roof, AC, water heater, etc..).
IF they balk, then RUN away! If they fix them all, you still run the risk of return problems in some cases. You have to decipher: is this a good deal with problems that can be fixed or is it a "fake good deal" with problems that will haunt me in the years to come?
Here is one example. My very first deal, the home had many issues on the home inspection. the turnkey provider "fixed" everything on the list except the roof. He believed the roof had about 5 years life in it. We decided to split the cost 50/50. (I got a $2000 credit). Being a new investor, I did not have the wherewithal or knowhow to completely REPLACE the roof at the time of purchase and just roll it into the loan. Even after everything was fixed, this property had many minor issues during the 1st year with maintenance cost being around 10-15% of rent! (too high IMHO) Then I had the great misfortune of replacing the roof and AC unit in the same month about 1.5 years after purchase in the tune of $5200!
That being said, my 2 other properties from the same Texas turnkey provider worked out well and 8 properties a friend bought were also positive experiences with great cash flow.
#3 PROPERTY MANAGEMENT: Evaluation of the Turnkey provider also requires you to evaluate the property management which is just as important as the rehabbed property itself. Two words- vacancy and maintenance is a huge part of buy/hold strategy -and property management is a vital part of that strategy.
My take home message is this. Even with the highly recommended "turnkey providers" you are going to run into problem properties and maintenance issues. Therefore, doing due diligence on providers (getting several references at a minimum) and also choosing providers who have a positive track record with friends/colleagues you know is a better way to go. (with the caveat that even with these people you may run into issues).
If I had any experience, I may have walked away from my first deal. But I'm ok with my first deal since real estate is multifactorial and forgiving (with time) in many ways.
#4 DON'T QUIT: The most important rule in real estate investing is don't quit, keep trying, keep buying the right properties from good people and avoid bad ones!
