Growth Equity Group - How 170+ investors were scammed

Growth Equity Group - How 170+ investors were scammed

Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

In 2014-2015, more than 170 investors purchased 2 and 3 bedroom condo units from Growth Equity Group. This company specializes in investment properties in a self-directed IRA. More than 85% of their sales are bought in this fashion.

Business was solicited mainly at investment conferences (Las Vegas a popular site), and some here at BP. I was one of those people who fell for their marketing.

I was sold a condo in a neighborhood in Virginia (specific details to be disclosed later). They sold me the condo for almost $90K. The property value was however, at best, $65K. They came with sweet talk, a personable friendly nature, like a predator (although I didn't know it at the time.) They only allowed an appraisal to be performed through them. One can see why, a legitimate appraiser operating legally would not appraise these condos for what they were selling for.

Growth Equity Group sold units to more than 170+ investors. 3BRs went for $96K, 2BR for $86K. Of course, they also used an "in house" lender specializing in non-recourse loans. They wouldn't allow you to use your own lender. It sounds fishy looking back at it, but not when they present it in a such a welcoming and favorable way. The rate would be 5%, which would balloon to 9% in 4 years!

I see three main issues with what transpired:

1. Sales. Growth Equity Group knowingly sold condos which were valued at $60-65K, for $85K-100K. They did this with open eyes and a smile. They even rushed me to sign on the dotted line.

2. The Appraisal process. Appraisers in the past have been fined and jailed for falsifying numbers, for elevating the appraisal amount. If the appraiser is on the payroll of the company who is selling you a property, or they are getting business or money from the company who is selling you the property, this is a major conflict of interest.

3. Financing. Industry standard for a non-resource loan is - during the balloon period, the interest rate cannot go up more than 0.5% per year or more than 2% total, no matter the interest rate environment. Growth Equity Group again used a lender that they were "working with" and did not let you use your own lender. Their loans carried an interest rate of 5%, which immediately jumps to 9% at the 4 year mark.

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Asheville, NC · Member since 2017 · 170 posts · 242 votes
7y

@Andrey Y.

I’m so sorry this happened to you.

I would comment further but I got stuck at the part where you refer to people in their 50’s as elderly.

See this reply in the discussion

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  • Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Mary M.:

    So why don't you get folks together and sue them? Or at least try? Find an atty who will help. 

    Your Comment: "So why don't you get folks together and sue them?"

    That's not always an option. Attorneys like to get paid. A lawsuit will run $50,000 to $75,000 and takes place in the state the property is in and typically runs a year and a half to 2 years and then can be appealed. You have to PROVE you were harmed and that you had damages. Damages here appear to be "future" damages since he still owns the investment and hasn't cashed it out. 

    If he sells it and takes a loss, then he has damages and can sue for that amount. So, if the damages are $30,000 and the lawsuit takes a year and a half and costs $50,000 and if he *wins* (big "IF" on this one) he is a year and a half behind and $20,000 poorer but he feels better about it. (Not my recommendation, I'm just outlining my argument why that is not a viable course of action in this situation.)

    The approach would be to have an attorney write a letter outlining the presumed offense, ask for relief and send it certified. That should cost a couple of hundred bucks. Beyond that, you are looking at big money and questionable results.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Russell Brazil:

    After 2 of the units first sold, no matter who the appraiser was wouldn't have mattered. Just takes a couple comps, and the contract justifies the value.

     exactly they created their own comps.. just like fix and flippers do all over the US.. now some apprasiers will discount value if a private lender is involved in a selling program.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Chris Seveney:

    What is your goal? Is it to refinance? You most likely will not find a rate lower than 9% at today’s interest rates which is a non-recourse loan. How much money is owed on the condo and how much is it worse what is your goal? Is it to refinance? You most likely will not find a rate lower than 9% at today’s interest rates which is a non-recourse loan. How much money is owed on the condo and how much is it worth ?

    going rate for that loan from a company like Peak is 10 points and 9% but they do have a 30 year fully amortized.. so they got someone on wall st to buy that paper. and it can be no bigger than 50% LTV..

    10 points i know sounds high but there are no junk fees.. and on small balance loans U have to make 4 to 5k a file to stay in business

    other lenders do it by just saying the points are 2.. loan origination is 2 underwriting fee is 1500 ... etc etc they all get to 4 to 5k a file i know see huds daily in my day job

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    @Jay Hinrichs Yeah you know J as a homebuilder, sell the first couple to set the conps, then never come down on price on the future ones not to screw up the appraisals. If your having trouble selling, free upgrades or seller help, but almost never a price reduction so you dont hurt the values. You have the preferred lender so you know the loan gets done properly and offer that incentive for a buyer to use them. Here with not taking any other lenders, sketchy yeah, but the appraiser wouldnt have mattered. They were probably making a profit on the lending side too I bet, which was likely the real incentive to push them to the one lender. Probably disclosed in some form, but the buyers were likely not really aware.
  • Specialist · Louisville, KY · Member since 2017 · 166 posts · 154 votes
    7y

    @Andrey Y. Is there a chance that, over the long haul (albeit longer than you want, I’m sure) that the value could catch up with your investment?

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Kyle Schlosser:

    @Andrey Y. Is there a chance that, over the long haul (albeit longer than you want, I’m sure) that the value could catch up with your investment?

     The only chance I see is if someone will refinance at reasonable terms. Something like 7% with a five-year arm or balloon, I would also do 9% if it was fixed for 25 years. 10 points though? I don't think that is going to work. I've talked to two legitimate non-recourse lenders and they are saying that the loan amount has to be $50,000 or more, or the property value has to be $85,000 or more. Well these scammers created their own $90,000 property value when in fact these properties were worth in the $60,000 range or so.

    At that time, I do recall that I searched BiggerPockets for Growth Equity Group and unfortunately there was little to no information on them at that time. I think now as this is bearing fruit The Next Step would be to get the names of the 100 plus other investors in this complex that were sold these properties. The realtor I'm working with has dozens of these folks talking to him trying to offload the property. Hopefully, he will provide some names.

  • Specialist · Louisville, KY · Member since 2017 · 166 posts · 154 votes
    7y

    @Andrey Y. I'm sure it's a steep hill to climb but it goes without saying that I hope this all works out for you in the end. I saw an excerpt of an article recently that indicates there will be increased retail growth (and lower retail vacancy) in Richmond, VA and a few other cities...I hope this bodes well for you, too.

  • Rental Property Investor · Atlanta, GA · Member since 2017 · 221 posts · 188 votes
    7y
    @Andrey Y. Hi Andrey, sorry to hear this. The good news is that you have learned to be a better investor so going forward you know better, so you will do better. Now about your current situation....have you considered a lease option tenant buyer as a delayed cash out strategy? We have used our DCP program to help similar landlords in Atlanta get out of bad deals. Not perfect but works and could work for you. All is not lost un this case in my humble optimistic opinion. I wish you success as move forward!
  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Chuks Erinne:
    @Andrey Y. Hi Andrey, sorry to hear this. The good news is that you have learned to be a better investor so going forward you know better, so you will do better. Now about your current situation....have you considered a lease option tenant buyer as a delayed cash out strategy? We have used our DCP program to help similar landlords in Atlanta get out of bad deals. Not perfect but works and could work for you.

    All is not lost un this case in my humble optimistic opinion.

    I wish you success as move forward!

     No I haven't even considered that. Please PM me with more details. My only concern is how to integrate this approach with the property management company. Would this pose any issues? Anyway, reach and and lets see if this is an option.

  • Member since 2019 · 2 posts · 1 vote
    7y

    Andrey, have you tried contacting American Greed.  It is a TV series on CNBC.  This story fits their programming themes.  It would at least get the public to be aware of what happened here.  How about contacting the Attorney General in the state they do business.

  • Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    7y

    I agree with @Chuks Erinne, you'll be a better investor going forward. People are giving you too hard a time in here. I'm sure the loss of $ is punishment enough without internet strangers getting on your case.

    @Kyle Schlosser as a Richmond resident, I'd be interested in reading that article. I invest in multifamily in other markets, much of the story about RVA multis is that we're in hypersupply.

  • Rental Property Investor · parksville, bc · Member since 2017 · 153 posts · 148 votes
    7y

    First let me say thank you for posting @Andrey Y. a lot of people are too embarrassed or not willing to admit they got scammed. We can all learn from this, and don't let people like @Dean Letfus make you feel like you're the only person to get scammed before. These professional companies do a very good job at drawing your attention to how great their product is and hiding the important facts. 

    Sounds like you'll have minimal recourse, but I guess there is some silver linings. If this had been some sort of stock, it might be worth nothing right now, at least you still have some residual value. You also have a couple of options going forward. If you can manage to get the property to at least be revenue neutral after the 9% interest rate comes in, you'll still be making a bit of money in debt pay down and appreciation. Maybe not much, but if you hold it long enough, you might be ok. Or you can do the math and see if you can get better returns by cutting your losses, selling and parking what's left of your money somewhere else.

    I know it is frustrating to fall victim to the pieces of garbage that think up these scams, but it could have been worse. When the market crashed in 2008-2009 people lost fortunes without being scammed.

    I'm sorry this happened to you and I hope your future deals are all grand slams!

  • Garrett MayPro Member
    Investor · Cleveland, OH · Member since 2008 · 67 posts · 14 votes
    7y
    Andy, So sorry that this happened to you and all the other investors. You seem to have a positive outlook and know that things will only get better for you.
  • New to Real Estate · Charlotte, NC · Member since 2018 · 19 posts · 5 votes
    7y

    Scams like these are a dime a dozen. They pitch it as a "great investment", tap into your insecurities, up the sales pressure, then boom, you've been swindled. If it sounds too good to be true, it probably is. 

    @Andrey Y. Don't sweat it buddy, at least you learned from the experience. You're young and have a bright future ahead of you I'm sure.

  • Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y

    First of all, get another PM or research better about turnover costs. There is no way to spend $3K every turnover (every year?!?)

    Then, try to find private money, maybe relatives, friends just to buy you dome time.

    If every investor right now will try to get rid of their condos, prices will be dirt cheap. Don't do what everyone does - you'll lose not just $20-25K but 80-90%.

    I don't think you'll have a case here: comps were created on the first few sales and everything after that we're totally legitimate appraisals.

    Using their lenders only sounds fishy, however, not a crime. Besides, 5% for 4 years was helpful - now find another solution. Maybe to sell it to a related party to close IRA and then get it back with regular financing?

    Market is always coming back, we just don't know the timing. Cool down and think without emotions - how to mitigate the damage. They must be a solution to everything

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Chris Seveney:

    What is your goal? Is it to refinance? You most likely will not find a rate lower than 9% at today’s interest rates which is a non-recourse loan. How much money is owed on the condo and how much is it worse what is your goal? Is it to refinance? You most likely will not find a rate lower than 9% at today’s interest rates which is a non-recourse loan. How much money is owed on the condo and how much is it worth ?

     About $42,500 is owed on the property. From speaking with several realtors, its valued around $62,000 - $70,000.

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Irina Belkofer:

    First of all, get another PM or research better about turnover costs. There is no way to spend $3K every turnover (every year?!?)

    Then, try to find private money, maybe relatives, friends just to buy you dome time.

    If every investor right now will try to get rid of their condos, prices will be dirt cheap. Don't do what everyone does - you'll lose not just $20-25K but 80-90%.

    I don't think you'll have a case here: comps were created on the first few sales and everything after that we're totally legitimate appraisals.

    Using their lenders only sounds fishy, however, not a crime. Besides, 5% for 4 years was helpful - now find another solution. Maybe to sell it to a related party to close IRA and then get it back with regular financing?

    Market is always coming back, we just don't know the timing. Cool down and think without emotions - how to mitigate the damage. They must be a solution to everything

    I am not sure, but this property management company was somehow tied to Growth Equity Group and the LLC lender, as their signature blocks appeared on the PM agreement. However, there probably is a way to switch PM companies with a compelling reason.

    Okay, they most likely know that I don't live nearby. So how do I go about researching actual turnover costs? The PM company considers themselves "market experts". Is there a way for me to get my own quote, and then show it to the PM team? I wouldn't even know how to find these folks painters flooring in Newport News, VA. Or if its even worth the time and hassle.

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    So why not sell it then and bite the bullet ? If you find a private investor as jay mentioned your going to pay several thousand in fees and be somewhere between 10-15% on a non-recourse loan. I don’t think 9% is bad and would take that all day long. Why no keep the current loan? 

    7e investments53 Reviews
  • Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y
    Originally posted by @Andrey Y.:
    Originally posted by @Irina Belkofer:

    First of all, get another PM or research better about turnover costs. There is no way to spend $3K every turnover (every year?!?)

    .

    Okay, they most likely know that I don't live nearby. So how do I go about researching actual turnover costs? The PM company considers themselves "market experts". Is there a way for me to get my own quote, and then show it to the PM team? I wouldn't even know how to find these folks painters flooring in Newport News, VA. Or if its even worth the time and hassle.

     You bought this property 3-4 years ago!

    You don't paint the whole house every 3-4 years, maybe touch up.......leave alone carpet.

    Was property updated when purchased or you rented it in as-is condition?

    Read you PM agreement and see how long I takes to switch the manager. If property is currently vacant it's better to fly and see condition for yourself.

    I've had OOS investor and his PM told him that property needs fresh paint and new carpet. When I took a look, nothing like that needed - just some cleaning. Get sold for the great price.

  • Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
    7y
    Originally posted by @Chris Seveney:

    First thing I would do is get a new property manager as $3k for paint and carpet is insane. Why not put in LVT that looks like wood then you would be left to paint it every few years which would be around $500-$1000.  

    As to Jay’s comments yes I do buy loans and finance loans but I don’t do non-recourse because I have seen so many people get burnt by it buying these types of properties. 

    I would look into this, $3k sounds ridiculous for paint and carpet.

    It sucks to hear about how this went about and I'm sorry that you got scammed into buying a property for way more than it's worth. However, I think it's a valuable lesson, and you may be ok if you can keep the turn costs down and still cash flow.

    Why not just keep it rather than sell at a loss? If you can keep costs down like discussed above and still cash flow or at least break even with the balloon rate, then eventually you'll be able to sell and get your money back out of it. Now you know better and you can chalk it up to a paid education.

  • Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    @Jay Hinrichs, we deal with Peak almost daily, their rates are in the 7's and origination will total about 2 to 3K.  They're a good option for non recourse, especially for non residents.  I also have an actual bank in Memphis that offers reasonable rates but only does Memphis.

  • Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    7y

    I‘m under water on a couch, a chair and an ottoman from Nebraska Furniture Mart. The good news is you bought a peice of real estate. I‘m in the hold it, get your costs down, and let it appreciate over time camp unless you know you can cut your losses and reinvest in something else that will make a better return quicker.

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Irina Belkofer:
    Originally posted by @Andrey Y.:
    Originally posted by @Irina Belkofer:

    First of all, get another PM or research better about turnover costs. There is no way to spend $3K every turnover (every year?!?)

    .

    Okay, they most likely know that I don't live nearby. So how do I go about researching actual turnover costs? The PM company considers themselves "market experts". Is there a way for me to get my own quote, and then show it to the PM team? I wouldn't even know how to find these folks painters flooring in Newport News, VA. Or if its even worth the time and hassle.

     You bought this property 3-4 years ago!

    You don't paint the whole house every 3-4 years, maybe touch up.......leave alone carpet.

    Was property updated when purchased or you rented it in as-is condition?

    Read you PM agreement and see how long I takes to switch the manager. If property is currently vacant it's better to fly and see condition for yourself.

    I've had OOS investor and his PM told him that property needs fresh paint and new carpet. When I took a look, nothing like that needed - just some cleaning. Get sold for the great price.

     I actually have a realtor going to the property on Monday. Since we were planning to sell it after its turned over. He will be taking photos. Perhaps its good to have a 2nd eye on it just in case the PM quotes me something unreasonable.

    $1000 for a flight and 5 days of leave I have to take doesn't seem work it from a risk-benefit perspective. Maybe its just rationalization or giving up. If it was a $400K property I would certainly do so.

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Dean Letfus:

    @Jay Hinrichs, we deal with Peak almost daily, their rates are in the 7's and origination will total about 2 to 3K.  They're a good option for non recourse, especially for non residents.  I also have an actual bank in Memphis that offers reasonable rates but only does Memphis.

     Will they lend on a property with a value less than $85,000? This seemed to be the hurdle when I talked with the two other non-recourse lenders.

  • Rental Property Investor · Greenville, MI · Member since 2018 · 36 posts · 9 votes
    7y

    @Andrey Y.

    I’m so sorry you were duped. I agree that it’s a shame on them/shame on you combo, but let’s move on to what can be done.

    You have said it’s currently cash flowing but you are approaching the point at which your interest rate will jump to 9%, as scheduled.

    I haven't read anyone suggest removing it from your IRA. If, as you say, you have had a great track record as an investor apart from this deal, why not pull equity from another property(or several, if you are highly leveraged), using a fixed rate home equity loan(or several). You could purchase this property from yourself and would then own it free and clear opening the door to refinancing into a standard recourses loan.

    Home equity lines of credit are very readily available and the best thing is that the lenders often pay all fees except the appraisal. You would, of course, be appraising the properties that you are using to secure the line(s) of credit. Put you would be paying one set of closing costs to refinance at the current interest rate.

    If I missed something, let me know! I’m currently self-educating on all things financing, but am nowhere near an expert.

    Thanks!

    Micah Watson

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