HELP!

HELP!

Lahaina, HI · Member since 2012 · 12 posts · 0 votes

I bought a property two years ago in NC through a turnkey investment operation. They buy, rehab, and sell with tenant in place and then manage the property. Everything went well until September last year, when the rent stopped. It took several calls and emails to get the property manager to respond, which was in December. I sacked them and through a new property manager found out the home was rented to a section 8 tenant and is in a mess. The old property manager has agreed to help with the clearing up but hasn't answered any of my questions as to what happened. They have been so slow at helping, I've had to ask the new property manager to send in his team. I don't know if there is a security deposit, whether any rent is owing to me, and who ultimately is responsible for this. It seems to me the property manager is at least in breach of contract for failing to make every effort to lease the property. If I just let things go, I'm going to be out of pocket as the carpets need replacing, the stove and fridge need to be replaced, the tub and shower might need replacing, and a host of other things, not to mention the rent I'm losing. The difficulty is the property manager avoids answering questions, and just procrastinates. I've been in touch with an attorney who deals in RE, and asked if I have a case for a claim to recover any losses, and am still waiting to hear back. This looks like my only option, but I have no idea whether this is just a small claims issue, or could end up being a legal battle in order to get compensation, and whether that is going to be prohibitively expensive. Advise much appreciated.

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Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
13y

section 8 has really gone down hill lately..they moved locations and ever since, everything has been a mess...wrong contracts have been sent to me, wrong amounts have been sent to me to sign for, etc. message me the address and I'll take a look and email you photos this week if you want...it's possible the tenant's voucher was up, but from my understanding, the greater possibility is you went into abatement and the PM never fixed what the inspectior requested, so they stopped checks. You should have a copy of the lease from the original PM so call the section 8 office in charlotte and ask to find out what happened is my advice. Also, some insurance policies will cover you when a tenant trashes the place. I don't know if it's worth filing a claim or not--that's for you to decide, but if you're short on cash, this may be an option for you...I"m very curious why the bathtub and shower need to be replaced, if this turnkey operation rehabbed the house?

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Hi Victor,

    "I sacked them and through a new property manager found out the home was rented to a section 8 tenant and is in a mess."

    Something doesn't sound right. Section 8 pays the landlords directly through the direct deposit every month. Your first property manager should have set this up a long time ago.

    Your tenant you should have a case worker assigned to their file and also you should have landlord liason number for you to call and possibly an e-mail. Do you know what county and or city your property is in??

    With section 8 they do annual inspections. If your property is in disrepair they will cite minor things to fix and major things to fix. The major things are required right away. If you do not fix then they put a freeze on your direct deposit funds until you correct the items and you call the inspector. Then they come out an re-inspect and unfreeze the account. The time between being in non-compliance and the time you are re-instated is lost rent that you do not recover. Most section 8 agencies do this to make sure landlords provide a safe and functioning place for their tenants to live.

    If you want the section 8 tenant out then there are protections in place and a certain way you have to go about it. Section 8 agencies and how they operate vary by state and even regions within a state.

    No legal advice

  • Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    13y

    Sent you the new PM some actual photos of the propertie?
    Like Joel said Section 8 is strict obedience of law so your propertie shold not be a mess but maybe the inspection of your propertie was only in September 2012.

    -Uwe

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Joel, and thanks for the reply. The property is in Charlotte, NC. The new PM says section 8 situations can a problem. I certainly had no contact with section 8 personnel and was paid by the property manager. In fact, I wasn't even aware the tenant was section 8. From what you say, a section 8 is carefully regulated but in this instance it seems it wasn't. When nobody will tell you what happened that is an even bigger problem.

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Uwe, yes the new property manager sent photos of most of the issues, and I think they are items that have accumulated over time. It may be that there were inspections, but I never got to hear about them. I was a bit surprised I wasn't asked if a section 8 tenant was OK, as I know some landlords won't touch them. I've asked the PM for all these details, and I can't understand why this information is being withheld. If you are in the business of managing properties, this kind of a situation should be a priority. I have no idea when the tenant vacated, or whether rent was still being paid, whether there is a security deposit to help cover the repairs. Nada! From what you and Joel say, it looks like I should contact section 8 directly myself.

  • Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    13y

    Bryan A. is from Charlotte NC, long term holder I know and do also some rehabs. Maybe he have more insight in Section 8 in Charlotte and can give you some tips.

    As PM you must inform the owner with any variance of tenants! You have an contract with him check this contract on breaches. In your case the PM take some liberties without control from your side I guess.

    -Uwe

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    IMHO, you need to get on a plane and go have a look at the property and the neighborhood in person. And track down the old and new PM and talk face to face. Find out the real situation. The number one thing to do now is to get the property cleaned up and re-rented. Or sold.

    Separately, see what, if anything, you can extract from the old PM or the turnkey company. All too often when I've looked at these deals they turn out to be some combination of overpriced, under rehabbed, poorly managed, and rent is overstated. Or all of those. You need to get a real grip on the situation on the ground. You're not going to get that with talking to a stranger on the phone and exchanging photos.

  • Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    13y

    ah, another turnkey scam. it is a conflict of interest. they don't care who's in the property as long as they get a body in there. and the investor gets screwed...

    it makes my blood boil.

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Solid advise John and I'd be there now if I didn't live so far away (Hawaii). I've sent an email to the Charlotte Housing Authority, and will call them tomorrow. Perhaps they can shed some light on things. I will sell in a year or two if things have turned around a little more.

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    The fact you're in HI is irrelevant. You need your boots on the ground. You signed up for, at some point, buying an expensive, short notice plane ticket. Now's the time.

    If you hang on to this for a few years, how much appreciation do you think you will get? 5%? 10%? I seriously doubt you'll see 10% appreciation in a few years and almost certainly no more than that. Black swans could always happen, but those could be bad or good. If you try to hang on, how much more pain are you going to experience? Take your lumps and move on.

  • Hard Money Lender · Davidson, NC · Member since 2012 · 69 posts · 34 votes
    13y

    Victor I have dealt with the section 8 dept in Charlotte on many occasions as a landlord and through our private lending operations. Would be more than happy to help you navigate. I am personally a big fan of section 8. Nothing like that monthly rent check coming in like clockwork. Just stay in compliance.

    Also would be willing to talk offline re your situation and specifics around operator and location of property. Might be able to offer some insight. Feel free to PM me or call if that would be a help.

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Bill, thanks for the offer of help with section 8. I'm puzzled. If section 8 is so great and so well regulated how did it go so pear-shaped for me? If they are supposed to pay landlords direct, why didn't they question this, and why didn't inspections forewarn of what was to come? If the property didn't stay compliant, what happens? Am happy to contact you, but thought this might be useful to others in a similar predicament.

  • Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    13y

    section 8 has really gone down hill lately..they moved locations and ever since, everything has been a mess...wrong contracts have been sent to me, wrong amounts have been sent to me to sign for, etc. message me the address and I'll take a look and email you photos this week if you want...it's possible the tenant's voucher was up, but from my understanding, the greater possibility is you went into abatement and the PM never fixed what the inspectior requested, so they stopped checks. You should have a copy of the lease from the original PM so call the section 8 office in charlotte and ask to find out what happened is my advice. Also, some insurance policies will cover you when a tenant trashes the place. I don't know if it's worth filing a claim or not--that's for you to decide, but if you're short on cash, this may be an option for you...I"m very curious why the bathtub and shower need to be replaced, if this turnkey operation rehabbed the house?

  • Hard Money Lender · Davidson, NC · Member since 2012 · 69 posts · 34 votes
    13y

    Victor - you ask a great question. First of all my suggestion to talk offline is so we can discuss things offline that would not be appropriate for this forum. Hard to help without more information.

    At some point, you or the property manager entered into a contract with section 8. You authorized that manager to enter into this agreement as your agent (I am assuming you had a property management agreement in place authorizing your property manager to act on your behalf). That manager rented your house to a section 8 tenant, took the house through the inspection process, brought the house in compliance with Section 8 requirements, and entered into a contract with section 8.

    I have found the section 8 department in Charlotte, NC to be reasonable but firm. If I have had issues with an inspection, I have picked up the phone and called them or have sent an email to my department contacts. It might take a day, but I will get a response. As a Landlord, if I do not uphold my side of the agreement with Section 8 as committed, rent stops. It is that simple. And what is required is that I provide a home that is safe and meets reasonable requirements for a rental home.

    My guess is your property manager did not uphold their side of the agreement. There might have been an inspection requiring repairs and those repairs were not made in a timely fashion, resulting in a rent abatement. If rent abates then you have a short window (I think it is 30 days) to pass an inspection and if that inspection is not passed, the tenant is required to move. Section 8 in Charlotte in particular has recently been much stricter on these deadlines so I would not be surprised this is what has happened.

    In terms of your recourse against the previous manager, good luck. I will tell you that good third party management companies are hard to find. They are out there for sure, and as the owner you will have to be hands on in the management of that relationship. There is information you need to know beyond the financial reporting. Know your rent roll, status of each rental, what type of tenant, etc.

    Ask questions and expect answers. You don't have to be a pest - your manager just needs to know that they will be held accountable for the management of the property. Can not be hands off in management of your property manager. There must be accountability in that relationship, otherwise the manager will focus on matters that seem to be higher priority than your unit. Trust me... you have a LOT more to lose than that manager if a unit goes vacant.

    Glad to continue discussion. Good luck in getting this matter resolved.

  • Hard Money Lender · Davidson, NC · Member since 2012 · 69 posts · 34 votes
    13y

    Bryan A. hate to hear you have had a different experience with section 8. I don't disagree that it can be a pain to work with Section 8. It is bureaucratic, and the process is just involved and takes forever. However, I have had a really good experience in terms of working with people who are responsive, return my calls or emails, and are reasonable to deal with...

  • Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    13y

    Victor. A thought struck me - maybe absurd.

    If you don't receive the funds from Section 8 directly maybe your PM siphon off money from you?
    How much monthly rent received you until 09/2012 for the house? How much bedrooms and baths you have? With Section 8 tenant you will get higher rents per month normal.
    If you not aware of section 8 tenant in your house the PM sent you only the smaller rent and you have no clue about that.

    Like I said maybe absurd thought.

    -Uwe

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Victor Saumarez I suggest being very cautious before you pay anything to anyone for any reason on this property. It's possible you could end up throwing good money after bad. Some of the turn-key rentals out there were set up to be sell-able but are not at all sustainable once you lose a tenant or need to make repairs. Did you buy this property with the tenant already in place?

    By trying to engage a new PM from out-of-state, you will again be putting your investment in the hands of a party who isn't being paid to put your interests first. This type of investment is really not passive. You either manage the rental or manage the PM.

    If you are not willing to visit the property and/or it is not cost effective to do so, then IMO you should be offering it for sale asap and trying to recover what you have into it. It's entirely possible you bought a property in an area that will see no appreciation, ever.

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Bryan, I have PM'd you. What you say makes perfect sense, but what is puzzling is that I never knew this was a section 8 tenant. Since this was turn key, the PM possibly put in the tenant just before we exchanged contracts. I have the lease and even tried contacting the tenant. Unfortunately, although I have cover for lost rent, malicious mischief by tenant is an exception. The A/C was stolen and I am trying to claim for that. It's not clear that the tenant was a vandal, but they left a mess. The bath and shower look filthy, junk outside, carpets very unsightly. It may be we clean some of this. Anyway, from what you explained, which seems very feasible, it looks like PM is to be held accountable.

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Victor you need someone to do an interior BPO on the property.

    It's almost like an appraisal and they will do a current value and a breakdown of costs and an after repair value. You need to see currently from an unbiased third party who is just getting paid to complete a report what the real value of the property is in today's market if you were to liquidate it.

    Once you receive that information that will help you to form a basis on how to proceed (re-rent, sell and possibly take a tax loss, etc.)

    Hawaii to NC with room and board of the trip is thousands of dollars. I think to get an interior BPO spending 100 to 200 or so with pics and even a video maybe would be worth it before flying out.

    I hope this investment does not represent most of the cash you had to purchase a property. If it isn't just chalk it up to a lesson learned and be thankful you didn't lose more money. I remember a few years ago on here there was a woman that bought turnkey like you and bought about 3 or 4 properties and they ended up being nightmares. I do not know whatever happened to her.

    I do not have a problem with turn key companies. What I do have a problem with is how they conduct business and how they do not disclose what owning one of these properties will truly be like. If they did that a big percentage would not buy and they would lose margins on the front end. If I had to guess with turn key many of these companies do not repair much of anything. They do the minimum to get by and sell turn key. A few years later the patch jobs give out and a bunch of things start to go wrong.

    Questions you need to know:

    1.Is a tenant of any kind still occupying your property??

    2. If so where is a copy of the lease?? Are they are regular renter or section 8??

    3. If they are section 8 who does it show for a contact for the case manager?? Do not call and leave a message. You need to call and call until you get them on the phone. I have found if you leave a message many times they never call you back as they are overwhelmed with files and people.

    4. If section 8 then find out from the case manager if a current contract is in place or has expired awhile ago?? If one is in place then find out if an inspection was done and notice was given. If so you likely have an abatement which based on your repair issues I could see happening.

    The section 8 tenant will still stay there even if you are not getting paid as they do not care. The tenant themselves could have lost section 8 status for their own problems and non- compliance and not have told you the landlord. In that case they will lie sometimes saying there is a problem with section 8 or their case worker etc. Sometimes honestly they get information screwed up from their meeting with their case worker. This is why it is best not to hear things from a property manager or the tenant but the case worker directly on section 8 so there is no misunderstanding. You need to know the procedures locally for evictions and protections and any additional notices you have to give from a standard eviction for a section 8 tenant.

    No legal advice. Good Luck

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    If the property is vacant it can be a blessing and a curse. You now do not have to evict as long as there is not a bunch of personal property left etc. and can fix and get re-rented. The down side is it is thrashed and there are no tenants staying there which makes it ripe to go in and take electrical and plumbing which will happen if you do not secure the property (doors and windows) immediately.

    Good Luck on recovering any money from that PM. You will most likely spend thousands more to not see a dime even if you win a judgment in court. Might be best upon repair estimates to sell at a loss to a local investor and just take the tax write off.

    Maybe you could partner with Brian or someone else to try to turn it around.

    Good Luck

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Bill, I have PM'd you. From the poor responses from the property manager, I'd say they didn't hold up their end ...by a long shot. I know what you mean about managing managers. My feeling is that this is a young business that is struggling with having taken on the beast which is RE. I think the missing link here is that a tenant was put in just before we closed, as the homes are supposed to be sold turn key and tenanted. That would explain why I heard nothing. OTH wouldn't section 8 want to know about change of ownership? Another problem I see, is if repairs are as a result of tenant abuse, which then becomes a dispute between tenant and property manager. How is that resolved? This might explain why nothing was done. It still doesn't explain why I wasn't kept in the loop.

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Marie, you are very accurate in all your say. I am throwing good money after bad, as much as it pains me. If I sell this property, I will still need to put it into good condition, and it won't be cost effective for me to stay in Charlotte waiting for that to be done. The broader picture is what do you do with the cash if you liquidate? Buy another turnkey, or put it in bonds and hope BB warns us all know before rates go up. I like to think some people are honest, and the new PM I have engaged has been helpful so far. I went through a ton of questions with the old PM, and did background checks, visited their operation and liked them. They seemed genuine, if a little young. I think what goes wrong is operations like this bite off more than they can chew and slide into a downward spiral, and then try to protect their own margins. I didn't manage them enough, and that is my failing.

  • Lahaina, HI · Member since 2012 · 12 posts · 0 votes
    13y

    Joel, this was a yield chasing gamble, and I did spread my bets. I bought several other properties, and not just in the US. What I hadn't anticipated was that all US investments would go bad so quickly. I looked at three different markets, which had different RE characteristics, which I hoped would compliment each other. My non-US based properties are in more traditional rental markets. That's not to say there won't be problems. The only problem free tenants I ever had were ones living under the same roof. I thought I did my homework, and have had rental income properties before, but never quite experienced such a string of problems occurring together.

    Thanks to everyone who has participated and offered great advise. There are lessons here, and I like to think one of them might be the 'best laid plans of mice and men'.

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