Turnkey Disaster - Need Advice!

Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes

10y

IDK if the vendor saying "first of all, your post is exaggerated," is really a good way to start off the conversation. I know I wouldn't be happy about it.

it's good to know things are improving though.

0 Reply

Marco Santarelli

Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes

10y

Hi@Joe Splitrock-- good question.

A detailed answer to your question can be found on my podcast episode (004) titled "Turnkey Real Estate Investing Explained" which defines what a turnkey real estate investment is and how difference are involved in the transaction.

The short answer to your question is: The rehabber of the property in question is one of the property providers Norada Real Estate (has) worked with over the last two years. They do not manage, they only acquire and renovate properties.

The past tenant, moving out tomorrow, was placed by their leasing agent which did not do a great job. They only care to place bodies, and are not long-term property managers.

Note that most turnkey providers do not manage their own properties. There are a number of companies that do, but typically it's only two parties (a rehabber and a property manager).

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Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

10y

Originally posted by @Marco Santarelli:

Hi@Joe Splitrock-- good question.

A detailed answer to your question can be found on my podcast episode (004) titled "Turnkey Real Estate Investing Explained" which defines what a turnkey real estate investment is and how difference are involved in the transaction.

The short answer to your question is: The rehabber of the property in question is one of the property providers Norada Real Estate (has) worked with over the last two years. They do not manage, they only acquire and renovate properties.

The past tenant, moving out tomorrow, was placed by their leasing agent which did not do a great job. They only care to place bodies, and are not long-term property managers.

Note that most turnkey providers do not manage their own properties. There are a number of companies that do, but typically it's only two parties (a rehabber and a property manager).

Thanks, I will re-listen to that podcast.

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Kent BaltarePro Member

Investor · Denver, CO · Member since 2016 · 39 posts · 16 votes

10y

I'm currently looking at making my first TK purchase, so this has been a very useful post indeed. My main take away's in terms of action steps would be:

1) To try and fully understand the associated warranty with a TK purchase, practically speaking, come up with 5 worst case scenarios that you could foresee as plausible situations with your purchase. Ask the seller to explain how you would be (or may not be) covered by the warranty that's tied to your purchase given these scenarios. Where the warranty does cover the scenario, ask the seller to specifically point to the details of the warranty that support his/her claim. ** ensure to include the related timelines in this discussion.

2) Kick the tires- As online dating has taught me, getting excited about great photos can often lead to a real let down. You really need to see the property and get a good sense of whether its meeting your expectations before you can really call it a 'match' ;)

3) When you are buying, ask the seller/PM to describe to you a situation that was very challenging and how they remedied it. The response is important, but after they respond ask them for the contact info of the person(s) they are speaking about. Reach out to that person and ask them to give you a bit of their time to discuss how the company was to work with when things got tough... This will also give you a chance to test the representatives honesty and integrity.

Those are just some of my take-away's for other readers but good luck to those directly involved in this.

1 Reply

Brian Larson

Investor · Redondo Beach, CA · Member since 2009 · 147 posts · 129 votes

10y

Originally posted by @Kent Baltare:

I'm currently looking at making my first TK purchase, so this has been a very useful post indeed. My main take away's in terms of action steps would be:

1) To try and fully understand the associated warranty with a TK purchase, practically speaking, come up with 5 worst case scenarios that you could foresee as plausible situations with your purchase. Ask the seller to explain how you would be (or may not be) covered by the warranty that's tied to your purchase given these scenarios. Where the warranty does cover the scenario, ask the seller to specifically point to the details of the warranty that support his/her claim. ** ensure to include the related timelines in this discussion.

2) Kick the tires- As online dating has taught me, getting excited about great photos can often lead to a real let down. You really need to see the property and get a good sense of whether its meeting your expectations before you can really call it a 'match' ;)

3) When you are buying, ask the seller/PM to describe to you a situation that was very challenging and how they remedied it. The response is important, but after they respond ask them for the contact info of the person(s) they are speaking about. Reach out to that person and ask them to give you a bit of their time to discuss how the company was to work with when things got tough... This will also give you a chance to test the representatives honesty and integrity.

Those are just some of my take-away's for other readers but good luck to those directly involved in this.

Kent, great points all around. I see #3 as a MUST. This is a reference call and is required in almost any business transaction (my clients demand it of me in my day job)

Some say references are useless because we can all come up with a friendly person or two. I try to make the most of mine by finding someone that is as similar to me as possible... also out of state (preferably in LA), same type of deal, etc. I then reach out to them to discuss their goals, the transaction and their experience with the vendor. Did the deal meet your expectations 100%? Did it fall short anywhere?

This of course is coupled with me meeting the team and driving the city before anything is under contract.

These steps can help protect you

0 Reply

Sean Robinson

OP

USA · Member since 2015 · 7 posts · 4 votes

10y

@Joe Splitrock- The intent of this post was never to "slam" @Marco Santarellior Norada, and in my last post I stated that Marco is trying to fix this. To be clear, Marco is working extremely hard to make this right for me, and I know he feels bad about the situation. He has gone to bat for me with the rehabber, and has consistently been fighting on my behalf to get this property cash flowing. He even sent me a very heart felt e-mail today expressing his apologies for everything, and I am appreciative of what he's been doing. I just want that to be known.

My intent was to explain the situation and present the facts, so I could get some advice on what my expectations should be moving forward. This is my first investment property purchase, so I'm still trying to understand how all the relationships work, and who is ultiately responsible for fixing the issues (which seems to point to the rehabber); I did not post this to "slam" any individual. My goal is to have this property make me money and that's it. Thank you to everyone for the advice, it has been very helpful! Also, thank you for the encouragement @Greg H.- it's good to know that bad investments do happen, and I will be sure to be optimistic about my future with investment real estate :)

Update: Marco has been all over this today, and we are waiting to inspect the property tomorrow once the tenant has left. Marco has also gotten the PM fee waived for replacing the tenants, and is working on getting me reimbursement for the missed rent since January. (Thank You!)

Again, thanks to everyone for the advice, and I will keep you posted on the progress!

1 Reply

Lane Kawaoka

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

10y

I don't know what really went on in this transaction but I don't feel it is right for someone to post and air their dirty laundry on here right away.. A lot of these turn key guys are medium mom and pop companies that are just trying to make a good living and work on volume.. Not every deal is going to work out but it is left to the TKP and buyer to work it out in a cordial manner. A good TKP will have a integrity fund to pay out and fix small issues to keep a good relationship but sometimes it can get ridiculous.. @Ken Corsinicrew is helping me with an issue I am having on one of my properties in Atlanta but hey I bought 5 from him and I plan to buy more.

This really reminds me of how some people who review on Yelp/Urbanspoon will extort the business for a free drink or appetizer in exchange for a good review. I recall a simular post a few months ago, @Ryan Mullinsorry for the PTSD flashbacks, I don't you were at fault. Once again I don't know if the buyer (who has only posted 3 times on BP) was clear in their expectations, documented, and followed up properly or if the TKP was wrong. But I do know there are a lot of people who will vouch for these providers and some customers are ridiculous to work with (the 20% who give 80% of the headaches). Yes you know that person in the grocery check out line with the millions coupons and still using a checkbook. Just makes me a little irritated because when people slander the vendors and become the squeeky wheel it ultimately pushs up the operations costs for the other customers such as myself - so not taking sides this is just a N=1 case.

0 Reply

Steven Gesis

Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes

10y

Originally posted by @Kent Baltare:

I'm currently looking at making my first TK purchase, so this has been a very useful post indeed. My main take away's in terms of action steps would be:

1) To try and fully understand the associated warranty with a TK purchase, practically speaking, come up with 5 worst case scenarios that you could foresee as plausible situations with your purchase. Ask the seller to explain how you would be (or may not be) covered by the warranty that's tied to your purchase given these scenarios. Where the warranty does cover the scenario, ask the seller to specifically point to the details of the warranty that support his/her claim. ** ensure to include the related timelines in this discussion.

2) Kick the tires- As online dating has taught me, getting excited about great photos can often lead to a real let down. You really need to see the property and get a good sense of whether its meeting your expectations before you can really call it a 'match' ;)

3) When you are buying, ask the seller/PM to describe to you a situation that was very challenging and how they remedied it. The response is important, but after they respond ask them for the contact info of the person(s) they are speaking about. Reach out to that person and ask them to give you a bit of their time to discuss how the company was to work with when things got tough... This will also give you a chance to test the representatives honesty and integrity.

Those are just some of my take-away's for other readers but good luck to those directly involved in this.

Hi Kent-

Congrats! Investing in REI can be simple as Turnkey, I have seen a few good posts in this thread, I think you make some very valid points, we can sum this up with DO NOT INVEST SIMPLY ON FAITH!

1) Ask tough questions! Not only about warranty, track record, capacity, approach, science, is this an outfit that fits your culture and persona. Do they have the capacity and competency for sustainable long term returns?

2)Yes, not only is visiting the property a healthy exercise, but also getting some preliminary information, good wide shot high res photos,perhaps a small video of the property, a copy of the scope of work, any permits or permit inspections. Not only kick the tires, but take a dive into the inner workings, once under contract order a home inspection a completely neutral opinion, my opinion is you want to know everything there is to know in advance, have the turnkey provider complete a Removal of Contingency Addendum during the purchase process for any deficiencies defined in the home inspection.

3) Absolutely challenge the PM f you go Turnkey your provider is a one stop shop, they offer the asset from the starting line and manage , you get the supreme level of accountability. Any boutique Turnkey provider with inside management will offer you the most comprehensive solution, it does not have to come at a premium, you want to work with a direct turnkey provider. Keep it simple! A good investor turnkey provider, understand how to not only manage the asset, but also manage the investor ROI.

Yes, much more to consider, but these are the complete basics that everyone should do, ask yourself if the Turnkey provider giving you value that you are seeking, everyone has a different strategy and Turnkey comes in different flavors.

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Abigail T.

New York, NY · Member since 2015 · 24 posts · 11 votes

10y

@Sean RobinsonThank you for sharing your experience. I hope this all gets sorted out and you have a property that cash flows as you had expected.

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Charles Worth

Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes

10y

@Sean Robinson

It would be very interesting to know what the initial numbers were. As @Jay Hinrichsmentioned these types of investments are not typically without a lot of headace, risk and often much lower returns than you thought. Frankly, whenever I see someone advertising very large returns I either adjust their numbers (it almost never includes CAPEX for instance), figure out what risk I am taking on or run the other way. Think about it if someone could get real 30% returns for a fully tenanted property with all work done why would they keep doing that? The only way you get that is either by taking a good amount of risk or in most cases getting in earlier.

0 Reply

Gautam Venkatesan

Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes

10y

@Sean Robinsonmy personal preference is to work with turnkey providers who source, rehab and manage their properties all in-house. They have more "skin" in the game from my personal experience. You still need to make a trip to the area you are considering to understand the area and build a team on the ground before you commit. Best of luck getting this property up and running. Use the lessons learned from this experience to move forward with caution in building your real estate portfolio.

1 Reply

Kevin Darrell

NY · Member since 2015 · 101 posts · 43 votes

10y

From seeing a couple of posts like this where the provider was a frequent contributor on B.P. the investor was made whole and things worked out, let's hope the same happens here.

2 Reply

Sean Robinson

OP

USA · Member since 2015 · 7 posts · 4 votes

10y

@Gautam VenkatesanI think that is a very good point. In this experience there has been a few different hands involved, and that does create issues with accountability - especially for a new investor. Gautam, do you only purchase properties in the same state as your TK provider?

0 Reply

Sean Robinson

OP

USA · Member since 2015 · 7 posts · 4 votes

10y

@Abigail T. Thank you! I hope everything does get resolved with this property, as unfortunately this has not been a good 1st experience. Thanks to the feedback I have received, I'm still optimistic in RE investing. I'll keep y'all in the loop with updates and how everything gets resolved, so hopefully this will be of use to anyone who experiences something similar.

0 Reply

Gautam Venkatesan

Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes

10y

Originally posted by @Sean Robinson:

@Gautam VenkatesanI think that is a very good point. In this experience there has been a few different hands involved, and that does create issues with accountability - especially for a new investor. Gautam, do you only purchase properties in the same state as your TK provider?

Yes

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Jeff Gebhart

Investor · Grand Rapids, MI · Member since 2015 · 47 posts · 20 votes

10y

You mentioned none of the issues were found in your due diligence. However most of those issues should have been found. My advice is you need to learn better processes of due diligence. Too many of these deals and you will not want to be in the industry long.

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Sean Robinson

OP

USA · Member since 2015 · 7 posts · 4 votes

10y

@Jeff GebhartThanks for the advice. Do you do further inspections other than a standard property inspection and your own personal walk through? In my case, these issues have been going on since prior to my purchase, so I am stunned they were not discovered in the inspection.

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Marco Santarelli

Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes

10y

UPDATE #2: The tenant has officially moved out. She left the unit in good and very clean condition. That's a plus!

I've notified the rehabber of this, and they've told me they are planning to go there on Monday.

1 Reply

Steven Gesis

Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes

10y

Originally posted by @Sean Robinson:

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!

Sean-

Sorry to hear about your expeirence for future transactions consider the following guide : A Simple Guide for Buying Out of State Turnkey

Much Luck!

0 Reply

Steven Gesis

Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes

10y

Originally posted by @David Soest:

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

Hi David-

I think you need to reconsider and check out this guide : A Simple Guide for Buying Out of State Turnkey

Much Luck!

0 Reply

Steven Gesis

Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes

10y

Originally posted by @Charles Worth:

@Sean Robinson

It would be very interesting to know what the initial numbers were. As @Jay Hinrichsmentioned these types of investments are not typically without a lot of headace, risk and often much lower returns than you thought. Frankly, whenever I see someone advertising very large returns I either adjust their numbers (it almost never includes CAPEX for instance), figure out what risk I am taking on or run the other way. Think about it if someone could get real 30% returns for a fully tenanted property with all work done why would they keep doing that? The only way you get that is either by taking a good amount of risk or in most cases getting in earlier.

Charles-

Those nu,bers can xist if you consider that you are buying a unit with an operational tenant, now, the years to follow should have adjusted pro-forma for loss of rent, vacancy, etc...

- checkout this guide : A Simple Guide for Buying Out of State Turnkey

Much Luck!

0 Reply

Jeff Gebhart

Investor · Grand Rapids, MI · Member since 2015 · 47 posts · 20 votes

10y

Originally posted by @Sean Robinson:

@Jeff GebhartThanks for the advice. Do you do further inspections other than a standard property inspection and your own personal walk through? In my case, these issues have been going on since prior to my purchase, so I am stunned they were not discovered in the inspection.

Yes I would do further. Working with an unknown turn key company you should be more leary until you've developed a good relationship. I would not rely on them for your information. You don't ask a barber if you need a hair cut right? For example, did you talk to the tenants themselves to see if there were issues? Rent rolls should've showed no rent being paid. Physical inspections would have shown the leaks. I am sure there are plenty of stories on both sides of this issue but at the end of the day its your money. The result is you got into a deal you are not happy with. Not everything can be prevented and some issues get missed by the best. But some of your issues are very confusing why these were not picked up right away. Hopefully you don't take a big hit on this and you are able to chaulk it up as a college course on inspections and use it on your next project. Those of us on the sidelines can learn from your mistake to sure up our inspections too. Best of luck!

0 Reply

Jeff B.

Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes

10y

Originally posted by :

Low end duplex in any mid west city is a very problematic investment.. Better renters want SFRs' in these markets..

IMO, need to segregate LOW-END from the configuration (DUPLEXs).

The duplex is a good configuration and in better class property/areas due well - - just try getting an SFR in San Fran :) Silicon valley has a good population of dups & quads.

Low-end class-c&d are typically fraught with issues.

my $0.02

1 Reply

Ann Howell

Investor · Houston, TX · Member since 2014 · 128 posts · 87 votes

10y

Originally posted by @Sean Robinson:

@Abigail T. Thank you! I hope everything does get resolved with this property, as unfortunately this has not been a good 1st experience. Thanks to the feedback I have received, I'm still optimistic in RE investing. I'll keep y'all in the loop with updates and how everything gets resolved, so hopefully this will be of use to anyone who experiences something similar.

Hang in there! It sounds like things are getting back on track. We had a very bad first experience as well (I posted about it on BP). After a lot of work, that property has stabilized and we are in the process of buying our third. We learned a lot since the first. For example, we looked at one duplex (also in KC) that we pulled out of after the inspection found mold and dry rot - after the rehab was supposedly done. Always make sure you use an independent inspector and be willing to walk away. Trust but ALWAYS verify.

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Sean Robinson

OP

USA · Member since 2015 · 7 posts · 4 votes

10y

@Ann Howell Thank you for sharing! I appreciate the encouragement and the anecdote. I'm glad to know there is light at the end of the tunnel :) I think my property will get repaired, but unfortunately it is taking longer than anticipated.

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Turnkey Disaster - Need Advice!

Turnkey Disaster - Need Advice!

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