ABC Capital review and the problem with Turnkey companies

I've done a detailed write up of my first turnkey experience in Texas with Texas Turnkey Property (link). I've seen a lot of threads asking for people to share their experience with ABC Capital as they are heavily promoted on BP.

WHY ABC CAPITAL/PHILLY INVEST:

I found out about ABC several years ago through a well known promoter, Maverick Investors. They had attractive numbers, much better than other turnkey providers I had seen. After seeing generally positive feedback on the company on BP, I contacted them, was put in touch with one of their sales guys named Ari, was the most helpful of anyone at the company. He sent me some properties to look over and I chose the one I was most interested in. It's located in Brewerytown, which promised strong appreciation with modest cash flow. Obviously, appreciation should never be relied upon, but a lot of the factors I look for in a successfully gentrifying market (proximity to transit, beautification efforts by the city, employment nearby, development in the neighborhood, all verified by the Philly planning commission) made me comfortable with my level of risk in pursuing this strategy.

In a gentrifying neighborhood, I figured I would have the greatest shot at a successful buy-renovate-rent-refinance strategy. The purchase price was $155k, their ARV estimate was $220k. My intent was to take out as much as possible through the refinance and purchase a second property with ABC that would cash flowbetter.

I did my research on the property, had a local realtor unaffiliated with ABC give me their opinion on Brewerytown; he alsopulled some comps for the neighborhood for me and crazily enough, ABC Capital's estimates for both ARV and rent seemed right on.

So I pulled the trigger. All cash, closed within 3 days.

THE PURCHASE:

I purchased a property that was already close to being finished with renovation. Usually, these renovations take several months. Instead, it was completed several weeks after closing, around late April, which was great. I started the process of refinancing using a local lender they recommended. (Side note: ABC advertises a B-R-R-R strategy, but if you are out of state with no affiliation to Philly, their local lenders are actually local credit unions and won’t lend to out of state investors.) I found a lender on my own, but the appraisal came in short - $190,000. Disappointing, but not a huge deal.

In both of my turnkey experiences, purchasing has been the easiest, smoothest part. But when the time comes for property managers to take over, it's clear that this is the Achilles heel of turnkey companies.

RENTING/PROPERTY MANAGEMENT aka WHERE **** HIT THE FAN:

First major issue was with renting the property out. In such a hot neighborhood, it should be easy to rent out a well-priced, newly renovated property. A month went by with no activity. I checked on my property's address on google and found two issues:

1.They were using a google street image view of the property pre-renovation with crumbling stucco and all as the first image on Zillow, Trulia, etc. No wonder it wasn't getting any interest! I asked ABC to remove the google street images view of my property and replace it with a renovated one.

2.They had lowered the rent to $1150. I never received an email from ABC informing me of a change. I asked Ari about it, and he explained it was to get somebody in the property quickly and the rent guarantee would pay me the difference. He also said that the rental guarantee of $1300/mo was good for at least one year, but if that first tenant stayed for longer than the year, then the rental guarantee would still pay the difference for the entire duration of the first tenant. I felt that ABC should have let me know before the price drop, not after.

I reached out to a local property manager not affiliated with ABC to get her opinion, and she agreed it was priced right at $1300/mo, but that it wasn't listed on the MLS, which was probably why I was having a hard time finding a renter. I brought it to ABC's attention and they told me that upon further review, they've agreed to start paying a broker to list properties that rent for over $1000 on the MLS. Ari told me they were going to send someone out to take pics of my property that day.

After 2.5 weeks, I asked for an update on whether or not it had been listed on the MLS yet. One of their property managers who explained that my property was burglarized two weeks prior. Uhhh…what? Look, I get that **** happens. ABC Capital has no control over something like a burglary. I wasn't upset with them that it happened. However, I was upset I wasn't informed earlier, especially since I had been checking in regularly throughout that time period. The response from the PM was that they just jumped into action and didn't stop to inform owners. While I appreciated the action, surely after 2 weeks the hubbub would have died down enough to inform the owner.

I asked them what the timeline for repairs was. No progress had been made with repairs because the police department has not come out to file the police report.After the police came out 4 weeks after the burglary, renovations began again. It took about 6 weeks to be completed.

After the second renovation was complete, I waited for news of any renters. In the meantime, the following issues popped up:

1. I received a notice from the city water department threatening to shut off the water. ABC property management had told me they would cover the water bill during renovation and vacancy. Jay told me I was misinformed by his team, but did not offer to cover the cost of his team’s mistake.
2. I received several notices from the city inspection department stating that I was in violation of their building permits. I sent these notices to Jay, who assured me personally that his team was aware and already working with the city inspectors on it. Finally, I received a notice from the city stating they were going to take legal action against me and the fines accrued were well into the 6 figures. Pissed, I reached out to Jay who was incredibly rude towards me. I ended up having to call the city over several weeks to work with the city inspectors directly, ALL of whom denied ever having spoken to Jay’s team on my case. Jay did hire a structural engineer who walked the property and gave his approval that the property was structurally sound. The city inspectors took the report and listened to my frustrating story and cleared the violation without requiring me to pay anything. I think they felt bad for me.
3. That 10 year tax abatement that was advertised by ABC Capital was never completed, either. Jay’s team is incompetent at best, dishonest at worst. I recently received the tax assessment and the value had increased substantially. I was confused because Ari had told me the tax abatement was already taken care of way back when the property was renovated the first time. After calling in, the city made it clear that the deadline was December 2017, and I am no longer eligible for it.

   After 10 months of collecting the rent guarantee without any renters, I noticed that they had dropped the advertised rent to $950, still without letting me know. That’s a huge drop from $1300! Fed up and pissed off, I fired ABC. It took about 2 months to get my final statement and deposit. My new PM walked the property and mentioned a few things that ABC had skimmedover:

1. ABC neglected to replace the fridge for some reason (it was included in the scope of work). Jay reimbursed me the cost of a fridge in my final deposit
2. I had purchased a 2 BR, but the second bedroom was so small, you couldn’t fit a twin size bed with the bedroom door closed!! No wonder the appraisal came in under and $1300 rent was too high!

Within 2 weeks, my new property manager had found a renter paying more than the $950 ABC was advertising. No issues with my new property manager.

To all the ABC prospective clients that have been reaching out to me directly for my experience, I hope this is enough to deter you – no returns are worth this much headache. I would stay far, far away from ABC Capital. You should also know that current investors unhappy with ABC have contacted me in the hopes of organizing legal action against the company. Their property management company also apparently has a class action lawsuit being built against them by another commenter in a different thread.

To all the current ABC investors who are unhappy with ABC have also reached out to me, if you need a new PM, let me know. I have been referring others to my new PM.

TLDR: ABC is the worst; false advertising, impotent property management, lawsuits incoming, stay away! Issues summarized:

1. Property was advertised as a 2 BR, but the second bedroom can’t fit a twin size bed.
2. 10 year tax abatement – ABC’s property management never registered it, told me it was done, and now it is too late for me to register with the city
3. ABC never contacted the city for a final inspection, causing the city to threaten legal action against me and accrue well over 6 figures in fines that I had to resolve on my own.
4. Never found a renter for me after 10 months. My new property manager found a renter in 2 weeks for more than what ABC was advertising.