Turnkey pre-sale rent projection discrepancy options?

7 Replies

We are in the process of purchasing a turnkey single family home with an ARV of $95,000. The proforma given to us from the turnkey company projected the rent of the property to be $950/mo. At this point, we have already submitted an offer and earnest money based on the initial opinion of a national property management company that felt that $950 could be reasonable. After speaking recently with a reputable local property management company and having them visit the house, they feel that the house will not rent for more than $750/mo and will be vacant for months at the higher rent. We value the opinion of the local company (based on many reviews from this forum and that they are indeed local) over the national company and are now trying to determine what our options are.

Since the numbers don't work at that lower rent, we see our options as:

1.  Back out of the deal and lose the earnest money of $1500

2.  Negotiate a less expensive purchase price of the house (which would be about 75,000 to allow for reasonable cash flow)

3. Something else that we aren't aware of??

Has anyone encountered something like this?  Do you have any advice or options for us?  Thank you so much for your help and time!

I think you should back out of the deal. Losing $1500 is much easier than a vacant property
Reach out to your local prop mgt co and get referral for an investor focused realtor. Hope he/she can recommend off market listing or some mls listing for rental properties

Good luck !!

agreed. Also I'm guessing your "ARV" number is inflated also, as usual with TK.

Thank you both for the advice. It is so great having these forums as such a valuable resource. I appreciate your help.

Originally posted by @Brett Begley :

We are in the process of purchasing a turnkey single family home with an ARV of $95,000. The proforma given to us from the turnkey company projected the rent of the property to be $950/mo. At this point, we have already submitted an offer and earnest money based on the initial opinion of a national property management company that felt that $950 could be reasonable. After speaking recently with a reputable local property management company and having them visit the house, they feel that the house will not rent for more than $750/mo and will be vacant for months at the higher rent. We value the opinion of the local company (based on many reviews from this forum and that they are indeed local) over the national company and are now trying to determine what our options are.

Since the numbers don't work at that lower rent, we see our options as:

1.  Back out of the deal and lose the earnest money of $1500

2.  Negotiate a less expensive purchase price of the house (which would be about 75,000 to allow for reasonable cash flow)

3. Something else that we aren't aware of??

Has anyone encountered something like this?  Do you have any advice or options for us?  Thank you so much for your help and time!

 Your probably in a better position than you think Brett. $950 all the way down to $750 is a pretty large discrepancy. If it was something small like it ended up renting for $899 or even $875 i'd say no worries, it is December after all. However a change like that tells me it's a totally different asset class than what was presented to you.

Couple that with the fact that the seller is not local to the area & you have the opinion of a local management company telling you something drastically different than what the national seller is saying i'd say you have a decent argument to back out of the deal & also retain your earnest money. To be safe before going back to your seller I'd get a written opinion of rental value from two other local property managers.

Lastly $75,000 to get a rental that rents for $750 mo from a turnkey provider? Seeing as it's a national turnkey seller I imagine this is a Midwestern property. This is a horrible deal. In most Midwestern markets a $750 rental is a C-Class asset & should run you around $40,000-$45,000.

James, thanks for the advice. We are in the process of getting other property managers opinion on what the home would rent for and will go from there. I appreciate your input and how helpful Bigger Pockets is.

Just surmising if in fact your due diligence is correct... I think you can ask for your EM back.. hopefully you put it in escrow. it cannot be released without you signing.. so you just say you want it back.. and if they refuse you don't sign.. it becomes a little bit of a Peeing match.. but usually if both sides are adamant then you end up splitting it.. also the company probably does not want their name put out on social media or a bad review on Turnkey-reviews.com  so there is those things.

but if a proforma was REALLY that far off then I think you have the right to cancel and get your EM back I know if I was seller and I made that big of boo boo intentional  or not I would gladly return your money and then ask my national PM what gives.

Have you done an inspection yet, I'm guessing something will come up there too. What does your contract say in regards to that...

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