Turnkey Disaster - Need Advice!

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Turnkey Disaster - Need Advice!

Sean Robinson
USA · Member since 2015 · 7 posts · 4 votes

I'm looking for some advice on this nightmare of a property I just purchased. I just purchased my 1st investment property and I decided to go with a Turnkey property from Norada Real Estate Investments, because I really wanted a property that would be all ready to go/hands off with a property manager, had tenants living in the property, and would yield me a really nice cash flow. Unfortunately, I have received none of these from the duplex I just purchased. I signed the PA in August, but the property didn't close until December, which was said due to them needing time to repair the property and get it into perfect condition. Here is a brief synopsis of what's going on since the 1st day I got the property:

-There is major flooding in both of the units, and many broken appliances. This was not discovered in the inspection.

-The tenants have been complaining about this since November (before I owned it)

-One side is completely unlivable, so the tenant hasn't paid rent since December 1 and refuses to pay anymore rent. We are trying to evict them now (they said they will be out on March 5th, but we'll see how that goes.)

-After a ton of arm twisting, Norada and the rehabber (not exactly sure how this works) has agreed to do some of the repairs, but he is moving very slow on them and the property is still not repaired -This has been a bigger issue of lots of finger pointing and nobody has even apologized to me yet for what has happened.

-The repairs are supposed to be done "next month" (another tentative date that I'm sure will get missed) which means I will have missed out on rent for January, February, and March.

-I will also forfeit 1 month's worth of rent to the property management company as a fee for them finding new tenants. This will mean I'm out roughly 4 months of rent assuming we can get it rented by 4/1 with a tenant that is still living there without paying rent.

-The property manager has informed me that there is no way the new tenants will pay the originally promised rent amount by Norada, even with the repairs; thus, reducing the overall cash flow I was expecting.

I'm reaching out for some advice, as this is my first investment property and the only thing I've been told is just to "hang tight" until the repairs are done. But every day that passes is a day I lose money on rent, and then another month that I have to pay for the mortgage out of pocket since one side alone will not cover it. What are my options here? What would you do if you were me?

Thanks for reading and I appreciate the advice!

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Account Closed
Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes
10y
Advice? TRUST NOBODY BUT YOURSELF.
8Reply
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  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    Sean -- I just left you a voice message in response to your post.

    First off, your post is highly exaggerated.  As you know we JUST spoke about this earlier this week.  I have assured and promised you that these punch list items will absolutely be taken care of.  You have my word and promise on that.

    As you also know, we have fired the turnkey provider that provided us the property you purchased.  As I told you, they have been cutting corners as of late, and have gone downhill ever since.  We NO longer do business with them and they are done as far as we are concerned.

    As you know from your current property manager, we are knocking out this short list of repairs with or without that provider's help.  Followed by a properly screened and qualified tenant.  The tenant that WAS in there was placed by the previous provider and they did NOT screen that tenant.  They simply placed a "warm body".  I've brought that up with them in my anger and frustration with them!

    MY GOAL:  Is to have this issue CURED and have you made whole and happy.  That is my word, as we stand behind everything we offer.  That is why we have and remain agnostic to all markets and service providers.

    I will follow-up with you again tomorrow.

    Thank you Sean.

    Readers:  If anyone would like to know the name of the company in question, you can PM me.  I will not post that in this forum thread.

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    10y

    @Sean 

    @Sean RobinsonSorry to hear this has happened. I own several turnkeys and I have had problems with a couple of them at the start. Now having said that, its not that there are problems but how they are being addressed that seems to be the problem. I personally thing that @Marco Santarelliresponse is really inadequate. The whole value of marketing companies like Norada is to choose the right vendors. Obviously in this case they failed miserably. And nothing in his response suggests what he would do to make it right. Like pay for repairs because any rehab should be warrantied for at least 6 months. As should the tenant. Its ridiculous that you would be charged another months rent to place a tenant. And why if the tenant has not paid since December has the PM not evicted her already?

    The inflated rents are also another sign of a bad operator. At this point if I were you I would find my own contractor, my own PM and stop dealing with Norada or their vendors. Once the property is stabilized, it may still perform. But my guess is you probably overpaid for it so can't be sure of that either. Having said all that, turnkey can and does work. However the issues you outline are what give turnkey a bad name. 

    7Reply
  • David Soest
    Investor · La Marque, TX · Member since 2014 · 73 posts · 30 votes
    10y

    Not sure what "turnkey" is but after reading this I will sure stay away from it if ever offered.

    6Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    @Account Closed-- It's nice that you've chimed in, but you do not have all the facts to be in a position to draw any conclusions.  I made my initial reply brief just to address the post for tonight.  

    There is a plan in place and it is being executed:  

    • Sean will not have to pay for a new tenant re-lease.
    • Sean will not have to pay for the repairs that were overlooked by his inspection.
    • The "wait" time has been due to the tenant moving out.  The repairs that need to be made on the one unit cannot be done with the tenant there, and they had given notice they were going to move out by the end of February.
    • The "inflated" rents were actual rents of paying tenants placed by the rehabber's leasing agent.
    • This (past) service provider/rehabber has been fine for the last two years.  They have gone downhill only in the last 3-4 months and have been fired by our company.
    • Etc, etc, etc...

    There is far more going on to address and rectify the situation in a timely manner for Sean than what you know from reading this post.  Situations come up from time to time in this industry, but fortunately for us they are very, very rare.

    1Reply
  • Jeff Sprunger
    Lockport , NY · Member since 2014 · 265 posts · 124 votes
    10y
    Agreed Anisha, what is Norada doing to make the buyer "whole" again? I would think that Norada would want to pay for repairs as well as any back rent owed by the tenant that they failed to screen before advertising THEIR property as turnkey!!! That would make me feel whole again and restore a little trust. Otherwise I would have advise against using Norada!
    3Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    @Account Closed/@Jeff Sprunger: 

    Just so you guys are clear, our company is backstopping the cost of the repairs!  Whatever is not covered by the (fired) rehabber/provider WILL BE paid for by our company.  Sean is NOT ALONE on this.  We have Sean's back covered.

    Again, we stand by our clients.

    0Reply
  • Phil DuChamp
    Investor · Indianapolis, IN · Member since 2014 · 61 posts · 28 votes
    10y

    I've looked at several turnkey providers and promoters like Norada.  I've spent time talking to their agents, calls with a local provider they connected me with and also doing my own due diligence on other providers in the same market.  I think I've found one that I'm going to go with, after another conversation with Norada...  

    Norada and the provider were also recommended without asking "what do you think about 'so-and-so'?", then going to the county assessor site to confirm that they did, in fact, make the purchases they said they did.

    Obviously, you're already committed at this point and it sounds like Marco and his team are going to make it right, but for others looking to take the first step into Turnkey investing, make sure you know who you're working with before diving in, then make sure you know who they're working with and make sure they've got some references.  I'm looking at my first investment property and don't have the bandwidth, to do much else besides going the turnkey route.

    My 2 cents...

    1Reply
  • Account Closed
    Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes
    10y
    Advice? TRUST NOBODY BUT YOURSELF.
    8Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    10y

    @Marco SantarelliTrue I don't have the facts and I was going by OP post and your response. If you do make it right, then kudos to you for running a good operation. It would be nice to see the OP confirm that when the issue is finally settled.

    5Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    @Account Closed-- Yes, that is my end goal.  It's the *right* thing to do.  That is how I would want to be treated in the same situation.  Thanks again!

    4Reply
  • Cody Barrett
    Phoenix, AZ · Member since 2015 · 345 posts · 138 votes
    10y

    Very interesting dialogue and situation. I can understand why Sean reached out as he is concerned and wants to protect himself by hearing fellow investor's advice during a scary situation... It does sound like things will be handled professionally going forward which means a lot for both of you now that both sides have been posted on a place like BP. Reputation means everything and so does starting strong in REI for first timers. Hope all goes well in the coming days/weeks.

    2Reply
  • Alice K.
    Investor · San Francisco, CA · Member since 2015 · 306 posts · 211 votes
    10y

    As a bystander, there are a lot of lessons here. Firstly, who the heck inspected it?! Were you involved in that as well? Definitely share that person's name and give them a terrible review.

    I think you're doing the right steps (evicting, then you'll have to fix it). Seems like you'll have to try to make up for the loss in the long run. I don't know if I have enough information here to give any more thoughts (E.g.: How long will it take them to fix it?)

    I'm going to make some assumptions but here is what I would do:

    * Share all the details of the company(s) you worked with that are unhelpful so their business is affected (I sure as heck don't want to be involved with this company / inspector!)

    * Get hard dates from people (I assume you've done this) 

    * Get everything in writing from everyone involved (including what that guy Marco Santerelli says-- he seems like he meant well, I mean, I've never played middle man, I'm sure he's annoyed about it as well)

    * Look online to see what other rates are around the area (check to see if your manager is right, if not find someone else or figure out if any other fixes would help... Unless the location is terrible and it's just not worth it)

    * Last resort: Fix it up the best you can, see if you can flip it to get your money back. (If you really can't get rents to allow a break even on this one).

    Good luck!

    1Reply
  • Rod HanksBusiness Member
    Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
    10y

    I'm sorry this happened on your first deal but......if the real estate "game" was easy everybody would be doing it. It's hard and requires work, it's never "turnkey" and as easy they make it seem.  

    It sounds like @Marco Santarelliis going to make it right. Mistakes do happen and good providers always take care of their clients. 

     If I can help, please PM me.

    Hopefully this will not deter you from building your empire, good luck!

    Rod Hanks Insurance4.9153 Reviews
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    2Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    @Alice K.--  those are all good points.  I would also point out that the property is very cash-flow positive even if the rent is lowered.  I've already spoke to the property manager and they intend to lease it for as much as they can get.

    Note that I do not intend to have Sean fix anything.  We are dealing with this directly with the previous rehabber and I intend to use leverage on them to fix things properly.

    0Reply
  • Account Closed
    Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
    10y
    I think this is a case of an inexperienced investor "jumping the gun" a little. No deal is perfect no matter how hard we try. The idea of working with guys like Marco is to constructively figure things out and get it done/fixed. Work with him as a team. As Marco has already expressed he is going to try to make it right, so let him do his job and make it right. If you are not happy after you have given him a chance to fix things, then perhaps a post like this is necessary. I have heard great things about Norada over the past year and a half, and he seems like a guy that stands by his product and services. I have had a similar experience to yours but no effort was done to help me. And the provider straight up starting cussing at me like a bully on the playground. It was quite amusing. I wrote a post about it similar to this one.
    3Reply
  • Michael Lee
    Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
    10y

    Hello and welcome to BP! That is a bad position to be in now.  Unfortunately they are saying the right think now.  It is a numbers game to help the overall picture. Hopefully a bigger number will help you overall.  That being said I would check the buyer out against others in the business, like Memphis Invest.  They have convinced me that they are experienced and have a lot of people to help you out.  There are usually no guarantees.  You might want to get a local and an experienced attorney to advise and help you.  You are in a tough situation.  I am 59 years old and have a bit of experience and knowledge.  From what you said you do not have many choices.  How did they sell you?  Good luck!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Sean Robinson  without knowing what city and what type of asset its hard to know if you bought something that is basically going to be trouble for the life of the investment or if this is a one off event.

    Low end duplex in any mid west city is a very problematic investment.. Better renters want SFRs' in these markets.. Duplex's can and are generally in urban cores and very tough... this situation could play out often for you no matter who your out of area rep was who the rehabber was and who the PM is.

    the main issue though is you having to go through the learning curve when the out of area rep admits his clients went off the reservation are you the only one.. or did this happen to numerous people... its nice that its recognized and they are fired.. but its the pits for those effected.. But as a RE broker which is really all Norada was in this instance they are at the mercy of the provider just like you are... So if they knew or should have known this provider was going TU then its probably their obligation to make you whole.. these guys make a very tidy fee selling you these properties and you take 100% of the risk going forward.. so its the cost of doing business for norada to make you whole and to save their rep.... A local broker would be there on site at the home inspection.. not 5 states away thats the issue at hand a good RE broker probably would have caught that ... just my opinion. 

    But again duplex's that are turn key in major mid west towns are suspect as an investment PERIOD.. ASK anyone who has owned one in INDY.. LOL. I have one client that rehabbed his 4 times in 2 years lost 50% of his investment when he finally gave up.  to anyone reading be very careful with this asset class.. and those that are providers you should also be very careful to allow those in your inventory.. is my humble opinion... But again I am surmising what you bought so this comment may no be germane. 

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    4Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @David Soest Turnkey is simply a business model where one individual sells a investment property to another individual that has already been renovated and sometimes with a tenant in place.  Most TK providers offer in house management too.  The PM is a good compliment as the TK business should be a relationship business with win-win scenarios.  Investor gets a good property, TK makes profit on sell and grows mgmt company at the same time.  If all goes well, then that Investor would buy multiple properties and become a long term client.  It is obvious the TK seller is not in the business for the long haul. I would question that they were ever a quality provider b/c TK providers do not go from great companies to lousy companies overnight. Usually it is the other way around; TK companies start somewhere, find their niche, evolve, truly understand the biz, then flourish into a great company.  That process takes years. 

    Buying TK is not much different then buying a non-foreclosure property off the MLS. The main difference is the TK company promotes their own properties while MLS properties are sold by licensed Realtors. I would argue TK is a better route b/c at least the TK provider has skin in the game as real TK providers own the properties they sell, thus having a vested interest. I would also argue that a good TK company renovates the property to a standard where the investor will maximize cash flow through upgrades in the house that will minimize maintenance. Such things as updating electrical, vinyl plank flooring in high traffic areas, updated light fixtures, ceramic tile in kitchen and baths, replacing old HVAC systems, etc. A good TK provider will fix most everything on the inspection reports, where as a seller on the MLS may only fix items with a $1,000 limit. Just last week we took on mgmt for a guy who bought off the MLS and within a month the tenant is constanly complaining about fuses going out. We go into the house to check out the problem and the home looks like a Best Buy showroom. I asked the investor why he didn't have the seller updatd the service box from fuses to breakers and he said the seller was not willing to spend the $1,900 to do the repair. Had that been a TK deal, a good TK provider would have updated that panel to breakers during the rehab for $900.

    If I were a 3rd party provider I would promote no more then 2 providers in a market, but would try my best to only promote 1.  Most 3rd party providers market multiple TK providers within the same market and to me, it is impossible to truly evaluate all of these providers.  I know Marco promotes 2 in Memphis, but maybe more.  Marco has sold 5 or so of my properties in the past 2 years and have always been surprised I don't get more referrals his way as his clients have had A+ experiences with absolutely no issues.  Going back to the "if I were a 3rd party provider", I would stick with what works so that post like these are minimized. From the sounds of it, Marco is doing what he should be doing and I commend him on that.  That is extremely and I focus on "extremely" rare for a 3rd party company to help out like he is doing.  That shows you that Marco in one way or another has a vested interest in his clients, properties or markets.  There are other 3rd party providers on BP, ask them how many times they paid out of their pocket to make a situation right.

    Long story short, there are sharks in any business and the TK world is no different.  You must do your own research, visit the team and market.  Even after all of that, if your experience is minimal in the Real Estate world, take back what you learned from your market visit and get on Bigger Pockets for advice.  Ask past clients from the TK provider what they have learned.  Most markets property sales are public record.  Find these records and try to find these people on social media or simply write them a letter to see if you could pick their brain.  I guess in a way that sounds creepy and stalking, but if it saves you from buying a property from a lousy provider, then big deal.

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    6Reply
  • Sean Robinson
    OP
    USA · Member since 2015 · 7 posts · 4 votes
    10y

    Thanks everyone for all of the feedback!

    I'd like to first note that this post is not exaggerated whatsoever; I just gave the facts and all the information I have currently.

    That said, @Marco Santarelli is trying to fix this mess that I was put into, but the progress has been slow. I do have faith that Marco is working hard to make it "whole" with me, but I wasn't sure what that should actually look like. This is the first mention I've received about the PM fee being waived for replacing the tenants, so I'm thrilled to hear that. Additionally, per @Jeff Sprunger's post, I think receiving rent backdated from January for the tenant who is moving out due to unlivable conditions would be in line as well. (Please note the tenant has been compaining about the flooding since prior to my purchase; I have their e-mails)

    @Jay Hinrichs: Thank you for your input! I purchased this property in Raytown, MO, which is supposedly an affluent area just outside of Kansas City, MO. The reason I chose TK was to help bridge the gap of my inexperience in the market, thus providing me with the best property, best tenants, etc. Unfortunately, that hasn't been the case with this property. To your point about permanent damage, the PM has warned me that repairs may just be band-aids to a larger issue, but only time will tell.

    0Reply
  • Rod HanksBusiness Member
    Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
    10y

    @Sean RobinsonI think its safe to say that if you are going the turn key route choose a provider in the same city you are buying in. It is very difficult for a third party to manage a project 5 states away. Also choose a provider that actually does the rehab and sells the property, not just one that is acting as a broker and referring out everything else from rehab to property management. That way if things go south you minimize the finger pointing. Why invest out of state? DFW is a great rental market.

    I know it sucks to be going through this on your first deal, but that is a part of tuition we all have to pay for our education sometimes. I remember when I first got started I read up on lease options and thought I would be the lease option king in Dallas. The first deal I came across was a couple that was $2500 behind in mortgage payments and the foreclosure sale was the next week. I visited the couple and put it under contract and in my infinite wisdom allowed them to stay until the end of month. I made up the back payments and reinstated the loan and patiently waited until this nice couple moved out at the end of month. Needless to say, they changed their mind and I was out of $2500 and they had a fresh start. At that point I had a decision to make. I could get angry and quit or get better. I decided to get better and considered my $2500 an education expense. 

    Keep on moving forward and get better on the next deal!

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    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    UPDATE #1:  Tenant is scheduled to move out tomorrow (March 1st).  She agreed to leave the property broom-swept clean, thus leaving us with zero ($0) eviction costs.

    The next step is to have the previous rehabber go in to make the needed repairs, followed by our inspection to make sure repairs were done properly. 

    @Sean Robinson

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @Sean RobinsonI think Norada had a similar duplex experience to this a couple years back and Marco came through to resolve...so I expect this will be close to that outcome. Keep in mind there are a lot of moving parts here not that it is rocket science but being long distance crap goes wrong with rentals in general.

    1Reply
  • Stephanie Trkay
    Burbank, CA · Member since 2015 · 7 posts · 6 votes
    10y

    Hi all! I am a real estate investor who has purchased three properties through Norada (closing on my third this month). I have not had the same problems that Sean has had and I have found Norada to be on top of it and ready to serve--this appears to be true of Marco, but it also is true of his staff. I have been working with Michael Ristau, and anytime I had a question or a slight bit of a concern, he was on the phone immediately and talked me through my questions or immediately dealt with the PM. I'm not affiliated with Norada whatsoever, other than that I purchased property through them, and so far, I am a happy customer. I would also recommend you check out their podcasts. Marco knows what he's talking about!

    4Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    @Sean Robinson

    I hope this all works out for you and I am not trying to pile on due to your circumstances

    No one should buy a property without an eyeball test !! If a $300 airline ticket or a round trip flight on the same day(because your to busy) skews the deal.....invest in mutual funds.  Every few weeks we hear about a similar story.  The buyer has received a packet with great looking numbers and pictures, had an inspection(in some instances recommended by the TK operator) and a property manager(again likely put in place by the TK) yet things go wrong from the get go

    Most if not l of these sad stories would have been averted by flying into town for the day and viewing the property and speaking to the tenant

    4Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y

    @Sean Robinsonand @Marco SantarelliI am new to the idea of turnkey. I have owned and managed my own property local for over 10 years. As I understand turnkey, someone buys a property, rehabs it, rents it and then sells it to an owner. Often the turnkey also manages. What I didn't understand is Marco said they fired the turnkey, so if Norada is not the turnkey provider, how do they fit into this?

    In this deal, there is a rehab company, a turnkey company, Norada, property management and Sean the owner. That is five people making money off this deal. It seems logical by the time it gets to Sean that it could be a little slim or there could be a couple problems.

    I am not passing judgment on Norada or Marco. Marco seems intent on fixing this. My advice to Sean would be to not slam Norada in a post as long as they are working in good faith to correct. If you alienate the people trying to help you, they will stop trying to help you. Be patient but persistent.

    1Reply
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