New Tenant Turned Bad or TK Company Screening Issue??

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New Tenant Turned Bad or TK Company Screening Issue??

Ekaterina Stepanova
Rental Property Investor · Riverdale, NY · Member since 2014 · 216 posts · 62 votes

Hi Team,

I've just started investing in RE 5 month ago thru a TK company and now facing tenant eviction and really need your input please! 

So, what happened was, I got a great 3/2 SF property in a solid B class neighborhood from a highly regarded and up-sanding TK provider back in March. They have great references on BP as well. Once the reno was completed I was told that they've accepted a deposit for my property and told me that a qualified renter is ready to move in. They explained that she/the tenant is coming with great references, income in 4X the rent, works in medical field, her relative is a long time tenant in one of their properties, so seems like a perfect match! To my request to review her credentials prior to approval i was told that its not the practice and I need to trust TK company expertise as they make sure she complies with requirements (3 times rent, references, no evictions, W2s, etc.).

Five months forward this perfect tenant missed 2 payments and stopped answering her phone in past 2 weeks or so... I just found out about it on Friday, which is 1 month and 10 days after her 1st missed payment! You would ask, how come I didn't notice rent not coming in, right? Well, seems like TK company applied her deposit for the past month and sent me statement as if everything was fine .. This month they just sent me a note saying that "unfortunately we need to evict your tenant for non-payment". I was shocked! For which non-payment? I just got a statement (not yet the money, takes a couple of days) that was stating that everything is OK. 

Well, it is all very confusing to me and I, honestly, not sure how to proceed with this company. I will now, of course, will need to evict the tenant, but what about the TK company? Was it a screening issue or just a tenant "turned bad"? How do I know and do I just eat up all these costs? Is it a normal practice not to have a "say" in your tenant selection when working with TK companies? Why did they cover up a non-paying tenant?

Really appreciate your insights!! 

Thank you!

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Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
10y

First - as a matter of community service, I think we would all benefit from knowing which TK provider you are dealing with. I am not a fan of TK, since even in the best-case scenario, mathematically turn key just doesn't pencil out.

Having said this, there are several issues. One - security deposit are escrowed funds to be dispersed at termination in whatever way allocated in the lease. This money should not be applied to rent. If you have a statement which proves that the provider applied deposit moneys to rent, you've got a case that at the very least your TK provider is negligent...

Now - the whole notion that you cannot review tenant qualification criteria is wrong as well. If it's your tenant, you should have input. If not, then it's their tenant, which runs close to SEC.

Understand - what they've said is - Don't worry Ms Buyer; pay us the money, and we will take care of everything. Doesn't that sound like you are a limited partner - without control, and just along for the ride...?! To me it does...

But, if you can make a case that you are being treated as a limited partner, then you can make the case that the provider is breaking SEC regs. Limited partnerships are exclusions in the SEC code, and require specific mechanisms and paperwork. Reg D is the most common, but there are others. These were created to protect the consumer - why - precisely because you do not have operational control.

Having said this, the letter you received says "...unfortunately we have to evict YOUR tenant", meaning that now they are clearly drawing the line that even though they wouldn't let your input as it relates to tenant screening, they clearly consider the tenant YOUR problem. YOU have to evict. 

The way I see it, if you cannot pick your tenant - if you are releasing control to them, then it's not your tenant, it's their tenant. Doesn't this make sense? This is precisely the conflict of interest with the TK model. 

This provider is trying bake the cake and eat it too. They are trying to allocate the responsibility for the asset and tenant to you, while at the same time limit your control and participation, which is to allow them to run their business the way they see fit, meaning without you butting in. 

Whoever it is, they are not the only ones. This is the business model, and it's flowed as all hell. The privilege of RE relative to any other vehicle is CONTROL - you've released it to them. It sounded good to you, because you really never wanted to manage tenants. But, there is a price...

Finally, I bet you can't sell out now. You've paid them all of the equity, and in order to get out would have to take a loss.

That's how the story goes. Fire them. Sell the house. Realize if it smells too good, it is too good. Call it school of hard knocks, and go do better!

Tell us who this is. The community needs to know.

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  • Ekaterina Stepanova
    OP
    Rental Property Investor · Riverdale, NY · Member since 2014 · 216 posts · 62 votes
    10y

    @ @ @ @ @

    Here is an update: I spoke to my TK provider, MidSouth Home Buyers, last week trying to clarify situation with my defaulted tenant and here is what I found out:

    TK provider paid me rent instead of my tenant to "close monthly statement" in July. This coincided with me coming to town .. Then I didn't receive rent for August and September and found out about it on September 9th. Since then I am in the process of evicting my tenant. I haven't yet gotten a chance to find out screening details on this tenant to determine whether there were any screening holes as well ... however I do know now that tenant started paying late as of month 3 (June) .. and I didn't know anything about it. Company acknowledged that they "dropped the ball" and working on fixing their internal processes to ensure this doesn't happen again. I was just about to buy my 2nd property from them ... I will have to wait now,,, need to see this one through first.

    0Reply
  • Ekaterina Stepanova
    OP
    Rental Property Investor · Riverdale, NY · Member since 2014 · 216 posts · 62 votes
    10y

    @

    0Reply
  • Jeff Bridges
    Investor · Hyattsville, MD · Member since 2012 · 822 posts · 441 votes
    10y

    summary: so late rent June, "fake" rent paid to you by TK in july to make you happy and oblivious, no rent in August and September, and notification on September 9. So that's at least 2 months of uncollectable rent on top of eviction costs that you did not need to incur if the PM had just checked the rent rolls and addressed the issue back in July. Yea that is what I consider poor management.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    10y
    Originally posted by @Ekaterina Stepanova:

    @ @ @ @ @

    Here is an update: I spoke to my TK provider, MidSouth Home Buyers, last week trying to clarify situation with my defaulted tenant and here is what I found out:

    TK provider paid me rent instead of my tenant to "close monthly statement" in July. This coincided with me coming to town .. Then I didn't receive rent for August and September and found out about it on September 9th. Since then I am in the process of evicting my tenant. I haven't yet gotten a chance to find out screening details on this tenant to determine whether there were any screening holes as well ... however I do know now that tenant started paying late as of month 3 (June) .. and I didn't know anything about it. Company acknowledged that they "dropped the ball" and working on fixing their internal processes to ensure this doesn't happen again. I was just about to buy my 2nd property from them ... I will have to wait now,,, need to see this one through first.

     The turnkey provider paying you the rent that the tenant did not pay tells me that they have broken practices focused solely on the short term results and they are not equipped to handle your investments for the long haul. A management company should never lie about rent being paid or not for a multitude of reasons. I question this companies ability to sustain itself for a long period of time.

    It is my recommendation that you move your investment to another management company. 

    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    10y
    Originally posted by @James Wise:
    Originally posted by @Ekaterina Stepanova:

    @ @ @ @ @

    Here is an update: I spoke to my TK provider, MidSouth Home Buyers, last week trying to clarify situation with my defaulted tenant and here is what I found out:

    TK provider paid me rent instead of my tenant to "close monthly statement" in July. This coincided with me coming to town .. Then I didn't receive rent for August and September and found out about it on September 9th. Since then I am in the process of evicting my tenant. I haven't yet gotten a chance to find out screening details on this tenant to determine whether there were any screening holes as well ... however I do know now that tenant started paying late as of month 3 (June) .. and I didn't know anything about it. Company acknowledged that they "dropped the ball" and working on fixing their internal processes to ensure this doesn't happen again. I was just about to buy my 2nd property from them ... I will have to wait now,,, need to see this one through first.

     The turnkey provider paying you the rent that the tenant did not pay tells me that they have broken practices focused solely on the short term results and they are not equipped to handle your investments for the long haul. A management company should never lie about rent being paid or not for a multitude of reasons. I question this companies ability to sustain itself for a long period of time.

    It is my recommendation that you move your investment to another management company. 

     I have never agreed with anyone more so than I agree with with James's statement above. (and I don't often agree with James :) But, he is just so right on here. Dump them immediately and look for a long-term solution. And, if you don't have an exit, bite the bullet and create one!

    0Reply
  • Ekaterina Stepanova
    OP
    Rental Property Investor · Riverdale, NY · Member since 2014 · 216 posts · 62 votes
    10y

    @ @ @ @ @

    Thank you for your honest opinion. Appreciate it!

    Ah.... that's painful, especially I did all the right things .. Due diligence, references, took a trip there .. checked all the boxes, not long after .... evicting my 1st tenant of 3 months .. sucks! Well, any Memphis company suggestions?

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Did you not look at Memphis Invest with Chris Clothier?

    They have a long track record and provable systems in place.

    Turn keys are not for me but it if you are going to use one stick to ones that have a long positive track record already. 

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    You have a decent home so you might consider contacting @Douglas Skipworth who is active here in BP, they might be a good fit for management.  @Joel Owens I dont know if Chris's company takes on any outside management but I am not 100% sure of that.

    Curt Davis - KAIZEN Realty538 Reviews
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    1Reply
  • David J.
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    10y

    So fake rent in July, no rent in August, no rent in September. 

    I agree that a good tenant on paper can stop paying rent.  What I don't agree with is fake rent in July.  To me this is fraud unless they tell you immediately.

    so let's say no rent in August and September.  You would have known no rent in August by the date they send the owners statement out.  If I don't have rent by the 5th I am posting the 3-day notice and starting the eviction process.  No excuse for letting a tenant get passed a week without starting the eviction process. 

    Step 1 - find new management.

    Step 2 - a strongly worded letter from your attorney requesting the missing rent and the deposit from the TK/management company. If they paid you fake rent and sent you a statement saying tenant paid rent, I would also file in small claims court and blast them on every internet site you have ever heard of.  Threat of a couple bad reviews and they will come up with some more fake rent to cover you.

    1Reply
  • Ekaterina Stepanova
    OP
    Rental Property Investor · Riverdale, NY · Member since 2014 · 216 posts · 62 votes
    10y

    @ @

    The reason I didn't know that August rent isn't paid is because they do payouts to investors a month after, So July rent comes in August, August in September and so on.. So I found out that August rent was missing on September 9th only when both August and September rents weren't paid ... But you are correct, that tenant is to pay by the 5th of every month for the upcoming month, meaning August 1st for August and so on. I thought that was normal practice ... however I its my first experience and I don't know anything different. So as you can see there was no way for me to tell that tenant was falling behind until I was 2 month out of my rent ..

    0Reply
  • Jean Soares
    Real Estate Agent · Papillion, NE · Member since 2016 · 2 posts · 1 vote
    10y

    I am an investor but took a job as a property manager to learn the ins and outs and have my real estate license.  Just as everyone else states it is not okay to use the deposit.  It is not illegal but against real estate law so they could lose their license.  In Nebraska you need a license to manage a property for several owners.  As far as screening, I worked for a company that would only share the application but we could not share the credit check as the service we used did not allow it.  If I had a concern about a tenant, I would call the owner and tell them they had blemishes and explain to what degree such as bankruptcy but I could not provide the physical report to them.  As a property manager my job was to screen and if the owners scrutinized every decision I would have a conversation with them.  Legally I had to follow fair housing and other things,  I never had owners have issue because I built that relationship and was good at screening.  With that being said, there are a lot of poor PMs out there and I screen my own for my properties and manage my own because of this.  

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