Turnkey Deal Gone Bad...

[Spencer Sutton]

We had someone come to Birmingham from Miami over the weekend to check on five houses that he bought for ‘clients’.

Here’s a snapshot of the situation:

• He’s owned these properties somewhere around a year
• He’s never seen them in person until this past Saturday
• His current property manager has been less than responsive
• he owns a mix of “D” and “F” houses...one of them is a disaster and another one will become a disaster

As we drove his five properties, we had the opportunity to give this investor a real life education on the low-end Birmingham, Alabama rental market. We were brutally honest about what we found as well as our thoughts on how it could possibly be fixed.

This is what we found:

1. House #1 - In an “F” neighborhood and is currently rented for $400 per month. IF/WHEN this tenant moves out, it’s going to be a mess. The property will be vandalized almost immediately and he will be left with a $10,000 to $20,000 rehab that he’ll never be able to recover from. We encouraged him to do whatever necessary to make sure the tenant is the happiest person in the neighborhood...KEEP THE TENANT!
2. House #2 - In a “D” neighborhood and currently vacant. Just a few things on the outside of the house that we noticed and suggested he repair. He didn’t have keys for any of these houses so we weren’t able to get a look at what was going on inside.
3. House #3 - In a “D+” neighborhood and the tenants were moving out on Saturday. The investor understood that they were being evicted because of non payment. When he saw them moving the washer and dryer out he said we should call the cops and report them because they were stealing….the only problem with that is that he has no idea what was provided in the lease and what wasn’t. Plus he had no proof of ownership so stopping the move out wouldn’t have done much good. It’s not a good situation.
4. House #4 - In a “D” neighborhood and is currently rented for approximately $500/month.
5. House #5 - In an “F” neighborhood and is vacant. We were able to get into this house because it has been completely destroyed. It was built around 1920, has 12ft ceilings and everything has been stolen from the home...including the cast iron bathtub which we’re sure was sold somewhere. Our opinion was that he could probably sell the house ‘as-is’ for 2k or he could put about 25k in it to have it rent ready. Either scenario is not good. He suggested that it be rehabbed in stages...the only problem with that is that it will be vandalized in the exact stages it’s rehabbed.

So what are the lessons?

• Visit and walk the neighborhoods before you buy
• Know and trust your turnkey provider
• Understand and appreciate what it takes to find a good tenant
• Know and trust your property manager

Any lessons I’m missing??

[Jay Hinrichs]

@Spencer Sutton

I think your title is a little misleading this is not a turn key gone bad..

This is a out of state Marketer / wholesaler that got hooked up with some low life rehabbers and they sold investors a bill of goods.

You should not be shocked this happens in every market... Just check out Detroit and what the foreign marketing companies have done to investors there. and basically any big city that is a big Turn Key or Cash flow market... These types of homes exist in each and every one of them along with the culprits that prey on good meaning investors who for whatever reason put all their trust and faith into out of state marketing's companies.  And like anything in RE not all marketing companies do this or want to do this.. But even the best get their clients into bad deals because the TK guy they were trusting feel down on the job.. OR its just the risk of owning rentals anywhere in America.

I tend to think folks would be somewhat wiser to get to know and meet the actual turn key provider.. one reason once the deal is done the marketing folks are down the road they have been paid just like any other RE agent.

There are some really good TK guys in B ham  who are under the radar and do a great job.

So this is not Turn key gone bad.. this is Marketing agent not doing proper due diligence and walking his clients into a mess that they will never recover from.  Buyers just can't be this trusting So many buyers just don't know or understand how neighborhoods cannot be like their own.. they are clueless as to what these areas are really like.. the tenant base in them and the risk they take on.. Of course until its to late and they lost all their dough like what is happening here

There is always this talk on BP of what crooks the gurus' are.. well these bad marketing folks and the flippers they hook up with are just as bad if not worse.