"turnkey" inspection report came back with numerous issues

"turnkey" inspection report came back with numerous issues

Investor · Los Angeles, CA · Member since 2017 · 16 posts · 6 votes

I received the inspection report on a SFR thats in escrow. Property was said to have new roof, HVAC under 5 years old, new counter tops, soffit reparied, new doors, and a few other items rehabbed on the house. I got the inspection report back stating roof was approximately 8 years old (supposed to be new), furnace approximlatey 15 years old, AC unit 10, soffits hanging down, rotted door threshold, bedroom door that doens't latch, front door that has gaps to the exterior, electrical ground cut, a/c condenser line broken, basement foundation cracked, counter tops lift off (not sealed to cabinet), toilet loose, driveway and walkway leading to front door cracked, iron sewer line leaking, bathroom sink has leak in pipe (in the line, under the sinkbowl) and a few other items.

I know not everything on the inspection report is a big deal, and inspection reports always have items on there, but..................... what concerns me is the fact that the roof was marketed to me as being new and is not, its approximately 8 years old.... the HVAC was marketed to me as being under 5 years old and its not...... its over 5 years old (with issues), counter tops weren't sealed to cabinets,soffits were supposed to be repaired (according to the scope of work) , and the foundation is cracked (which could or could not be a big deal).  Not sure if I should just cancel our purchase agreement based on the scope of work and marketing not being what actually was done to the house, or ask for concessions on the purchase price and move along with closing escrow.  After the inspection the house definitely is not "turn key."  Any advice/help would be appreciated.   

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Kansas City MO · Member since 2014 · 357 posts · 349 votes
9y

@Lee Warren I agree about walking away from this deal. Way too many headaches for a turnkey where you're paying top dollar & getting no equity. Also I wouldn't trust or do business with that turnkey company anymore. 

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  • Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    9y

    @Lee Warren Those are certainly a lot of issues for "turn key". Have you spoken with the company? Is this a company or individual selling? The major items I'd be concerned about as they are the bigger cost items. If they marketed it to you as those items being of certain age and condition I most certainly would bring that up to them. I don't do turn key so my opinion if it were me would be to first speak with them and look at the contract to make sure these things are included and hold them accountable. If you have any feeling of them not addressing the issues then you can surely cancel. If you ask for concessions would this mean you then have to spend time getting these things fixed/replaced when's it was supposed to gen move in ready.

  • Investor · Chandler, AZ · Member since 2015 · 409 posts · 214 votes
    9y

    you must be trusting someone to inspect your investments?

    I would never buy something sight unseen

    I'm just sayin maybe look at getting out why you can if your off sight and saving yourself some headaches

    your sayin a condenser line to a AC unit is not a big deal but it could be a 7k bummer

    hope all works out

  • Bronx, NY · Member since 2014 · 25 posts · 34 votes
    9y

    Not sure if you are getting financing, but basement foundation issue is possibly enough to kill the loan.  I backed out of a turnkey deal once for the same reason - after they reviewed the inspection report they asked for a structural engineer to assess foundation issue and was not satisfied with the fix the turnkey provider proposed to make.    

    I've seen this kind of messy inspection report before.  At best case, the turnkey company is overwhelmed or has very poor internal communication, and simply didn't finish all the work before the inspection was ordered.  Or worst case, of course, is that they mis-represented the condition of the home from the start hoping you wouldn't bother with the due diligence.  

    If you continue with the project, make sure the turnkey company is the one who pays for the re-inspection after they make all the repairs. 

  • Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
    9y
    Lee Warren yeah, that doesn't sound good. I've had that post-inspection conversation before but not nearly as bad as what you are dealing with, it seems. I would just have a candid, calm conversation with the provider explaining that your expectations were not met based on the inspection. List out the each of the items that did not meet your expectations in an email, then ask if you can schedule a phone call to discuss. If the provider really has your best interests at heart then they will fix things to make you happy. If not, then you should back out. But either way, the best thing you can do to get as good of an outcome as possible is to stay calm and professional when you have that conversation. For what it's worth, I ended up with a positive outcome when I was dealing with a similar situation. The provider ended up putting on a new roof, among other things.
  • Investor · Los Angeles, CA · Member since 2017 · 16 posts · 6 votes
    9y

    @Kyle M. Thanks for the advice, calmer heads do prevail and I'll have to keep that in mind when I continue the conversation on Monday with the provider.  It really left a bad taste in my mouth seeing the Scope of Work break down, and then seeing the inspection report detailing how these items which were supposed to be knew or under 5 years old, being much older and not new.  This will most likely kill the deal and hopefully I won't have an issue getting my earnest deposit back from escrow.  It is detailed in my contract that if the inspection reveals material deficiencies, I can cancel the purchase contract and get my deposit back.  

    @Scott C. I don't know how much the repairs for everything would cost, but I would assume it would be over 10k to get it to truly turn key, which is what I thought I was getting into.  I definitely would not pay for a structural engineer, but I think the seller should foot the bill for that... not sure if it is even worth proceeding at this point due to the possible misrepresentation of the condition of the house.  I emailed the provider a copy of the inspection report and my concerns.  He said he would go visit the house Monday and said the driveway, sidewalk, and foundation cracks are typical of mid-century homes in the mid-west.... which is true.... but a foundation crack is not a minor thing in my opinion and it needs to be addressed and not ignored as a typical mid-century issue.  Driveway and sidewalk cracks are less important obviously.  

    @Stanley Parsley Thank you for your input.  Since it is an oos property my only eyes on the ground were the appraiser and inspector (and turnkey provider), which takes a certain level of trust.  Thankfully the inspector did a great and thorough job and the report was well detailed.  I am seriously considering getting out of the contract since there are many things that are raising red flags now.  Hopefully I don't have a hard time getting my earnest money deposit back if I do get out... I shouldn't since it is clear in the purchase contract re inspection being up to par.  I'll talk to the provider Monday and most likely have my decision made then or Tuesday.  

  • Ronan M.Pro Member
    Rental Property Investor · Chicago, IL · Member since 2015 · 352 posts · 281 votes
    9y

    " At best case, the turnkey company is overwhelmed or has very poor internal communication"

    Or..(more probably) they are just a bunch of scam artists  

  • Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
    9y
    Lee Warren get out of this contract and move on. There are plenty of honest turnkey operators across the nation, so there is no need to deal with a company that is trying to pull something over on you. Your EM should be fully refundable due to the inspection contingency.
  • Kansas City MO · Member since 2014 · 357 posts · 349 votes
    9y

    @Lee Warren I agree about walking away from this deal. Way too many headaches for a turnkey where you're paying top dollar & getting no equity. Also I wouldn't trust or do business with that turnkey company anymore. 

  • Rental Property Investor · Salem, OR · Member since 2016 · 202 posts · 305 votes
    9y
  • Investor · Minneapolis, MN · Member since 2015 · 252 posts · 263 votes
    9y

    @Lee Warren

    Are you seriously considering buying a property from some scam artists sight unseen? And on top of it, you are considering having them manage your asset for you? Man, I have a nice bridge in New York you should take a look at. Have an attorney write them a letter demanding not only your EM back, buy have them pay for your time and out of pocket expanses, threaten with law suite. It won't get you far, but you will get your EM back. Take everybody's advice and run. You will thank us later :) Issue is not necessarily a foundation crack, there are plenty of perfectly good foundations in need of the slight tuck pointing. Issue is - they are defrauding you by misrepresenting a property / transaction to you. Deal with honest people, there are plenty. Good luck.

  • Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    9y
    Originally posted by @Lee Warren:

    I received the inspection report on a SFR thats in escrow. Property was said to have new roof, HVAC under 5 years old, new counter tops, soffit reparied, new doors, and a few other items rehabbed on the house. I got the inspection report back stating roof was approximately 8 years old (supposed to be new), furnace approximlatey 15 years old, AC unit 10, soffits hanging down, rotted door threshold, bedroom door that doens't latch, front door that has gaps to the exterior, electrical ground cut, a/c condenser line broken, basement foundation cracked, counter tops lift off (not sealed to cabinet), toilet loose, driveway and walkway leading to front door cracked, iron sewer line leaking, bathroom sink has leak in pipe (in the line, under the sinkbowl) and a few other items.

    I know not everything on the inspection report is a big deal, and inspection reports always have items on there, but..................... what concerns me is the fact that the roof was marketed to me as being new and is not, its approximately 8 years old.... the HVAC was marketed to me as being under 5 years old and its not...... its over 5 years old (with issues), counter tops weren't sealed to cabinets,soffits were supposed to be repaired (according to the scope of work) , and the foundation is cracked (which could or could not be a big deal).  Not sure if I should just cancel our purchase agreement based on the scope of work and marketing not being what actually was done to the house, or ask for concessions on the purchase price and move along with closing escrow.  After the inspection the house definitely is not "turn key."  Any advice/help would be appreciated.   

     Lee, not unusual to define deficiencies during your inspection contingency period, however large discrepancies in scope and condition may be cause to rethink the relationship, as ultimately this is a marriage. When you referenced turnkey I assume, they also manage and handle all maintenance related issues. 

    Checkout this awesome blog article: 

    A Simple Guide for Buying Out of State Turnkey Investment Property

    I am not going to discount the provider making a mistake, if they are a high volume asset producer, it can happen, some wires can get crossed from time to time, even the most perfect assemblies, sometimes incur a hiccup. But you should certainly dig deeper, have a conversation,  prepare a removal of contingency that is equitably and mutually agreeable to, if you cannot find a common ground, I would certainly reconsider my move.

    Hope some of this helpful.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    9y

    It's already quite apparent that you cannot trust this turnkey operation to be truthful, so what do you expect to hear when you discuss this with them - other than more lies, deception, misleading statements, etc.?

    It is about establishing a sound relationship, and trust and truthfulness are so important to a relationship - if you enter into this relationship it will not end up well for you.

  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    9y

    @Lee Warren,

    I am going to echo @Steve Babiak on this.  It is vital that you have a high-level of trust in a relationship and this is a prime example of why you should never take anything on faith.  Always use a third party inspector to "inspect what you expect" in your property and from your provider.  The properties are only a small part of the success equation when buying out of state.  The condition of your property as far as deferred maintenance and the ability of your property manager are much more important.  Otherwise, it does not matter how good the property is or how good the location is or even how it looks on paper.  Poor craftsmanship, deferred maintenance and poor management can destroy your return and your confidence as an investor.

    The TK company could have easily made some human errors on this, but the list of issues stacks up to look less and less like human error and more like a poorly run company.  You were correct that the marketing in no way matches reality on this property.

    At best, you need to cancel this property and reset expectations with the company. Be patient if for some reason you still want to do business with them.  You really need to protect yourself before moving forward.  

  • Investor · Los Angeles, CA · Member since 2017 · 16 posts · 6 votes
    9y

    @Vivek Khoche Not sure I understand your comment.  The property is in Kansas City, not Memphis.... Whine?  I'm asking for advice, not whining... Good luck for buying the deal of the century??/?? again not sure what your trying to say.  

    @Chris Clothier Thanks, this goes to show you that an inspection is a MUST, and I would also ask for receipts and proof that the scope of work which is proposed and given to the buyer has actually been done.  I sent the scope of work to the inspection company and they looked at the items which were supposed to be knew and rehabbed, which obviously were not. 

    Scary situation because this would've surely been a money pit that would've been a passive cash drainer not passive cash flow.  I sent the notice of cancellation today so I'll post any updates as I go along.  Hopefully its a smooth cancellation and the deposit is refunded without me having to take it to another level.  

  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y
    Lee Warren trust but verify my friend. Always continue to do your diligence.
  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    9y

    It's unfortunate that people try to scam others like this.

  • Cupertino, CA · Member since 2014 · 59 posts · 22 votes
    9y
    Lee Warren - I think you did the right thing. I had a exact similar situation with the provider in Houston. Best of luck with your search...
  • Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    9y
    If you send the report to me I can give two cents.
  • Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    I have a completely different perspective on this. Which is-

    The condition of the property does not matter at the time of inspection, it only matters before you close on it.

    When you buy truly turnkey, you don't have a dime in the game until you close on it. So, why would the condition of the property be worth canceling a perfectly good contract before you know for sure what condition it will be in before you close on it?

    It is 100% standard process with turnkeys (I've been buying them and working with them for years) that the inspection report will never come back with no issues. A non-new roof is a little more ridiculous if it was supposed to be new, but it still doesn't matter.

    Here is the process any turnkey buyer is supposed to go through when the inspection report comes back-

    1. List out all of the 'issues' the report notes.
    2. Send that list to the turnkey seller and ask that he fix all of them. 
    3. The seller will tell you which of the items he agrees to fix. If not all of them, he'll tell you why he doesn't feel inclined to fix the ones he doesn't. 
    4. If that sounds good, then he fixes everything and shows you proof everything got fixed.
    5. If everything is fixed up to par and you are pleased, you close on the property. If he refuses to get certain things in certain condition, then this is the time you cancel the contract. Not before! Why would you before...you don't know that the property won't be exactly as advertised (or better) by the time of closing.

    This is standard process. You have no risk in the situation because if it isn't made up to par, you don't close. Easy as that. But it's not fair to the turnkey seller to not give him the chance to fix it all.

    Trust me, I used to be of the mindset that turnkeys should be perfect when I started into them, but it's not reality. A lot of these turnkey providers move so fast that things can easily be missed. It's the whole point of the inspection--clarify what is left to be done. So much so, I wrote an article about the whole thing-

    https://www.biggerpockets.com/renewsblog/2015/02/0...

    You can cancel if you want, but I think you're missing out if you don't at least present the issues. If they refuse to put on a new roof, then great, they suck as people are suggesting. But it's the wrong time to determine that for sure just yet.

  • Cupertino, CA · Member since 2014 · 59 posts · 22 votes
    9y
    Ali Boone - if the provider is claiming everything is perfect (including the new roof, etc.) and is ready for you to buy, but you are now finding issues with big ticket items (roof, foundation, HVAC, etc.) during the inspection, so how can you trust the provider? Am I missing something?
  • Investor · Los Angeles, CA · Member since 2017 · 16 posts · 6 votes
    9y
    Update. Purchase contract was cancelled with no issues and earnest money deposit returned quickly with out any problems. I'll probably stick with crowdfunding for a while instead of traditional out of state deals. I've had better returns without the issues.
  • Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    @Manish A.

    In the turnkey biz, or any real estate biz really, you ultimately don't have to trust anyone. All that matters is the property you are getting. In the case of a turnkey, the only component you actually need to trust is the PM side because they will be managing your property afterwards. But trusting any part of the company before that really doesn't matter because you are either getting the property you want as advertised, or not. In any real estate transaction all that really matters is the property. It doesn't matter the people behind it if you can confirm you are buying exactly what you put in for. 

    There's next to nothing you can't verify on a turnkey property before you close on it. Which is why the people don't matter. 

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Lee Warren:

    Update. Purchase contract was cancelled with no issues and earnest money deposit returned quickly with out any problems. I'll probably stick with crowdfunding for a while instead of traditional out of state deals. I've had better returns without the issues.

    Sounds like that was the right decision. I don't think there are any legit excuses for that kind of misrepresentation. You are far away from this home and needed to have many folks looking out for your best interest. In the future, perhaps compare Memphis Invest to what you are looking at. They set up from the start what should be expected for an actual turnkey home. Unfortunately those others thought it was kosher to waste your time and potentially your money. 

    Good luck with your search! 

  • Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Lee Warren Sounds like you made the right call to me.  If you can't trust them with the property details how will you trust them to manage it?  I shudder to think of the turnkey investor (and I'm sure they are out there) that would have gone through with the purchase anyway...

  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    9y

    @Ali Boone - You and I know we have great respect for each other, but I go the exact opposite direction on this issue - especially when it comes to trust.  You may call it something differently, but the idea that you are just doing a regular real estate transaction and the only thing that matters is the house is the polar opposite of my philosophy.

    To me, the ONLY thing that truly matters is the people you do business with when buying long distances from home.  The house is completely secondary in the equation.

    If you cannot trust the people you are doing business with, then you will never be able to rely and enjoy the benefit of why in the heck you invest out of state anyway.  

    A great property on paper can easily be ruined and often is by a poor management company, which is very often tied to the company you purchase from.  IF you cannot trust what someone tells you as to the work that was completed - and that is verified by a 3rd party inspection, then trust is lost.

    If it is a simple case of what paint color was used, then sure, maybe it was a mistake.  If it is a simple case of not pulling a permit on a new deck built in a backyard and the company says they did pull one, those two things are minor.  Those may be able to be attributed to human error and miscommunication.  According to the OP, this is what happened on this property:

    "Property was said to have new roof, HVAC under 5 years old, new counter tops, soffit reparied, new doors, and a few other items rehabbed on the house. I got the inspection report back stating roof was approximately 8 years old (supposed to be new), furnace approximlatey 15 years old, AC unit 10, soffits hanging down, rotted door threshold, bedroom door that doens't latch, front door that has gaps to the exterior, electrical ground cut, a/c condenser line broken, basement foundation cracked, counter tops lift off (not sealed to cabinet), toilet loose, driveway and walkway leading to front door cracked, iron sewer line leaking, bathroom sink has leak in pipe (in the line, under the sinkbowl) and a few other items."

    That is deceptive at best.  Some of those things are poor craftsmanship, but if the poster is being truthful and there is not reason to think he is not, this is really, really bad.

    At the same time, if anyone says it is not deceptive and if they fix everything you should be happy, how is the buyer supposed to trust that the seller has good business practices and is on top of his business?  These issues are not normal, no big-deal issues.  These are major and either show deception or poor business skills.  Again, either way, I don't know how anyone can argue that a buyer should still go forward or take a wait and see approach.

    There are simply too many good companies that have their games together to put up with this type of result.  No buyer in my opinion should lower their expectations so low that they accept anything like what was listed here.

    On the flip side, I still think your awesome and a fantastic resource for other investors - just had to disagree with you (shock!)!

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