Turn-key bumpy start

25 Replies

Hello BP

I’m off to a bumpy start with a turn-key company. I’m weighing my options and any input would be greatly appreciated.

I purchased a new construction SFH in Atlanta suburbs (Covington). I live in San Francisco. The company told me the houses won't be vacant for over 60 days max, normally rented much faster. Also, rent projections are within $50 of accuracy. In reality, the house sat vacant 4 months (around the holidays) and I ended up agreeing to rent it for $175 less than projected. 43% less cash flow than projected.. I'm already un-happy and tell them they should correct it somehow. They offer to pay the leasing/marketing fee - $900.

Next month I see the bill for $900 leasing fee + $300 for a repair since there was no hot water (in a brand new house - they were responsible for overseeing that the hot water heater was up and running before closing). The house is under warranty and they could of had it sorted out for no cost (if contacted builder) but they went with their own plumber and I can not get reimbursed now. They are not budging when I tell them I need to be reimbursed.

Lots of problems already. The turn-key company partners up with a local PM. With all of these problems in the first 5 months, it’s clear that I need to cut them all out..

  • Should I be interviewing PM's in Atlanta?
  • How crazy of an idea is it to manage it myself, from CA? I have recommended plumbers, electricians, and handy-men. The house is brand-new and the hope is that it’s not going to be high-maintenance..

I’ve been told turn-key can end up costing you and now I’m paying the price. Thanks for your time, in advanced...

Ryan

its not turn key its just the rental business.. and you bought new construction.. new construction is new construction.. but for sure there is a builder warranty.. that's why you buy new.

did you do any indepentant research on rental rates..

Many times when you buy new construction for rentals the builder is selling a bunch of them in the subdivision to landlords.. and they all hit the market at the same time .. and supply demand takes hold.

@Jay Hinrichs do you advise against buying new Jay? I actually did that like 12 years ago. The builder was great but the PM company....

@Robert B.  I am not commenting on whether its good or bad.. I build new homes and sell them so I have a definite bias.

my point is in some building tracts if the builder is doing a new build program for investors. you put up 20 or 30 rentals in a short period of time you saturate the rental market and that can drive DOWN rents..

or in this case maybe the rent was never real..

and the OP just went with what he was told..

but bottom line this is simply the landlord business at its base level.. and has zero to do with Turnkey being the problem.

Few thoughts in no particular order.

  • You should expect longer vacancy during the holiday or winter season.
  • You should expect lower rental rates during the holiday or winter season.
  • Rental projections are typically pretty close. Within $50 is incredibly reasonable. $175 variance is VERY HIGH.
  • I'd be bummed if a brand new water heater went out as well. However that doesn't mean it wasn't working at 1st. These things do happen. It also has no reflection on your PM. Your PM did not install or build the water heater.
  • Water heater continued  - How long would it have taken to have had the builder fix it vs them just sending their plumber out? If their plumber could knock it out within 24 hours but the builder would have taken 1 week, is 1 week an acceptable timeline for the tenant of the home? IMO no it's not. As a landlord & PM it's the duty to provide the tenant a water heater in a reasonable time frame. Dealing with the red tape of a builder who has to come out of pocket on the job isn't likely to be fast enough.
  • If they said they'd do the $900 fee for free then they should do it for free. They should reimburse that to you. The $300 they should hold firm.
  • Managing it yourself from California is a horrible idea.
Originally posted by @Ryan Alexander :

Hello BP

I’m off to a bumpy start with a turn-key company. I’m weighing my options and any input would be greatly appreciated.

I purchased a new construction SFH in Atlanta suburbs (Covington). I live in San Francisco. The company told me the houses won't be vacant for over 60 days max, normally rented much faster. Also, rent projections are within $50 of accuracy. In reality, the house sat vacant 4 months (around the holidays) and I ended up agreeing to rent it for $175 less than projected. 43% less cash flow than projected.. I'm already un-happy and tell them they should correct it somehow. They offer to pay the leasing/marketing fee - $900.

Next month I see the bill for $900 leasing fee + $300 for a repair since there was no hot water (in a brand new house - they were responsible for overseeing that the hot water heater was up and running before closing). The house is under warranty and they could of had it sorted out for no cost (if contacted builder) but they went with their own plumber and I can not get reimbursed now. They are not budging when I tell them I need to be reimbursed.

Lots of problems already. The turn-key company partners up with a local PM. With all of these problems in the first 5 months, it’s clear that I need to cut them all out..

  • Should I be interviewing PM's in Atlanta?
  • How crazy of an idea is it to manage it myself, from CA? I have recommended plumbers, electricians, and handy-men. The house is brand-new and the hope is that it’s not going to be high-maintenance..

I’ve been told turn-key can end up costing you and now I’m paying the price. Thanks for your time, in advanced...

Ryan

 That doesn't sound like a Turnkey at all. It sounds like a new build. A Turnkey needs to be ready to go and cash flowing from the closing date. The Turnkey provider should own, renovate and manage the property all in house. They should place a tenant  PRIOR to close. The idea of a Turnkey is in the name. It needs to be ready to go and requires little to no work on your end. 

@Ryan Alexander sorry to hear about your bumpy start. I just want to state and agree with @Tom Ott that this isn’t turnkey.

“Turnkey” gets thrown around on this website a lot, so let’s define what that is. A company will buy (they own it themselves) and renovate it, place a tenant using in house property management and sell at or near ARV to usually an out of state investor.

Things that are sight variants of this model that aren’t turnkey (in my opinion) include,

-Marketers/Promoters who promote properties they don’t actually own

- new construction who partner with a PM

- Real estate agents or rehabbers who sell properties while partnering with a third party PM

This is simply my opinion and others may disagree and that’s fine. I am not an expert. You may want to find a new PM, but I would not recommend landlording on your own from half a country away.

Finally like @James Wise said, rentals take longer to fill in the winter. I just had one that was listed for rent two weeks before thanksgiving and was just filled a week ago. Essentially took 3 months, the difference there is it rented for exactly what we thought it would. That large variance is not a good sign.

I'd like to propose a new definition for turnkey.

Old Definition: Buy it and receive guaranteed rent, do nothing except sit on your rump and deposit the rent checks! 

New Definition: Pay more for an asset than it's worth from someone promising something they can't deliver(a.k.a. 'a liar') who will point to a fraction of their past successes but in the fine print mention that they can't guarantee you'll have the same level of success, after which the buyer will soon realize that 'turnkey' really means 'I just overpaid and now I'm dealing with a dishonest property manager siphoning money off the property which he/she doesn't deserve." 

@Ryan Alexander -  many(most? tough to say) 'turnkey' buyers end up disenchanted and they post their experiences here. You've gone into a business relationship with someone who can make way more money selling properties over market value and subsequently being fired from their management role as quickly as possible. Fire them and find someone who manages well- test your new management on this property, then when you're comfortable with their performance, work with them to acquire more well-priced assets.   

@Ryan Alexander

I have to disagree with a couple of points on here and actually agree with @Tom Ott  and @Caleb Heimsoth

@Jay Hinrichs I understand your point about this just being the rental business and not be a Turnkey issue, but I think this is a HUGE Turnkey issue.  The use of the word and, I'm sorry that some of this is directed at you Ryan, but a buyers' emphasis on the word Turnkey when they buy is THE fundamental problem.  Just because it says Turnkey does not mean a buyer can be certain that their expectations will be met.  The word is a marketing term today that has been hijacked so many times that the marketplace is confused about what it means vs what they expect.

I would love to know the companies that Ryan is working with.  Who did you buy this property from and who is the property management company?  As Tom Ott noted, this is not a Turnkey purchase if the property is immediately given to a third party property management company by the seller.  You are simply buying a property passively from one company/person and then relying on a 3rd party management company to manage it.  You have to engage with multiple companies to decide if the investment is right for you or not.  That is not the way a Turnkey transaction should work.  

I don't agree with the assertion that the property has to be occupied at the time, but when it is not, it raises the risk.  You have to be damn sure that the Turnkey company you are working with has a rock-solid reputation for hitting their clients' expectations.  This is also why hearing from current investors is super important.  And not just the satisfied, happy, cupcakes and rainbows investors.  You have to find the investors who have had issues like early vacancies and early maintenance bills to find out how a company deals with them.

Guarantees are useless in the Turnkey industry.  The only guarantee that matters is when the company demonstrates by the recommendations from clients who have had issues, that they know how to treat the investor/client right.  You have to find clients who can tell you stories about how the water heater broke immediately and the company said that it was not their fault - and as Jay said, that is just investing - yet, they took care of the bill anyway because that is the right way to treat a client.

I think it is crazy for investors to lower their expectations and just writer off lousy experiences as just real estate investing.  Avoiding these headaches is the precise reason you invest in a true Turnkey property in the first place.  I hate you are going through this Ryan and would love to help but there is nothing practical I can do.  Giving you advice at this point won't help much.  But you do need to find another management company.  Reach out to @Ken Corsini and see if he can help you.  I am not sure if they manage properties they did not renovate or build, but he is the best resource I know of in Atlanta and perhaps his team can help you.  He is a very good person and will shoot you straight.

Lastly, talking about what investors should accept and expect.  I am a big fan of @James Wise up in Ohio.  I think they do a stand-up job and offer good, detailed practical advice. You don't find him just cut and pasting comments across the forums - he really tries to give good advice.  But,... :)

Saying that the holidays are going to be slow and you should expect a longer vacancy and saying that rental rates are expected to be lower during the holidays is stinking thinking.  Our words have power.  The old way of managing property has to go out the door when you are trying to reach a level of excellence (and all of us as service providers should be trying to reach perfection).  If we as business owners and service providers set the expectations low, then our companies will hit those expectations.  If we voice that it is ok and acceptable to have slow months and to miss our investors expectations that WE SET FOR THEM...then what is the point of trying to be a great company.  We all might as well be average.

The mindset of every management company should be that the old rules are out the window.  Why should an investor expect a longer vacancy at the holidays?  Why should an investor expect to receive a lower rent on a property that rents at the holiday?  They shouldn't!  That should be unacceptable.

This isn't about me so there's no need to post number or stats or any of that BS, but we are an example of simply changing what is acceptable as business owners and therefore changing the expectations of investors.  There are no slow periods anymore.  

You cannot miss a rental rate by $175 without making up the difference.  You cannot have a $900 water heater bill and simply explain it away as we had to get it taken care of immediately without using the warranty.  That may be the case, but somebody owes Ryan that money.  That bill should not be on him.  

Ryan, simply saying that Turnkey costs you more in the end is not true.  That is not always the case, but it will be the case if you don't take a few steps to correct it. I hate that you are having this experience.  You need to get the management situation cleared up quickly and I would hound the (insert word!) out of the company I bought this from for a return of my losses.  

They set your expectations and failed miserably to hit them.  I also think you have to let the general public know who you dealt with.  It will hold them accountable and give them an opportunity to make it right.  Even if it takes them dealing with a little bad press, if they do the right thing, you are made whole and can move forward in a different direction.

@Ryan Alexander What’s the name of the turnkey company that sold you the property in Covington? I was thinking about buying a turnkey there.

The last PM that told me they couldn't rent a place because of winter and holidays got fired and I had it rented a week later. It is too bad that turn key providers are making excuses for this company. Unfortunately over promising and under delivering is common in the turn key business. Common most businesses, to be fair.

- They shouldn't promise 2 months and deliver 4 months, then make excuses. If the season was a problem, then they should have disclosed that up front before selling it to him.

- They falsely advertised the expected rent. They should have given you a top and bottom range. This is pretty easy to calculate. I see PM over estimate rents all the time. Three price drops later and they get it rented. They know what they are doing, so playing dumb or blaming time of year is an excuse. Winter comes every year so they know.

- A new house comes with a warranty. No reason the PM should bill to fix a brand new item. The $300 bill should go back to the builder and the turn key / builder can work out who pays it. I would refuse to pay this. 

- I would try remotely managing the property. Worst case, you just rehire a PM. Get your $900 rental credit sorted out, then terminate the agreement. You can always hire a different PM if it doesn't work out.

Turnkey IMO used to mean the condition is turn key ready or just turn the key on the front door and presto...like new home inside. Now turnkey of the BP investment type means there are other expectations included, renters,  leases, management, returns and a whole subset of strings attached to the rental home. Still, there are no special magic words that make a rental home work and everyone soon realizes it is just another home for rent with the same challenges every rental home has had for the last 100 years.

Many just sell you a random home in a random hood and place with 3rd party PM. That type of seller never owned, fixed or managed anything.  Chris and Tom said that is not turnkey, I don't dispute considering the newer BP TK definition, however that is perhaps half of the "TK" industry or at least half on BP? 

As far as managing yourself, if you have the time and helper bees on the ground, and it is a home that attracts above average renters...IMO have at it as there is everything online and off to make that possible. 

Good luck! 

@Ryan Alexander Yikes! Sorry to hear that. Perhaps @Ali Boone can offer some insight. She specializes in this type of investment and has written about it extensively for the BP blog. She's also from CA. :) 

Doesn't sound like a TK to me...... please post the name of the company you worked with...a business like this should thrive or die based on their reputation. If no one hears about a bad experience, then the next guy will be in the same boat as you.

@Ryan Alexander So I’m a little lost on one aspect: Is there some tie between them homebuilder and the property manager? It’s a little unclear (to me at least) how you ended up with this particular management company. Why the PM didn’t tell you about the hot water heater (and let you make a quick call to the developer) doesn’t make a lot of sense to me. There are a lot of funky warranties out there and the developers never *want* to pay (my experience: not throwing arrows at @Jay Hinrichs ) for repairs. You even have some differences between original and non-original owners. Anyway, in the first year they’re much more responsive and accommodating than after 1 year. And you’re saying this was a new build in the first couple of months. Again, my sample size is small, so take it for the grain of salt that it is.

But $300 for a water heater isn’t a big deal and things are tougher to get rented in winter. Not impossible but families rarely move, few look at homes the week of Christmas (for example), and whatever snow-hurricanes hit do impact prospective tenants showing up. Should it sit vacant for months? No. If you’re “desperate to get it rented” (not saying you were) lowering the rent will work. And that decision always sits with the owner, there’s no outsourcing accountability for that.

Ultimately, Jay is right on that this is just part of the rental business. It’s just happening to you in Month 1 instead after during the first turnover for your unit. This economic hiccup (and much worse!) are just a part of owning rental property. Wait until your first unit turnover with a full-repaint because you need more than a touch-up!

Originally posted by @Chris Clothier :

@Ryan Alexander

I have to disagree with a couple of points on here and actually agree with @Tom Ott  and @Caleb Heimsoth

@Jay Hinrichs I understand your point about this just being the rental business and not be a Turnkey issue, but I think this is a HUGE Turnkey issue.  The use of the word and, I'm sorry that some of this is directed at you Ryan, but a buyers' emphasis on the word Turnkey when they buy is THE fundamental problem.  Just because it says Turnkey does not mean a buyer can be certain that their expectations will be met.  The word is a marketing term today that has been hijacked so many times that the marketplace is confused about what it means vs what they expect.

I would love to know the companies that Ryan is working with.  Who did you buy this property from and who is the property management company?  As Tom Ott noted, this is not a Turnkey purchase if the property is immediately given to a third party property management company by the seller.  You are simply buying a property passively from one company/person and then relying on a 3rd party management company to manage it.  You have to engage with multiple companies to decide if the investment is right for you or not.  That is not the way a Turnkey transaction should work.  

I don't agree with the assertion that the property has to be occupied at the time, but when it is not, it raises the risk.  You have to be damn sure that the Turnkey company you are working with has a rock-solid reputation for hitting their clients' expectations.  This is also why hearing from current investors is super important.  And not just the satisfied, happy, cupcakes and rainbows investors.  You have to find the investors who have had issues like early vacancies and early maintenance bills to find out how a company deals with them.

Guarantees are useless in the Turnkey industry.  The only guarantee that matters is when the company demonstrates by the recommendations from clients who have had issues, that they know how to treat the investor/client right.  You have to find clients who can tell you stories about how the water heater broke immediately and the company said that it was not their fault - and as Jay said, that is just investing - yet, they took care of the bill anyway because that is the right way to treat a client.

I think it is crazy for investors to lower their expectations and just writer off lousy experiences as just real estate investing.  Avoiding these headaches is the precise reason you invest in a true Turnkey property in the first place.  I hate you are going through this Ryan and would love to help but there is nothing practical I can do.  Giving you advice at this point won't help much.  But you do need to find another management company.  Reach out to @Ken Corsini and see if he can help you.  I am not sure if they manage properties they did not renovate or build, but he is the best resource I know of in Atlanta and perhaps his team can help you.  He is a very good person and will shoot you straight.

Lastly, talking about what investors should accept and expect.  I am a big fan of @James Wise up in Ohio.  I think they do a stand-up job and offer good, detailed practical advice. You don't find him just cut and pasting comments across the forums - he really tries to give good advice.  But,... :)

Saying that the holidays are going to be slow and you should expect a longer vacancy and saying that rental rates are expected to be lower during the holidays is stinking thinking.  Our words have power.  The old way of managing property has to go out the door when you are trying to reach a level of excellence (and all of us as service providers should be trying to reach perfection).  If we as business owners and service providers set the expectations low, then our companies will hit those expectations.  If we voice that it is ok and acceptable to have slow months and to miss our investors expectations that WE SET FOR THEM...then what is the point of trying to be a great company.  We all might as well be average.

The mindset of every management company should be that the old rules are out the window.  Why should an investor expect a longer vacancy at the holidays?  Why should an investor expect to receive a lower rent on a property that rents at the holiday?  They shouldn't!  That should be unacceptable.

This isn't about me so there's no need to post number or stats or any of that BS, but we are an example of simply changing what is acceptable as business owners and therefore changing the expectations of investors.  There are no slow periods anymore.  

You cannot miss a rental rate by $175 without making up the difference.  You cannot have a $900 water heater bill and simply explain it away as we had to get it taken care of immediately without using the warranty.  That may be the case, but somebody owes Ryan that money.  That bill should not be on him.  

Ryan, simply saying that Turnkey costs you more in the end is not true.  That is not always the case, but it will be the case if you don't take a few steps to correct it. I hate that you are having this experience.  You need to get the management situation cleared up quickly and I would hound the (insert word!) out of the company I bought this from for a return of my losses.  

They set your expectations and failed miserably to hit them.  I also think you have to let the general public know who you dealt with.  It will hold them accountable and give them an opportunity to make it right.  Even if it takes them dealing with a little bad press, if they do the right thing, you are made whole and can move forward in a different direction.

 Chris,

You know I have the love & respect for you & your biz. Your 1st podcast is still my favorite podcast. I remember sitting on my porch listening to it & being inspired by some of your procedures. I knew that Holton-Wise needed to implement some of what you were doing to really scale. Today Holton-Wise has scaled many times over from the time I listened to it on my porch. Also my current porch is about 5x more expensive than that one was so I'd say it worked rather well.

All my love aside I'm going to have to disagree with you on this. Now maybe It's a little different down south but up here in Cleveland & other cold market climates the winter slow down is a very real thing. To expect the same results in December as one can expect in May is just not realistic. You're message about achieving excellence sounds great but we need to set our customers up with reasonable expectations. I am sure LeBron James strives make every shot he takes, but we'd all blast him if he made that claim as we know it's just not going to happen.

Originally posted by @James Wise :
Originally posted by @Chris Clothier:

@Ryan Alexander

I have to disagree with a couple of points on here and actually agree with @Tom Ott  and @Caleb Heimsoth

@Jay Hinrichs I understand your point about this just being the rental business and not be a Turnkey issue, but I think this is a HUGE Turnkey issue.  The use of the word and, I'm sorry that some of this is directed at you Ryan, but a buyers' emphasis on the word Turnkey when they buy is THE fundamental problem.  Just because it says Turnkey does not mean a buyer can be certain that their expectations will be met.  The word is a marketing term today that has been hijacked so many times that the marketplace is confused about what it means vs what they expect.

I would love to know the companies that Ryan is working with.  Who did you buy this property from and who is the property management company?  As Tom Ott noted, this is not a Turnkey purchase if the property is immediately given to a third party property management company by the seller.  You are simply buying a property passively from one company/person and then relying on a 3rd party management company to manage it.  You have to engage with multiple companies to decide if the investment is right for you or not.  That is not the way a Turnkey transaction should work.  

I don't agree with the assertion that the property has to be occupied at the time, but when it is not, it raises the risk.  You have to be damn sure that the Turnkey company you are working with has a rock-solid reputation for hitting their clients' expectations.  This is also why hearing from current investors is super important.  And not just the satisfied, happy, cupcakes and rainbows investors.  You have to find the investors who have had issues like early vacancies and early maintenance bills to find out how a company deals with them.

Guarantees are useless in the Turnkey industry.  The only guarantee that matters is when the company demonstrates by the recommendations from clients who have had issues, that they know how to treat the investor/client right.  You have to find clients who can tell you stories about how the water heater broke immediately and the company said that it was not their fault - and as Jay said, that is just investing - yet, they took care of the bill anyway because that is the right way to treat a client.

I think it is crazy for investors to lower their expectations and just writer off lousy experiences as just real estate investing.  Avoiding these headaches is the precise reason you invest in a true Turnkey property in the first place.  I hate you are going through this Ryan and would love to help but there is nothing practical I can do.  Giving you advice at this point won't help much.  But you do need to find another management company.  Reach out to @Ken Corsini and see if he can help you.  I am not sure if they manage properties they did not renovate or build, but he is the best resource I know of in Atlanta and perhaps his team can help you.  He is a very good person and will shoot you straight.

Lastly, talking about what investors should accept and expect.  I am a big fan of @James Wise up in Ohio.  I think they do a stand-up job and offer good, detailed practical advice. You don't find him just cut and pasting comments across the forums - he really tries to give good advice.  But,... :)

Saying that the holidays are going to be slow and you should expect a longer vacancy and saying that rental rates are expected to be lower during the holidays is stinking thinking.  Our words have power.  The old way of managing property has to go out the door when you are trying to reach a level of excellence (and all of us as service providers should be trying to reach perfection).  If we as business owners and service providers set the expectations low, then our companies will hit those expectations.  If we voice that it is ok and acceptable to have slow months and to miss our investors expectations that WE SET FOR THEM...then what is the point of trying to be a great company.  We all might as well be average.

The mindset of every management company should be that the old rules are out the window.  Why should an investor expect a longer vacancy at the holidays?  Why should an investor expect to receive a lower rent on a property that rents at the holiday?  They shouldn't!  That should be unacceptable.

This isn't about me so there's no need to post number or stats or any of that BS, but we are an example of simply changing what is acceptable as business owners and therefore changing the expectations of investors.  There are no slow periods anymore.  

You cannot miss a rental rate by $175 without making up the difference.  You cannot have a $900 water heater bill and simply explain it away as we had to get it taken care of immediately without using the warranty.  That may be the case, but somebody owes Ryan that money.  That bill should not be on him.  

Ryan, simply saying that Turnkey costs you more in the end is not true.  That is not always the case, but it will be the case if you don't take a few steps to correct it. I hate that you are having this experience.  You need to get the management situation cleared up quickly and I would hound the (insert word!) out of the company I bought this from for a return of my losses.  

They set your expectations and failed miserably to hit them.  I also think you have to let the general public know who you dealt with.  It will hold them accountable and give them an opportunity to make it right.  Even if it takes them dealing with a little bad press, if they do the right thing, you are made whole and can move forward in a different direction.

 Chris,

You know I have the love & respect for you & your biz. Your 1st podcast is still my favorite podcast. I remember sitting on my porch listening to it & being inspired by some of your procedures. I knew that Holton-Wise needed to implement some of what you were doing to really scale. Today Holton-Wise has scaled many times over from the time I listened to it on my porch. Also my current porch is about 5x more expensive than that one was so I'd say it worked rather well.

All my love aside I'm going to have to disagree with you on this. Now maybe It's a little different down south but up here in Cleveland & other cold market climates the winter slow down is a very real thing. To expect the same results in December as one can expect in May is just not realistic. You're message about achieving excellence sounds great but we need to set our customers up with reasonable expectations. I am sure LeBron James strives make every shot he takes, but we'd all blast him if he made that claim as we know it's just not going to happen.

 Good points - fair enough!  I don't subscribe to that theory but don't manage in northern markets either.

@Andrew Johnson as new  home builder  one year warranties are part of the law.

and of course we rely on the sub contractors to come in and make good on their work.

and as such they are not on demand.. many times it takes a few weeks to schedule so I can see where the water heater issue is a no win situation.. tenant needs it... sub is responsible but has the right to schedule.. PM does not care they just need it done.

but we don't sell to investor .. and home owners are much tougher generally speaking.. so punch list is a for real thing in our world.

Originally posted by @Ryan Alexander :

Hello BP

I’m off to a bumpy start with a turn-key company. I’m weighing my options and any input would be greatly appreciated.

I purchased a new construction SFH in Atlanta suburbs (Covington). I live in San Francisco. The company told me the houses won't be vacant for over 60 days max, normally rented much faster. Also, rent projections are within $50 of accuracy. In reality, the house sat vacant 4 months (around the holidays) and I ended up agreeing to rent it for $175 less than projected. 43% less cash flow than projected.. I'm already un-happy and tell them they should correct it somehow. They offer to pay the leasing/marketing fee - $900.

Next month I see the bill for $900 leasing fee + $300 for a repair since there was no hot water (in a brand new house - they were responsible for overseeing that the hot water heater was up and running before closing). The house is under warranty and they could of had it sorted out for no cost (if contacted builder) but they went with their own plumber and I can not get reimbursed now. They are not budging when I tell them I need to be reimbursed.

Lots of problems already. The turn-key company partners up with a local PM. With all of these problems in the first 5 months, it’s clear that I need to cut them all out..

  • Should I be interviewing PM's in Atlanta?
  • How crazy of an idea is it to manage it myself, from CA? I have recommended plumbers, electricians, and handy-men. The house is brand-new and the hope is that it’s not going to be high-maintenance..

I’ve been told turn-key can end up costing you and now I’m paying the price. Thanks for your time, in advanced...

Ryan

Your first mistake was believing and not verifying everything you were told prior to buying.  Your second mistake was buying a "turn-key" property and expecting decent returns without adding value.  Your third mistake was buying a "brand new" property.  Brand new properties are generally built in new subdivisions that are not stabilized and therefore you cannot tell if it will end up being all renters, owners, etc... not a good idea.  "Crazy" is doing nothing.  You did something, now you've got to solve your problems and fix your mistakes asap.  

Property management approaches will vary based on the property quality, location, tenant quality, etc... it is not a one size fits all solution. You would not use the same approach to property management on a SFR in Detroit that you would in San Francisco.

I wish you the best.

@Ryan Alexander Sorry to hear about your bumpy start. Don't let this turn you off to turn key investing however. As @Tom Ott correctly points out, this isn't really turn key. You just bought new construction. A turn key already has a tenant in place before you close.

@Jay Hinrichs Makes sense, I only know it form the home owners perspective and California has some fun laws that developers have to adhere to.  I'm still, to be honest, not sure what amounts to a construction/material defect out here.  My (n=1) experience was that the developer was extremely quick to get either their subcontractor and/or handyman out during that first 12 month period.  Post 12 months it's letter writing from a lawyer, etc. so it's a little like moving a mountain on legitimate issues.  Then again we also are dealing with subcontractors going out of business so you end up in some kind of a scramble and dealing with who pays for materials vs. labor.  I can't imagine it's much fun for either the homebuilder or the owner.  You know way more about this that little ol' me.

I think you've explained the no-win situation better that I could have around the hot water heater.  I know when I had a little plumbing leak near the shut-off valve I just called a plumber and had them deal with it.  I ate $800 but it was fixed in under 24 hours.  I have to admit, I just look at that as a part of owning a home, managing a property, etc.  I think it's also one of the reasons why I'm a little apprehensive to "blame a PM" when you see threads about "unreasonable charges" and "why didn't they get 3 bids".  It's super easy to armchair quarterback what a PM does on a day-to-day basis and at some point you have to let them make those judgements and do their jobs.

@Andrew Johnson   its simply the law in most states that new builds have a one year warranty.

On everything but wear and tear.. you know how rough some people are on a house.

we came back for one punch item on one house 6 months in.. and it was already a disaster from a cleanliness standpoint  LOL.. I can see how houses get beat up in one years time by tenants..

these folks paid right at 500k for this house they bought from us and it looked no better inside than a lot of the as is mid west rentals  LOL..  in 3 years it will be a full blown fixer

Originally posted by @Rachel H.:

@Ryan Alexander Yikes! Sorry to hear that. Perhaps @Ali Boone can offer some insight. She specializes in this type of investment and has written about it extensively for the BP blog. She's also from CA. :) 

Thanks Rachel! I hadn't seen this chain yet, glad you copied me on it.

I read everyone else's responses and there's some decent information in there but the conversations seem to be going in various directions. Before I can respond with much of anything though, I'd first want to know more specifics on what was advertised as the offering. It definitely doesn't sound typically turnkey, but as some others mentioned there are some variances on that these days. 

In my mind, there's two versions of turnkeys when it comes to buying from "turnkey providers"- either standard turnkey which means you don't close until the property is completely done, tenants are in and paying, and management is in place and managing. The bonus to that method is that you are able to verify everything before you close (rental amounts, construction quality....everything). The second version of turnkey is where the company does all the same stuff, but you are the one who finances the purchase of the distressed property and the rehab. The benefit to that method is that you are the one who gets to experience the forced appreciation, but the downside is that you are the one that holds all the risk along the way.

So in thinking of those two versions of turnkeys from providers, I'd be curious again what the exact advertising was to you from this company. It kind of sounds like an inbetween of these two methods, which I'm curious about. With you buying a vacant property with things incomplete and unverifiable, was there "perk" to taking that risk on that the company advertised? Were you able to buy this property for less than market value or were you at normal market value turnkey price levels?

Knowing all that is really what I'd need to respond more specifically. 

Side note, all my properties are in Atlanta and I have always worked with property managers on them, so if you need help on the PM side message me and I can give ideas.

Name and Shame!

@Ryan Alexander I don’t want to be a negative person but after buying these turnkeys a few year ago and see where inventory and prices are going this year.

That said if you are starting out that’s they best your going to do.

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