Soundbite: Property Horror Stories – Turnkey Property Turkeys!

Things in property do not always go according to plan and if anyone every tells you that they always do and everything is great all the time, then they are either inexperienced or not telling you the full truth, sorry to say that. In fact, I swapped texts with a fellow investor/developer late on Friday where the phrase ‘they don’t tell you this in property training classes’ came up.
Some of the following real-life horror stories are my own and some are from people close to me. However, I will also share some of the lessons learned or steps to take to help protect ourselves against these sorts of issues arising. I have removed the names of the companies to avoid ‘naming and shaming’ them…for now.
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Transcription of the show Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and as always, it’s a pleasure to have you join me on the show again today.
I recorded this episode on Hallowe’en, so when thinking about the theme for the episode, there could only be one: property horror stories!
So, things in property do not always go according to plan and if anyone ever tells you that they always do and everything is always great, then they are either inexperienced or not telling you the full truth, sorry to say that. In fact, I swapped texts with a fellow investor/developer late on Friday where the phrase ‘they don’t tell you this in property training classes’ came up.
So, I do like to keep it real as you may know and in the interests of being completely real and transparent, you can possibly sit back and enjoy or at least endure other people’s property pain for the next 20 to 30 minutes! This is going to be a classic case of audio schadenfreude…but with a happy ending. No, not that kind of happy ending!
Some of the following real-life horror stories are my own and some are from people close to me. However, I will also share some of the lessons learned or steps to take to help protect ourselves against these sorts of issues arising. I have removed the names of the companies to avoid ‘naming and shaming’ them…for now.
Here we go then…
Property Chatter When A Turnkey Property Company becomes a right Turkey!
A turnkey property management company is one that offers everything an investor needs from a single source. It could include some or all:
Sourcing a property, often at ‘below market value’ or capable of being converted or developed to improve its value or return
Undertaking the project management of either in-house or external trades
Acting as the main contractor for works in some cases
Obtaining all necessary paperwork, such as planning, licenses, etc.
Referrals to in-house or recommended external professionals or service providers, like solicitors or mortgage brokers
Sometimes, ongoing lettings and property management
So, to the time poor or less experienced property investor, it can all sound very appealing using such a ‘done-for-you’ property partner all from the comfort of your armchair.
If it goes well, and I am aware of some companies where it does seem to go well at least most of the time, then great; what’s not to like? However, let’s be realistic. Things can and indeed do go wrong in property projects; sadly it’s the nature of the beast. The idea is to undertake sufficient upfront research, inquiry and investigation that it minimises the likelihood of things going wrong later. However, some things can still catch us out and that’s why it’s always a good idea to have a contingency, both financially and in terms of alternative exits for your project.
Then, there are just those bad apples; people or companies that try to cut corners, cover things up or even operate in the shadows of our business. This is such a story.
In this case, several years ago, I was looking to expand my portfolio into HMOs to access higher income / RÓI projects. At the time I was working full-time and at that time back then had never undertaken an HMO conversion myself. So, I was looking for a way to obtain an HMO without having to buy a ready-made one, which allowed me to better use my capital. A number of companies were offering a full ‘turnkey service’ at the time and so I enlisted one of them for my project.
I was offered a property, which could be converted into a 6-bed or potentially, or a 7-bed subject to planning approval. It should be noted at this point that their stated fee was directly linked to the expected gross development value or GDV after works and refinancing; as verified by a RICS survey.
However, the fee was actually paid in advance and was calculated based on the higher 7-bed version based on an estimate of the after works value as assessed by a RICS survey.
However, planning permission for the 7-bed was later refused, due to the property being in an ‘area of restriction’, which is similar to, yet distinct from an Article 4 Directive. Of course, the GDV would be lower for a 6-bed HMO than a 7-bed, which is pretty obvious really. This meant some of their GDV-based fee was due to be returned. After quite a lot of discussion and disagreement, one of the directors of this turnkey company reluctantly agreed to refund part of the fee based on a revised RICS valuation. Yet, they have not repaid this partial fee, despite promising to do so in writing around three and a half years ago. Sharp practice #1 then – advance fees linked to potential valuations rather than progress payments linked real valuations after works.
When I originally bought the property, I used bridging finance and the turnkey provider started with the project. They acted as the main contractor in this case too and we agreed a written Works Contract accordingly. The contract had certain stipulations, such as a definite project completion date, a fixed cost and certain warranties underwriting the quality of their work. All well and good.
Essentially, the project suffered a number of delays and issues as it progressed. In no particular order, there were ‘extras’ added into the budget for ‘unforeseen work’. The scope of works was quite broadly defined and did not fully specify the detail of certain works to be undertaken, for example, ‘upgrade the gas central heating system and replace the boiler’, omitted to mention the fact that it would actually be tagged onto the existing pipework and radiators. ‘Adding 7 ensuite bathrooms’ omitted to mention that 2 existing and rather tatty bathrooms would essentially be left as is. Then a ‘full conversion’ did not include fixing damp or rotten floor joists, which was apparent to the trained eye. Many of these points became bones of contention, resulting in additional funds being requested and problems being left to resurface later once the property was handed over.
Besides these issues and delays, after final handover, it became apparent to me that the property was not as it should be. The same company was also managing the tenancies, so I was unaware that the tenants were complaining about some faults, repairs and maintenance issues…repeatedly, in fact. I became suspicious, as I was being asked to pay for repairs that I believed should not arise on a newly refurbished property. So, I instructed a trusted individual to visit the property to inspect the work. He duly visited and came back with a snagging list of works extending to 54 separate items, which is a lot! It included items that I had paid for, which had not been done and a long list of poor workmanship or faults to remedy too.
After some debate, the turnkey company finally accepted most of these items and then started to remedy them under their agreed legal, written warranty. However, things went from bad to worse when a ceiling collapsed from an upper floor into one of the bedrooms below! That should never happen, just in case there is any doubt. It appeared that some bathroom fittings had not been properly secured causing a leak into the floor/ceiling recess. This was exaggerated by the fact that the builders had simply swept debris under the floorboards rather than cleaning it out! Of course, this became heavy when soaked with water from the leak leading to the ceiling collapsing. I had to put the affected tenants up in a hotel and eventually lost them as they were quite traumatised over the incident as they were in the room when the ceiling collapsed. In short, after some argument (a recurring theme), the turnkey company agreed to fix the ceiling and to compensate me for loss of rent for the gap in tenancies whilst the work was undertaken and new tenants found. I never received the agreed compensation despite it being agreed to by a director in writing. Sharp practice #2 – broken written promises.
Returning to the snagging list, whilst it was a painful exercise for all concerned, we managed to narrow the list down to 6 final remaining items, which the turnkey company had fully accepted as being their responsibility to remedy. However, they had clearly become frustrated by now and were complaining of losing money on the project by this time, so they offered a very small sum for me to fix the remaining items myself. Sadly, their offer was not sufficient to cover the actual cost of putting these things right… so we entered into yet another lengthy discussion around this point. Naturally, I suggested they just fix the issues, after all, they caused them, they accepted them and they were covered under their warranty, but they wanted none of this. In short, I had no option but to complete the work myself, of course, costing me more than they had offered to fix those remaining 6 items and you guessed it; I have never received any payment, not even the amount originally promised in writing. Sharp practice #3 – failing to honour their written accepted obligations.
The final straw came when a second ceiling collapsed, and I then heard directly from the tenants that there were many issues with the property and how poorly the turnkey company was managing it and also them.
So, I decided I needed to take back control of my property and duly served notice to the letting agent, which was a separate subsidiary or sister company. I then self-managed the property and steadily returned it to a stable condition, managing to retain some of the by now very frustrated tenants, of which some are still with me several years later, due to my personal intervention not the actions of the turnkey company, I hasten to add!
However, the response of the turnkey company was quite immature and spiteful to be perfectly honest with you. They simply stopped all communications, refused all calls, failed to answer emails, that sort of thing. Of course, they never paid any of the previously agreed sums they had agreed to in writing and simply turned their backs on me.
The situation right now is that I resorted to legal action around eighteen months ago to reclaim the 3 separate sums of money previously agreed. The court case claim totals around £8,000 including interest and judgement has been awarded in my favour. It has also cost me several thousand pounds in legal fees, which I do not know if they will be recovered or not…that’s at the Court’s discretion. At the start of the legal process, the turnkey company had incredibly fully denied liability, despite previously accepting most of it in writing! Now, they are trying in vain to overturn the judgement awarded in my favour and despite them now changing tack and accepting liability in substantially all of the claim in their revised defence, seem hell-bent on dragging it out in terms of both time and cost for all…including wasting the court’s time. Let’s see how the court responds to their attempts to interfere with the justice system, but one thing is for certain – as they have accepted liability in their revised defence, it is more a question of timing and degree only right now.
To add to this story a little, I have heard from a growing number of other investors that had a similar and in many cases worse experience with this same company than I did. It seems that I was, in fact, one of the lucky ones! To give you some insights into the pattern, here are just some of their stories.
One gentleman, who was initially invited to provide a review for the company’s services when his property conversion was completed. He duly complied, and his testimonial was placed on the company’s website. Soon after, he discovered a range of problems and issues, which to cut a long story short, the turnkey company refused to fix and led to him losing income, facing increased repair and maintenance costs, with a substandard property that has since diminished in value in a rising market! He estimates that it has cost him over £35,000 so far, excluding the loss of value in the property. Needless to say, he has since asked the company to remove his review as he has since retracted it…but some four years later it is still there left to misrepresent people against his express written wishes! If that is not bad enough, to add insult to injury, he updated a previously good review for a more accurate yet poor review on Trust Pilot, which was met by a very heavy-handed letter from the company’s solicitors threatening him with legal action for defamation and slander unless he removed the review! He was unmoved and did not buckle under the pressure as many might have, and they have still not sued…probably because one of the defences to defamation is the truth!
Then, there is the overseas investor that bought five separate properties and was not aware of the problems accumulating. Eventually, the house of cards came crumbling down, resulting in him kicking them out of the final property conversion, although he actually had to pay them to go! He then had to hire in specialist support to rectify the issues with the other properties, which cost him thousands of pounds, with many issues still not fully resolved several years later. The worst part was when he had to sell a property because it was so bad and failed to comply with regulations. It was supposed to be worth around £300k per the ‘in advance RICS valuation’ although he suffered well over a £150,00 loss instead. You could say that he is very, very unhappy with them as a result!
There are several other people that I have spoken to with similar stories to tell here, all with the same repeating pattern of poor workmanship, inflated end-values, unremedied problems, unprofessional lettings and management, arrogant responses and flat denials to cooperate and put things right and so on. We are forming quite a little community and will be taking wider action to confront this company and hold them and their directors to account in the fullness of time. So, if any of these stories ring an alarm bell with you, perhaps get in touch and we can swap notes.
Steps to take to help protect ourselves with turnkey property companies
Always do your research and due diligence on people we plan to work with. Google through several pages on the company and their directors. Ideally get independent referrals, recommendations and testimonials from their clients to help back up the sizzle of the glossies. Check for negative comments on social media, sites like Trust Pilot and the consumer champion style forums such as Property Tribes and Money Saving Expert.
Try and talk to past clients to get an idea of the way they operate and ask the principals about the way they do business and their values and talk about yours as well…ask in particular how they would respond to problems…then ask if they will commit this into writing and then if it sounds wishy-washy or not in alignment with your own values, or they start to duck the issue, then just walk away.
Make sure all your agreements are in writing, including roles and responsibilities, specifications, timescales and any warranties.
Document all subsequent correspondence in writing, even if that means briefly summarising telephone calls, especially on contentious items, as you never know if you will need to prove what’s been agreed later!
If you are remote or not so au fait with property, have your own independent inspections undertaken on projects.
I am sure there are other points, but these should help to get you started. So, there you go…I am casting some light into the shadows here. I hope that by hearing of other people’s ill-fortune that it can help you to avoid, diminish or contain such problems arising for you in the future. I will return to the horror stories theme again next week, so stay tuned for more of the same. However, do keep in mind that this is picking up on some of the more negative and extreme stories of things going wrong in property. It is not always like this honestly, but unlike some people in the industry, I do believe in giving you the full picture, just so you are better prepared yourself.
OK, that’s me done for this week. The show notes can be found over at www.thepropertyvoice.net. Or, if you want to talk about anything from today’s show, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you!
Once again, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.
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