Turnkey provider not allowing access to new construction home?

Question

New investor here that's been using a turn key provider and I have what I hope is a newb question. I am concerned by the fact that I have a deposit down on what's a new build construction home from a turnkey provider. I happen to have a trip planned to the area around the time construction in targeted to complete and I asked about walking through the property. I am being told that's not possible as a third party company is building the home and the turn key provider is also not allowed on the build site since it’s a hard hat zone and a liability. I have never heard of a home being build where the buyer is not allowed access to construction site? Needless to say this has the hair on the back of my neck up. Other then walking from (unfortunately I already closed on 3 similar properties) the deal any suggestions from the BP community?

Chris Clothier · Answer

Geoff, I read two things that do concern me about you scenario, but I wanted to ask if the three properties you already purchased were with the same company? If so, do they have a good track record with you as far as communication and meeting your expectations? That would probably change my thoughts a bit, but here are two things that I flagged.1. Placing a deposit on the property while its being built. This is a read flag for me. A quality company offering a turnkey service will have financial stability. They are not going to ask or deposits on new build properties. They may ask for earnest money once the property is completed or closer to completion, but I look at upfront money on a new build as a poor sales tactic meant to keep an investor quiet and possibly nervous of losing their money if they complain or ask questions. 2. If whomever you are buying this property from is not allowed on site, then who is inspecting the progress of the property? That is a crazy statement to make and rightly does nothing but sow doubt in your mind. We build from the ground up as well and access to properties is never an issue for us or clients. It is the only way to manage expectations.Lastly, there is nothing wrong with public scrutiny. Best business practices are never improved if you never get called out for poor ones. I respect you for allowing them time to get you a better answer. Hopefully you get one quickly, but understand that having your business practices discussed in public is not always a bad thing. A strong company will take responsibility for mistakes or have solid responses as to why they operate the way they operate. Either way, don't wait too long to react. If they are not inspecting the project, then you need to.

Joe Splitrock · Answer

I have never heard of a single family home being a hard hat zone. I have built two homes and each time I was able to freely access the site whenever I wanted. There is no reason they can't accompany you on a tour of the site. This is a red flag and I would tell the company you would like to see photos or video from the construction site. There have been high profile turn key providers that took down payments and never even started the job. Do you have the address? Even if you are not allowed inside, you should be able to drive by. I would have someone local drive by the construction site today. Who is the turn key provider and where is the property located?

Account Closed · Answer

I sell turn keys, I'd be happy to show you my competitions work on their site and let you see my construction site any time without notice.... It's really not a big deal. point being.... Just go to the site, poke around like you own the place, take lots of photos and ask questions. The subs and employees of the subs don't give a crap who you are.... This isn't top secret work. what is your gc charging you? What's your expected profit per sqft where you are?

Drew Sygit · Answer

@Chris Clothier thanks for clarifying:)ALL, see how amicable Chris and I settled this! Have seen several posts with members being less than professional at taking swipes at each other. Let's avoid that:)

Geoff Bolton · Answer

Update on things. I still have the deal sitting on the sidelines. My guess at this point is that construction costs climbed and project was delayed due some combination of material costs / supply issues or labor shortages. At this point the new completion date pushed to the end of this month and there is a singed lease with a move in date of 8/6. On the plus side the rental rate on that lease is about 10% higher then the upper limit of the deal sheet. Also of note my account rep left the company unexpectedly. By that I mean I got a notice they were no longer working for the turn key firm and that in short run my account would be managed by their boss until a new rep could be assigned. I have had a few weeks with that new rep and they have been much more forthcoming with data and willing to share details of how things are going. I guess time will tell if this becomes a lemon or Tang. My hope is it turns into Tang and can help take me to the moon. I'll keep everyone posted as things continue to develop.

Geoff Bolton · Answer

I think something might have been lost. As Chris pointed out my request was not to randomly walk around the project. My request was to walkthrough the property (about 1 week before our planned closing) as that's when I will be intown for vacation. At that point I would expect the property to be in the final punch list stage of construction. Keep in mind I am also giving them a full month's notice to arrange a site visit. I fully understand not wanting future owners disrupting a job site, sub contractors, getting hurt, etc I still don't understand the seller's position given the big picture and timing of my visit.

Chris Clothier · Answer

Hey Drew, I was writing specifically on Geoff's issue and the turnkey aspect of it. In this case and what I should have been more direct about, the turnkey company is the buyer of the home. They would have EM deposited on the property. You are correct in that a builder is going to require this. The Turnkey company should have their money up as a EM deposit. At whatever point a company decides to sell that property, of course they can and should require a deposit. My point was that if you are required to put that money down before the property is finished, it raises risks. It has been a red flag marker in the past that turnkey companies that ask for money in advance, before a property is finished, should make a buyer be focused and aware. Many companies today wait to sell properties until after they are finished and it simply lowers risk for a buyer, that was my point there. And remember, that turnkey is a key word here. As for the inspection of the home, I think everyone should re-read what Geoff was told. @Jay Hinrichs as a builder who is doing projects around the country, what would your reaction be if the builder of your project told you that you could not visit the site? What if you were buying a long-term investment property from me that I was building and I told you that when you came through town you were not allowed to visit the project? Again, how would you react if I said that even I could not visit the project because of liability? I don't really need to ask the question, because in the context of what Geoff shared, we would all say the same thing. Get to that location and review what is going on. None of us would say go wander the project freely. But, we would all caution that something may be amiss. According to what the OP shared with us, all he asked was to visit his property when he passed through town because it is scheduled to be nearing completion and he was told that he could not visit his property even with the seller because they are not allowed to visit. For me, that answer wouldn't fly.

Drew Sygit · Answer

@Chris Clothier man you usually have great advice, but we have to push back on your statement about not putting down a deposit on a new build. We require a Holding Fee on a rental, 97% of real estate sales require an EMD, and we don't know of a builder that doesn't require a deposit in our area.Hopefully, an oversight on your part and not an over-sale ploy:)Due to insurance liability worries, wWe would NOT allow a buyer to randomly wander a construction site. Would want to do it by appointment AND when contractors are not present, to further lower the chance of an accident.Nothing would stop a buyer from wandering around the PERIMETER of the job site and take whatever pics/video the wanted.

Chris Clothier · Answer

@Geoff BoltonI think you have your head on straight in this scenario and have what I would call familiarity. They haven't earned your full trust yet, but enough familiarity with their processes to keep moving forward. My advice based on everything you've shared is to call them back and let them know the answer isn't acceptable. I would let them know you are already going to be in town and will be visiting the house. They can go with you if they would like and I'm sure you would prefer that so let them know. Either way though, I would let them know that saying you are not allowed to visit a project that you have under contract and claiming that they cannot visit either is not an acceptable answer and doesn't meet your expectations of customer service. I would bet and certainly hope for you that this was just bad communication and poor messaging. Best of luck with the three you've bought and this one as well.

Jay Hinrichs · Answer

Well I am going to take the builders position on this.OK for me its not turn key rental my homes are 500 to 750k owner occs.. I have 25 of them in process with another 75 to build in the same community.WE ABSOLUTELY do NOT allow the buyers to just wonder into the project.. I have to pay big money for insurance and part of it is a safety plan.. you get hurt on my job and I just let you walk willy nilly out there I am going to get stung big time. Lennar who is active and is building next to us will not allow you out there your allowed 3 visits during construction on a Sunday PERIOD> We allow buyers by appointment only and MUST Be accompanied by their agent and only once a month.WE take 10,000 Non refundable deposits up front. We charge for extras that the buyer may want and they have to cut us a check for those .. and those can be 50k per house and up.. so a client might have 60 to 100k paid up front ALL NON REFUNDABLE> Now I understand the turnkey rental houses are not custom homes etc.. but I am sure the GC has the same concerns.. Kids running around big equipment moving and they dont see someone.. someone trips and falls.However U should and will get i suspect a walk through when its done before you close and if you only have 1k up front big deal.. but getting decent deposit on a new build is pretty normal in our area. So thats the flip side.there are insurance requirementsNo GC wants anyone getting hurtSubs really dont like to get pestered at least I know mine dont I want them working not getting into 50 questions with a buyer.