Turn-key property... how picky to be with inspection findings?

Question

Hi BP friends,

Ok, so I've been under contract with a turn-key property and just had the inspection completed. About 10 things came back and the seller has agreed to fix about half of them... noting that the others are probably 'fine.' This is my first property and I obviously don't want to get screwed but am also pretty fixated on details so want to make sure I'm being realistic.

1) How much of a stickler should I be regarding getting 100% of the issues noted in the inspection completed?

2) Out of these items, which are the most important to push to get addressed:

- Ceilings have minor cracks in them and seller doesn't want to address this...not ideal but should I push on this?

- Driveway and sidewalk have cracks in them... seller will caulk the sidewalk but is telling me that the previous and current tenants haven't complained about the driveway and it's not worth it to fully re-do the driveway... is this BS or true?

- Electric is 60 amp panel and the seller is saying this is standard for a home this age... true? Is it worth it to upgrade now/what issues could happen?

- There are no gutters; seller is saying that it's uncommon for houses in this neighborhood to have gutters, since tenants would have to clean them and that's actually more of a liability... thoughts?

- Inspection called out large trees with a few overhanging branches...recommends further inspection. House is in Alabama, so limited snow issues but I'm wondering if I should get this checked out. Seller has not been concerned about trees.

Thanks in advance for your feedback/guidance! I appreciate the gut check during this process.

best,

Natalia

Chris Clothier · Answer

HI Natalia,

My concerns with what you listed are with permits.  There is no "Standard for homes this age" after they have been renovated.  There is only what code says should be in place today.  Every response you listed on here is what is going to hurt you in the long run as an investor.  Anyone can buy a cruddy property with a tenant.  I would recommend you buy the best property you can today to protect your investment.  The rule I advise to go by is simple:

"Invest for return of capital first - return on capital second".  If you have to take big risks, and the issues you mentioned are often indicative of bigger underlying problems with your renovation, you should do so with a reasonably high expectation that you can get a return of all of your capital if you needed to.  If you buy a property with issues and need to sell, those issues are still going to be present when you go to sell it and another investor may want them addressed or use them as reasoning to lower their offer.

As Lane said, you may not have a lot of leverage, but that doesn't mean that you have to invest in whatever some one places in front of you.  Have your standards and don't accept anything less.  Even if it means you keep your money in the bank for now.  Be patient!

Best of luck -

AJ Singh · Answer

@Natalia Avalos

Since your are working through a turnkey provider and paying close to retail, i would get the inspection items taken care of by seller. Your PM should be able to provide you with a quote or ask seller to fix it and then have it verified.

If you are buying property at a considerable value discount vs comps, then only safety items can be addressed. I use inspection report as a negotiating tool in escrow process so we can have a win win situation for both buyer and seller. As of now you have only spent $200 to $250 for an inspection and you can walk out and be patient as @Chris Clothier advised.

Just being a buyer from out of state does not mean having no leverage, stand your ground.

Best of Luck!!

Natalia Avalos · Answer

@Lane Kawaoka Thanks for the feedback; yeahhh I realize that times are changing and there is less leverage now, especially for someone in my position. Just wanted to get a gut check from some folks in the community on what looks really sketchy vs. what I just need to accept.

Natalia Avalos · Answer

@Benjamin Portnoy It's my favorite city too! :) Thanks for all the advice! I'm working with a smaller Turnkey company in Alabama and they are selling me a recently rehabbed house that already has tenants. I'm fine with letting a few of the minor things go, but wanted to get a second opinion on the bigger ticket items, so appreciate the feedback. And YES, I've DEFINITELY been to the Tonga room and enjoyed a few tropical drinks there!!

James Wise · Answer

It's really all about supply & demand. How many other interested parties the seller has along with how badly they want to sell will determine what they are willing to do for you.

Matt K. · Answer

As a recent lesson learned from a previous purchase... trees are REALLY expensive to remove. It started out simple enough, get the tree trimmed (as per insurance). Contractor A) goes out there, calls me, tells me he has bad news. Turns out tree has been hit multiple times by lightning and they won't trim it because of safety issues. Needs to be removed. Figure this is upsell, so I get contract B and C out there... all say the same exact thing. At this point I take it for what it is and it's a lesson learned. Now the fun part... Contractor A) about 6k, B) around 4800 and C) 3900.  It sucked, had no clue tree removal was that expensive. Part of this was it being a big tree and it being a narrow access lot so they couldn't pull the truck back into the location.

Natalia Avalos · Answer

@Chris Clothier @AJ Singh @Brian Pulaski

Thank you all for your feedback and recommendations. I continued a little more research, talked with a fellow investor who has used this Turnkey company, and am pushing more on those two issues. I'll see what I get back as a response but ultimately want to feel confident with my decision.

Brian Pulaski · Answer

Without photos of he cracks, both ceiling and driveway, I couldn't give you an opinion. Some ceiling cracks will almost always reappear and never go away. These cracks are of zero issue other than being a bit ugly. Small hairline type cracks are very typical and I would not be worried. Driveways also crack. If the driveway is heaving and causing tripping hazards that is one thing. If the driveway has cracks in it but no settling or heaving, then I wouldn't expect them to be fixed. How large is the house and what load is on it? Is the 60 AMP panel old, is it overloaded? Has the home had proper permits pulled? If so was any electrical done and permitted? Gutters... I don't see why they wouldn't have them, but if they aren't typical in the area, I guess I wouldn't find it. Trees hanging over the house... I wouldn't be concerned unless they were on an old dead tree.

Turn-key property... how picky to be with inspection findings?

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