Inspection report - To buy or not to buy

18 Replies

I have agreed to buy my first SFH investment property from a TK (turnkey) and just received the inspection report. The SFH is 60 years old but was represented as being "fully rehabbed". The inspection report is concerning on the items it raises as well as the overall quality of work.

I have a few questions to consider on my next steps:

1) How to proceed on this property – if I ask the seller to fix the items, how do I trust the quality of work, given the overall quality of the “fully rehabbed” house?

2) If I proceed on this property – do I trust the seller to also be the property manager (as is currently the plan)?

3) I was planning to purchase another SFH from this TK – do I go ahead with that, given the shoddy quality of this rehab?

4) Do I just walk away from the seller altogether and consider myself lucky to have dodged a bullet (s)?

Any thoughts or comments would be appreciated - thank-you!

Key items from Inspection report pasted below:


- Major Concern, Repair: The installation of the window on the 2nd floor at the rear wall is low quality. Further evaluation is recommended for repair/replacement options. Hidden damage may exist.

- Major Concern: Inspection of the electrical system revealed the need for numerous repairs. These should be high priority for safety reasons. Unsafe electrical conditions represent a shock hazard. A licensed electrician should be consulted for further evaluation and to undertake the repairs recommended.

- Major Concern, Safety Issue: It is recommended that the obsolete and poor-condition knob-and-tube wiring in the basement be replaced. Further evaluation of the older wiring system is recommended prior to settlement.


- Safety Issue: The masonry chimney should be cleaned to help assure safe, effective operation.

- Safety Issue: It is suspected that the batteries in the smoke detectors are defunct. This should be investigated.

- Safety Issue: The installation of 10 year smoke detectors inside and outside sleeping areas is recommended with none removable Lithium batteries, along with CO2 detectors within 15 feet of a sleeping area. This is recommended by the city of Philadelphia. See city codes and regulations.

- Safety Issue: There is insufficient clearance between the baseboard heater and stored items and furniture. This is a fire hazard. These conditions should be corrected.

- Safety Issue: The discharge piping serving the Temperature and Pressure Relief (TPR) Valve for the water heater should terminate not less than 6 inches or more than 24 inches above the floor.

- Safety Issue: The openings in the in the basement stairway railing are large enough to allow a child to fall through. It is recommended that this condition be altered for improved safety.


- Repair: Some of the stone work mortar at the foundation wall was removed for the water piping. Proper preparation and pointing is recommended to avoid further deterioration and possible water penetration. Repairs are recommended by a qualified individual.

- Repair: More extensive than common wall cracks were observed at the rear of the house. Further evaluation and repairs are recommended to prevent additional damage.

- Repair: The flashing on the bump out should be properly sealed to avoid leaks. Further evaluation and repairs are recommended by a qualified individual.

- Repair: The masonry chimney crown is cracking. Recommend repair to prevent additional damage. Repairs are recommended by a qualified individual. Additionally a chimney cap is recommended. It is recommended that the entire flue be inspected by a qualified individual at this time.

- Repair, Monitor: The gutters on the front porch do not appear to have sufficient slope to drain properly. If they do not perform as intended, the slope should be adjusted to avoid spilling roof runoff around the building – a potential source of water entry or water damage. Debris should be removed from the roof surface to prevent premature wear and proper drainage.

- Repair: Pointing of deteriorated mortar between the bricks of the exterior walls is advisable throughout to prevent further deterioration (front and rear).

- Repair: Damaged brickwork at the rear wall should be repaired to preserve the wall.

- Repair: The loose siding at the front porch roof line should be re-secured to avoid wind-damage and varmint/pest entry and moisture intrusion...

(followed by 2 more pages of Repair Items)

I would be highly skeptical of a seller who represents a house as fully rehabbed but has knob-and-tube wiring left in place.

Usually people put their best foot forward when they're courting a new customer - as you've found, this company's "best foot" doesn't look all that appealing. Some of the items listed aren't really a big deal, but if you're concerned with the quality of the work here, then you better expect the same or worse going forward. As for the management - I'd suspect similar quality as the house you're considering. If the company isn't set up to do a quality rehab, then they likely aren't set up to do quality PM. TK companies make the bulk of their money on the sale, their only real incentive for providing quality PM service is that you might buy another property.

I'm pretty familiar with a company here in Louisville that has sold quite a few TKs to friends/acquaintances of mine and it sounds similar to what you're describing. Most of them have strained friendships over the deals and none would EVER buy another.

Plan for the worst and hope for the best - in this case, I'd say the "worst" is a TON of deferred maintenance and poor PM resulting in high turnover costs and a lot of collection issues. You could easily be looking at 1 or 2 break-even properties or possible losers. Keep in mind TK companies also tend to charge a premium over what you can find on the MLS - have you looked around for other non-TK properties in the same area?

Inspection reports tend to distract buyers from the most important issues. The biggest issue is the TK provider marketing a house which isn't ready for rent due to safety concerns, poor workmanship.

I'd renegotiate the deal aggressively discounting for the issues and would pay to have them fixed myself with 3rd party contractors. My expectation would be the TK would turn down my offer.

As a fall back, I would also be ok with their fixing the items without any additional cost to you.

I would not buy the house as a TK with these issues. I suspect you're paying a premium for TK but it's not a worry-free investment.

Last but not least, TK providers are good or bad. A good one would not want to market such a poor quality product. You should expect this to be the tip of the iceberg.

What condition did the TK provider advertise? Did they disclose these things?




@Michael Seeker - thanks for the detailed response and I like your idea of going directly to the MLS without the TK - I'm beginning to cool off TK in general!

@Mark Ferguson

I'm really flummoxed on this one. On the one hand, the inspection report shows its clearly a cosmetic rehab (and I confirmed this by speaking to the inspector). On the other hand, I've been told by TK investors that nobody buys based on the first inspection report and the seller "really value the inspectors coming in and pointing out anything that needs tweaking, redoing, etc." So what happens if a buyer (such as an all-cash overseas buyer) trusts the seller when they say they are fully rehabbed and skips the inspection?

@Rick Baggenstoss

You make some very good points. The TK didn't disclose any specific rehab apart of verbal assurances that they are "fully rehabbed".

I guess what I'm trying to understand is whether this is an unusual inspection report on a TK purchase or are they all doing cosmetic rehabs, and then fixing items based purely on what an inspection reveals?

Something just doesn't sit right with me.

@Darren Sager

Its interesting you mention knob and tube wiring because I asked the inspector specifically about that - and his response was that if you asked 10 electricians, 5 would replace it, and 5 would leave it but if it was working fine.

It sounds like you're saying if you were buying a house with knob and tube wiring, you would always replace it?

I know that there are some excellent turnkey companies out there, but it also an industry rife with fraud. When they tell you it is fully rehabbed ( a very subjective term) and then the inspector turns up pages of problems including some fairly major ones regarding the old wiring then I would be extremely suspicious of this company. Granted I've had an inspector turn in a 42 page report on a house which I knew to be in excellent condition, but this doesn't sound like that.

My feeling is you are going to be nickel and dimed by the costs of repairs for this house.

@Parul S. I would reach out to your insurance carrier and ask them directly.  My experience has been that most insurance companies will not insure the house with knob and tube wiring.  Find out from them and that will be the answer to your questions.  

Here in NJ or NY, knob and tube will not fly at all.  Ever.  If its me and its my house that wiring is coming out, especially in a rental unit.  I would never set myself up for a potential lawsuit down the road.  If there's an electrical fire and its known that you knew about inferior wiring in a home that you provided to another family and someone got hurt or killed from it, chances are it could come back to haunt you.

Darren Sager, Real Estate Agent in NJ (#0897533)

@Parul S. I would recommend #4 and I believe everyone here would agree. I also know some great TK, but I have never used them or planning to. I have always bought my rental properties off of MLS or directly with the seller with owner financing.

Hope this helps and wish you all the good luck!



@Parul S. You need to pass. Aside from the obvious, "fully rehabbed" and still having knob and tube wiring.

You have issues from a property management perspective when they are comfortable to have nonfunctioning smoke detectors. This, for a property manager, is an obvious one that should not have been missed. Their negligence will open you up to big liabilities.

You'll have less headaches sorting your own team out and buying off the MLS.

Plenty insurers write for knob and tube. Knob and tube by itself is not a safety hazard. It becomes one when people start modifying it. Just had a policy written by Allstate this week on one.

I agree with @Darren Sager about checking with your insurance company. I'm currently working on a sale of a SFR and during inspection it was brought to the buyers attention the house has knob and tube. The buyer is unable to insure the property, at least here in NJ. The electrician we consulted about repairing it referred to it as "a nightmare job." Even if you could get insurance today, consider your exit. When you are ready to sell it, will it have a negative effect? Will the insurance or other regulations have been changed? Will you have to credit the buyer and take a lower sale price? Will some buyers pass on it, not wanting to deal with making that kind of repair? With all that uncertainty, especially on your first investment, I would say move on.

turnkey means "here's a key, go and make some money starting tomorrow".

their meaning sounds like "here's a key, get these items fixed before you rent it, please. we ran out of time, but found a sucker".

Originally posted by @Parul S. :
@Rick Baggenstoss

You make some very good points. The TK didn't disclose any specific rehab apart of verbal assurances that they are "fully rehabbed".

I guess what I'm trying to understand is whether this is an unusual inspection report on a TK purchase or are they all doing cosmetic rehabs, and then fixing items based purely on what an inspection reveals?

Something just doesn't sit right with me.

Yes, this should be considered an unusual inspection report if you are dealing with a quality TK company. All inspection reports are going to turn up issues, but this one brings in some major hazards and some items that most buyers are right to assume are covered in a fully rehabbed property.

Here is some advice for you if you continue to pursue any TK opportunities.

1. "Fully rehabbed" is nothing more than a marketing term. It really means nothing. You absolutely expect a full scope of work on the property detailing before conditions including pictures and an accounting of all work completed including after pictures. It should be robust considering the amount of money you are spending and the trust factor you place in the TK company. The scope should include interior and exterior reporting and should be broken down not only room by room, but should include lists of all work done and costs. Lastly, it should include which items are warrantied and for how long.

2. There should be no pushback whatsoever to fixing the issues. They may not like it and they may not want to fix cosmetic items and that is something that you can address with them in conversations, but the major items should all be addressed immediately.

3. You are right to be concerned and skeptical that major issues were not addressed before an inspection occurred. IMO, and this is only an opinion from having spent a lot of years and met a lot of companies in this particular niche, they probably run a very tight operation with very little capital and rely on buyers "trust" to get deals done. It is common with smaller and unfortunately even more common with new companies. Since I have no idea where you are buying or who the company is, just take that as nothing more than a not very good explanation of why some companies say fully rehabbed when in reality there are a lot of issues left for the future buyer.

You are right to have feelings of things not sitting right when you review that inspection report and their response. You are also correct to guess that if they run one part of an operation like this, then every part of their operation will run the same way. More than likely you will have additional frustrations in property management and on-going maintenance. It is highly unlikely based solely on what you have listed that this property will perform the way you want/expect it to perform.

Just my opinion. Good luck with whatever route you take -