Turnkey Home inspection advice for a newbie

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Turnkey Home inspection advice for a newbie

Tony Xu
Investor · NY · Member since 2017 · 59 posts · 21 votes

Hello,

So I'm in the process of closing on my first turnkey property and just got my home inspection report back. It only listed 1 major issue but a lot of maintenance items, I am not sure what is expected/not expected since it is an older house, about 75 years. However, since it is turnkey, it did get recently rehabbed. So if someone could help me out and let me know if the things below are a major concern, that would be awesome!

Major

  • Insufficient number of HVAC supply vents in family room. A room with 3 exterior walls should have at least 2 supply vents. Currently only 1 supply vent installed on South wall. Recommend hiring professional HVAC contractor to evaluate and correct to provide necessary heat to space during winter months. 

Maintenance

  • Landscaping is flat and slopes toward foundation around home. This is a typical condition found in many homes. Recommend sloping grading away from home 1" per foot to avoid grading erosion, foundation seepage and possible foundation movement (85-90% of all foundation moisture problems can be avoided with proper grading and downspout extensions). None visible during time of inspection.
  • Open space where gas and AC lines enter siding. Recommend sealing to avoid possible moisture damage. 
  • Termite damage at floor joist on West side of basement. No previous treatment is visible and none is disclosed.
  •  Plumbing supply piping is made of galvanized steel. Over time this will become clogged and corroded. '
  • Rust and visible at circuit breakers. This is likely caused by corrosion. 
  • No roof vents installed.  
  • Missing smoke detectors in Hallway and basement
  • no CO detectors
  • Drip tube is missing at water heater

  •  Loose siding on South side of home. 

  • Unpainted window sill on North side of home. 

  • No window well cover.

  • Downspouts missing elbows.

  • No furnace filter installed. 

  •  No cold water shutoff valve installed above water heater. 

Thank you!

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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
9y

This is a much different thought:   Buy a property in the Bay Area.  You live there.  It is some of the best real estate in the country because it is a magnet for talent, new companies and big money.  I am a believer in purchasing properties in your backyard.  Unless you have good trusted operations in another state, don't do it.   If you do intend to purchase this out of state property, request they fix everything.  Say the plumbing is old, obsolete.  Do not send the seller's your inspection report, which is your privileged information.

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  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    This sounds like a sloppy rehab.    I actually don't think it is a rehab, but more of a repair job.

    1.  Old galvanized plumbing.  Any renovation I do, I replace all of this, even for my rentals.  Now, if the water pressure is good, you might get some more years out of the old plumbing.  But galvanized plumbing suggests that the plumbing could be original to the house.  Or been there from at least the 1960s.

    2.  The termites worry me.  They could be back.

    You may want to use this inspection report to either renegotiate the deal and repairs.  Or even back away from the deal.  I rent single family homes so I know all the pitfalls.  You're probably an out of state investor.  Over time this property will need repairs, just like all rentals.  Single family rentals tend to have more repairs than apartments.  

    2Reply
  • Patrick C.
    Investor · Highland, CA · Member since 2017 · 28 posts · 15 votes
    9y
    Walk away IMO. Sloppy rehab if rehab is what they call it. Move forward with something your comfortable with. I agree with Brian. Try and position yourself to have as less maintenance as you can. Or maybe buy a newer home?
    1Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    This is a much different thought:   Buy a property in the Bay Area.  You live there.  It is some of the best real estate in the country because it is a magnet for talent, new companies and big money.  I am a believer in purchasing properties in your backyard.  Unless you have good trusted operations in another state, don't do it.   If you do intend to purchase this out of state property, request they fix everything.  Say the plumbing is old, obsolete.  Do not send the seller's your inspection report, which is your privileged information.

    6Reply
  • Tony Xu
    OP
    Investor · NY · Member since 2017 · 59 posts · 21 votes
    9y

    @Brian Ploszay

    I don't think buying property in the Bay area is a great idea right now. Right now prices are stabilized and is even slightly declining. It is impossible to cash flow here and every house gets multiple offers in the first 24 hours. Also, the cost of entry is too high for my taste, it really makes no sense.

    The reason why I picked KC is because I see a lot of posts here about KC being a great cashflow market. From all the readings here on BP, as well as some of the books I've read, cash flow seems like the better and more consistent way to build wealth vs going for appreciation. I have thought about investing in markets experiencing crazy growth, however, I haven't been able to find a market that can also produce decent cash flow.

    It says you are from Chicago, do you mostly invest in the Chicago area?

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Tony Xu:

    @Brian Ploszay

    I don't think buying property in the Bay area is a great idea right now. Right now prices are stabilized and is even slightly declining. It is impossible to cash flow here and every house gets multiple offers in the first 24 hours. Also, the cost of entry is too high for my taste, it really makes no sense.

    The reason why I picked KC is because I see a lot of posts here about KC being a great cashflow market. From all the readings here on BP, as well as some of the books I've read, cash flow seems like the better and more consistent way to build wealth vs going for appreciation. I have thought about investing in markets experiencing crazy growth, however, I haven't been able to find a market that can also produce decent cash flow.

    It says you are from Chicago, do you mostly invest in the Chicago area?

     This home already sounds like a wallet biting eyesore and it is turnkey? I can suggest you visit this home and location beforehand if possible and then compare to what is out there on the mls.

    REI Hedge funds run about 60/40 favoring appreciation in total returns vs just cash flow alone. They invest all over the nation. Appreciation and future cash flow growth tend go hand in hand eventually in the form of rent appreciation. It is that future cash flow growth some investors consider more important than the initial cash flow on paper.

    Good luck!

    2Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    I've seen wealth created from real estate over my time.  (I spent many years in California by the way).

    Here is the turn key model:   They purchase distressed homes in declining areas or lower middle class areas.  They fix them.  They mark them up to you.  

    I invest in these exact type of properties for my own account.  They are not turn key properties.  That word is a misnomer.   Same thing goes for apartment buildings.   It takes lots of work to keep them going.

    My advice to buy in the Bay Area was to capture appreciation.  And more importantly to invest in your own backyard.  

    For your property - if you get lucky, all things will go well for the first few years.  But whenever you get a vacancy, you'll need to put lots of cash into it.   

    If you have not seen this property, then maybe you should not buy it.  Hop on a plane.

    Comments on Chicago - it is a bigger region than the Bay Area.  The rental market is good.  There is a lot of wealth here, but also there are parts of the city that are impoverished.  Nothing at all like the Bay Area.

    These are the high cash flow areas.  Good income, but they come with some challenges and certainly more management.  Too much to say for this post.

    2Reply
  • Dylan VargasPro Member
    Rental Property Investor · Chico, CA · Member since 2016 · 633 posts · 336 votes
    9y

    @Tony Xu Welcome! These are not major issues. Get estimates to fix them all and renegotiate price. Not everything can be done on a flip and older houses are, well, older houses. If the house is in KC def get the vents done for the cold winters. If its a huge room it will be cold, if its a small room probably no biggie. Remember, if you go to sell in a few years these same items may and probably will be called out. So i would get estimates to fix and renegade price. Sellers are used to this especially flippers. Nothing wrong with asking for a credit/reduction or simply fix before closing. You should always do a Termite inspection as well as a home inspection unless things are different in KC. These are two different professionals and if you ever do a VA Loan for a buyer you will need a Pest 1 clearance from a Termite Inspector (not a pest control company). Good luck and keep us posted.

    0Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    Sloppy rehab work, run don't walk away. This property will continue to nickel and dime you to death. Turnkey should be punch perfect... just buy a nice house on MLS and have someone put a tenant into it if you want turnkey

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    I know it sounds like a lot, but this is fairly standard for turnkeys. Ultimately, nothing matters until you are ready to close, so the condition at the inspection actually doesn't matter if everything gets fixed. So, it's the end result that matters and that's all. 

    Here's some more detailed info on how it all works-

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

    A little further into the article it addresses turnkey inspections specifically. 

    Let me know anytime if I can help with any questions!

    2Reply
  • Vivek Khoche
    Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes
    9y

    @Tony Xu - TK mostly is disaster and you have add on of bad rehab. I don't know how you landed in KC but it's hard landing.

    Good Luck

    Vivek

    0Reply
  • Tony Xu
    OP
    Investor · NY · Member since 2017 · 59 posts · 21 votes
    9y

    Yeah, I think I have decided to walk away from the property, thank you all for the advice! 

    1Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    9y
    Tony Xu what are the numbers on it. Beware of anything below 900 per month. When I was buying turnkey rentals a couple years ago it was a lot more profitable. Now you can get in trouble.
    0Reply
  • Tony Xu
    OP
    Investor · NY · Member since 2017 · 59 posts · 21 votes
    9y
    Originally posted by @Lane Kawaoka:

    Tony Xu what are the numbers on it. Beware of anything below 900 per month. When I was buying turnkey rentals a couple years ago it was a lot more profitable. Now you can get in trouble.

     It's renting for $950. Why do you say that anything below 900 is worrisome? 

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Tony Xu:

    Hello,

    So I'm in the process of closing on my first turnkey property and just got my home inspection report back. It only listed 1 major issue but a lot of maintenance items, I am not sure what is expected/not expected since it is an older house, about 75 years. However, since it is turnkey, it did get recently rehabbed. So if someone could help me out and let me know if the things below are a major concern, that would be awesome!

    Major

    • Insufficient number of HVAC supply vents in family room. A room with 3 exterior walls should have at least 2 supply vents. Currently only 1 supply vent installed on South wall. Recommend hiring professional HVAC contractor to evaluate and correct to provide necessary heat to space during winter months. 

    Maintenance

    • Landscaping is flat and slopes toward foundation around home. This is a typical condition found in many homes. Recommend sloping grading away from home 1" per foot to avoid grading erosion, foundation seepage and possible foundation movement (85-90% of all foundation moisture problems can be avoided with proper grading and downspout extensions). None visible during time of inspection.
    • Open space where gas and AC lines enter siding. Recommend sealing to avoid possible moisture damage. 
    • Termite damage at floor joist on West side of basement. No previous treatment is visible and none is disclosed.
    •  Plumbing supply piping is made of galvanized steel. Over time this will become clogged and corroded. '
    • Rust and visible at circuit breakers. This is likely caused by corrosion. 
    • No roof vents installed.  
    • Missing smoke detectors in Hallway and basement
    • no CO detectors
    • Drip tube is missing at water heater

    •  Loose siding on South side of home. 

    • Unpainted window sill on North side of home. 

    • No window well cover.

    • Downspouts missing elbows.

    • No furnace filter installed. 

    •  No cold water shutoff valve installed above water heater. 

    Thank you!

    Did the TK company do the rehab in house or did they hire bad contractors? Also, do they own the property or just find it off of the MLS?

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y
    Originally posted by @Tony Xu:
    Originally posted by @Lane Kawaoka:

    Tony Xu what are the numbers on it. Beware of anything below 900 per month. When I was buying turnkey rentals a couple years ago it was a lot more profitable. Now you can get in trouble.

     It's renting for $950. Why do you say that anything below 900 is worrisome? 

    That is probably not a bad rule of thumb. Keep in mind that a water heater or furnace costs about the same whether the house rents for $1500 a month or $500 a month. Lets use a water heater as an example. Lets say it costs around $1200 to have one installed. A water heater will last about 10 years (just had one from 2007 go out). That is $120 per year on your CAPEX or $10 per month. On the $1500 per month property that works out to 0.6% of monthly rent. On a $500 rent property it works out to 2% of monthly rent. Lower rents require higher CAPEX percentage reserves. 

    1Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    Most deficiencies are what one would expect from SFBA in general. Most people use space heaters but you need to clean the vents (registers) and add a filter.  Your ducts etc probably have no pressure with leaks everywhere. Ducts many have falling off from earthquake.  Go under the house take a good look.

    Piping, unless it is corroded galvanized will last sometime. Examine the piping joints. If majority show moisture then you replace the entire system with permits.  Many flats in London are over 150 years made of old iron pipe.  Copper is popular and pricy.  You can add 50 cents on a dollar for home value. 4-5K?

    It sounds the inspector copied a bunch motherhood statements telling you what preferred maintenance and house keeping rules... A bottle of foam sealant to keep mice and cockroaches is hinted.

    Termite-what kind is it? You have a termite report? 100% homes in west coast have termite exposures. Many are treatable.  If it structure then you need to replace. Sub is not treatable as they hide 6 ft below ground and tenting only kills ground termites.  Anything wet or rain induced under the foundation you need to avoid it.

    Good luck

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    Just a side note, don't believe everything you read on bp as much of what is posted is by folks selling in xyz market and a level of bias exist in order to make a commission. 

    The fact is your home market has proven to be the 2nd most profitable market  ( cash flow + equity) in the nation since 2000. Those fundamentals have not changed either. Just because an investment looks like it can cash flow initially better on paper does not make it a better investment long run, unless you ignore a bunch of other stuff and that other stuff really determines total possible profits. 

    Good luck!

    PS #1 was LA , #3 San Diego. See the pattern...

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    9y
    I invest in KC and live in CA. I stated out looking at TK but after seeing where the properties are located decided not to go the TK route. Here is a simplified view of my thinking: the value of a SFH is that it will appreciate if it's in a good area. The value of MF and apartments is that they will cash flow and also increase in value through increases in the rent people will pay to live there but won't have as much appreciation. Of course there are exceptions, but this is my general simplified thinking. When buying anything you're looking for an area where people want to live, otherwise known as demand. If your tour KC and you see where a lot of TKs are located you'll see those areas are not in demand. There are lots of nice areas in KC where you can buy a SFH off the MLS in a nice area, but TK companies don't sell there. All I can say is that you really have to know a sub market and the demand in that sub market. Hopefully something in this was helpful!
    Podcast Guest on Show #373
    3Reply
  • Stephen Flynt
    Alpharetta, GA · Member since 2015 · 44 posts · 23 votes
    9y

    @Lee Ripma I'm curious what areas of KC you find are nice areas where you can buy a SFH off the MLS that the TK companies don't work in?

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    9y
    There are so many areas in KC! I've seen a lot of TK activity by the new Cerner Campus and in the Ruskin heights area. I just wouldn't buy SFH in those areas bc I think the appreciation potential is low. I was really going for high level strategy with my comment rather than specific areas. But those are two TK areas that I really don't like.
    Podcast Guest on Show #373
    0Reply
  • Tony Xu
    OP
    Investor · NY · Member since 2017 · 59 posts · 21 votes
    9y

    @Lee Ripma

    So did you just work with an agent in acquiring these properties? How did you go about researching which areas you wanted to buy in? Is there anything in particular that you really look for, things like schools, crime, etc

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    9y
    I went to KC and drove around until I found an area I liked, now I invest there! I bought a duplex and a fouplex and am looking to buy more after I finish my rehabs on those. I relied on a PM and a contractor and I ended up having to go out there and fire them both. So now I'm doing my own PM with local partners and have a contractor I trust. However, it has been a ton of work! I look for an area and a market that I understand, not schools or crime stats. If you don't want to do all the work on learning the markets then I think it's hard to be successful. But I'm really no expert, I only just started!
    Podcast Guest on Show #373
    2Reply
  • JC Rav
    Rental Property Investor · SF South Bay, CA · Member since 2017 · 8 posts · 1 vote
    9y

    I also would prefer to invest in my local SFBA market but that's just impossible. Let's say I invest in a $900k 3/2 home in San Jose. I could probably rent for $3000-ish. I need about $200k down to start with and my monthly payment including tax and insurance would be close to $4000.  Not only I'm not getting cash flow, but I would never qualify for financing despite a good tech job. 

    0Reply
  • Tony Xu
    OP
    Investor · NY · Member since 2017 · 59 posts · 21 votes
    9y
    Originally posted by @JC Rav:

    I also would prefer to invest in my local SFBA market but that's just impossible. Let's say I invest in a $900k 3/2 home in San Jose. I could probably rent for $3000-ish. I need about $200k down to start with and my monthly payment including tax and insurance would be close to $4000.  Not only I'm not getting cash flow, but I would never qualify for financing despite a good tech job. 

     Lol, story of my life. I think its why 90% of OOS turnkey investors are from California.

    1Reply
  • Eric Upchurch
    Investor · Sacramento, CA · Member since 2016 · 57 posts · 53 votes
    9y
    Closing on my first TK on Friday. All of my inspection items - especially safety stuff - were taken care of! I'm also a CA (Bay Area) investor. Not sure I'd close until most of that was taken care of. PM me if you want to chat more.
    0Reply
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