Los Angeles, CA · Member since 2018 · 85 posts · 8 votes
Biggerpocket folks,
Need help
I am new to investing and for that reason wanted to start with Turnkey rentals. I am working with a turnkey provider in Dayton Ohio and recently got a inspection done (reports attached) on the 2 properties in C areas.
Questions:
1. Do you think for a turnkey property standards this is poor rehab/renovation? Or this is pretty usual stuff even with turnkey standards?
2. Any recommendation on the next steps? Negotiate the price with the seller or walk out of the deal?
That is the typical quality from that "turn-key" provider. I won't call them out by name here, as you have chosen not too.
That said, 90% of that stuff in those inspections should have already been completed. It's not unusual for the home inspections to reveal a few things that were not obvious or easily observed. That is not the case here. These are just examples of blatant incompetence or apathy. I can only hope it is not deliberate.
It's quite obvious that these are NOT turnkey properties. Frankly, I'd be thoroughly embarrassed and ashamed to claim they were "turn-key" or rehabbed if I was selling them. Rotting wood, broken joists, substandard electric and plumbing, and more? That's ridiculous.
To avoid using the actual property addresses:
For the brick house, if all the work was done correctly, and the house was fully updated, (including everything like kitchen cabinets) It'd probably be worth the price you have above.
Actually for the other house, I'd say about the same, maybe a little lower. If all the work was right, and it was updated.
Thanks for confirming my sentiments. I will reach out to the them and will keep you posted. Lets see what they have to say. Looks like, I just wasted $700 doing the inspections on these properties if they don't agree to fix this all up.
Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
8y
@Gaurav A. Some of the best deals were the ones I didn't buy thanks to an inspection.
Be careful of what they fix, you've already seen what they consider fixed and "turn-key". If you have them fix it, have your inspector go back out and check on it.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
In general buying turnkey at 50k is going to be a bad idea. They have to cut corners somewhere, so it’ll be in the rehab or the property is in a bad area. Either way it likely ends poorly for you.
Birmingham, AL · Member since 2014 · 875 posts · 947 votes
8y
@Gaurav A.@Darrin Carey is spot on - these are not turnkey. Some of the items on these inspections are....upsetting. Sloping roof? Gas smell near utility closet? Poor water heater connections??? Electrical and plumbing issues?
A true turnkey will have new or nearly new capex items like roofing, HVAC, etc. These properties are ripe for all kinds of 'unexpected' costs down the road, and not even very far down. I say 'unexpected' because my guess is the provider knows full well that these are issues (as Darrin said, they aren't exactly tricky to spot) but want to pass on that liability to the investor instead of fixing it themselves.
I second Darrin's advice to be very careful if you ask them to fix items, since their standards seem....low.
My guess is that, since these are cheaper properties, the provider is struggling to make a big enough cut between the purchase and resale price. This is one reason, as @Caleb Heimsoth pointed out, that properties in $50k range are often risky investments. Not to mention that typically the neighborhoods that cheap properties are found in are C or below, which limits exit strategies and makes things like evictions and late rent payments more likely. The brick property seems more likely to be a worthwhile investment IF they fix allllll the necessary items, but then I'm guessing they'd want a lot more for it.
Personally, if it were me, I'd pass on both because the standards of the turnkey company are lacking. Even if they fix everything, you shouldn't have had to ask to have those basic issues attended to. It's indicative of a lower quality service, which will end up manifesting in other areas (PM, customer service, payment times) even if the property itself is fixed up. There are plenty of reputable turnkey operators all over the country - I'd say take the time to find a team you trust to be transparent and proactive, even if it means you don't get to pull the trigger on an investment right away.
Turnkey Investment Provider · Columbus/Dayton/Cincinnati, OH · Member since 2018 · 79 posts · 41 votes
8y
Looks like you already got your answer @Gaurav A. Bad, bad investment. As @Darrin Carey said, I would be worried about the quality of the repairs done to the properties. They're likely going to use the same contractors that did the bad repairs to begin with or worse - they're going to direct their contractors to skimp on the repairs. Either way, it's not good for you. Being a turnkey provider in Dayton, $50k is likely getting you a property in a "war zone" anyways. I know it sounds appealing to get a property cheap with some instant cashflow, but, just $15k-$20k more in Dayton can get you good B-C class neighborhood. Just something to think about if you want to invest in the greater Dayton market.
Rental Property Investor · Dayton, OH · Member since 2015 · 312 posts · 273 votes
8y
Turnkey standards? who sets those standards anyway? I have seen that term turnkey used to mean different things than the "true turnkey" you describe. Usually used to mean the property needs nothing and has tenants, sometimes that it has management contracted already. I have never seen "true turnkey" in the c class dayton neighborhoods I work in. People do rehab to that extent in C and then charge premium rent, but they aren't going to turn around and sell that for 50-60. Won't happen unless they are going out of business. You would lose money on every deal.
Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
8y
The brick one is in a C- neighborhood that looks like it's getting better. I may call it a C after this summer if the trend continues. (My wife leans toward C already)
The other one is in a similar area, however, it's been a couple years since I drove those streets, so I'm a bit out of date there. I'm not sure if it may have changed recently.
@Caleb Heimsoth You can get good properties in decent areas of Dayton at that price point. Those two just weren't it.
As @Caitlyn Hummer said you can move into B neighborhoods for a bit more.
Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
8y
@Gaurav A. Those inspections are so bad, it almost makes me want to start doing some turn-key properties, just so people can get what they think they are paying for. However, I'm still on a hiatus from contractors and major rehabs.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
@Darrin Carey my point wasn’t to say you can’t get properties that work at that price point. I bought a 35k property in Cleveland, so I understand it can work.
I’m just saying it’s not turnkey. You can’t buy a home, do. 20-25k rehab on it and then sell it for 50k and make money. That’s my point