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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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Andrey Y. Im doing the math....is the difference between the 9% and 5% rate just about $115 a month? Thats probably not worth doing a refinance due to closing costs. That seems like a perfectly manageable increase in your payment.

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

    @Andrey Y., yes they will. In fact if you PM me an address I can get the address pre approved for you and send you the pre auth note offer.

  • Flipper/Rehabber · Newport News, VA · Member since 2016 · 128 posts · 54 votes
    7y

    @Andrey Y. I’m sorry this happened to you. I live in Newport News area and I was always wondering why people were massively buying in this neighborhood in the time frame when you purchased yours. It now all makes sense. This also answers my other curiosity why there were so many sales at the lower price then what it was purchased for. Thank you for sharing your story.

    How did these guys market themselves. How did you find them, or how did they find you?

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

    @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

    I thought about using a HELOC to just pay it down but that would be an IRS prohibited transaction. However, I never thought about buying it from myself. How would I go about setting that up? Can someone confirm/deny that this strategy would work?

    @Dean Letfus @Jay Hinrichs

    I have a good relationship with a bank where I get a fixed rate HELOC at 2.4%, interest-only for 10 years. I could easily take one out and purchase it. Would I need to speak to an attorney or just a title company?

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

    Why not use the heloc to purchase an undervalued property you put sweat equity into that returns an insane amount of cashflow. Keep the sdira property till it appreciates where you want it to at the 9% interest rate, use your new great cashflowing property using the many lessons learned on BP to help cover any potentially negative cashflow from the sdira property. Certainly try and get your turnover costs lower on the sdira property. That way you can have your cake and eat it too. 

    Basically, evaluate your financial picture and decide where you can get the best return for your resources. You need to factor your time also.

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

    For instance, my rentals all return north of 20%. I’d take a loan at 9% all day every day if I couldn’t get lower than that. The difference between 2.4% and 9% doesn’t seem as big to me as it does to you. That just means I know I have to buy it better. Perhaps work a little harder.

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

    Why not use the heloc to purchase an undervalued property you put sweat equity into that returns an insane amount of cashflow. Keep the sdira property till it appreciates where you want it to at the 9% interest rate, use your new great cashflowing property using the many lessons learned on BP to help cover any potentially negative cashflow from the sdira property. Certainly try and get your turnover costs lower on the sdira property. That way you can have your cake and eat it too. 

    Basically, evaluate your financial picture and decide where you can get the best return for your resources. You need to factor your time also.

     I have learned many lessons.

    One thing I won't do, is buy another property that does not (minimum) appreciate with inflation. Even if I payed market value for this ($65K) I don't think it would have been that great of an investment. Sure, $6K of "cash flow" on paper in 4 years, 60% of that is wiped with repairs/capex. Okay. But the property doesn't go up in value. Where is the profit?

    Besides dealing with shady salesman and being conned into something, this is also something I'm been pondering after talking with "Bob Bowling" on a phone a few minutes ago. He was known as the 'cap rate man' and was heavily against buying for cash flow. I am starting to see why.

    I have a $100K HELOC open which I can expand to $200K by the end of this month. 2.4% interest only for 10 years, at the 10 year mark it can be re-upped. I am just wondering if I could do the "sell it to myself". Because if I use $43K to pay down the loan, at 2.4% this property will make some decent profit I'm thinking.

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    Andrey if you are going into the medical field then most make tons of money. I have doctor clients and they are anywhere from 300k a year to 1 plus million in income for themselves. The surgeons tend to make the most. So if you are slated to start making lot's of income then this should not be the end of the world like some that have saved for a long time and if the deal goes bad it could take them 10 years to recover.

    Why not just renegotiate the loan terms with this lender? Maybe they would agree to extend on the initial terms if they know you are not happy and possibly pursuing legal action for a remedy.

    No legal advice given.

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

    If I had 100k, I could buy three more properties without even trying in my market and have $2100 in net cash flow.

    Now, I’m not a my way is the best or the highway guy. I work my butt off for my returns. Some people would like to work less for less of a return, and I understand that 100%. Perhaps there are other much greater returns you could do with an sdira, like the one Jay mentioned earlier. There are many ways to skin a cat, just skin it. I do certainly feel for you in this one and am rooting for you.

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

    Andrey if you are going into the medical field then most make tons of money. I have doctor clients and they are anywhere from 300k a year to 1 plus million in income for themselves. The surgeons tend to make the most. So if you are slated to start making lot's of income then this should not be the end of the world like some that have saved for a long time and if the deal goes bad it could take them 10 years to recover.

    Why not just renegotiate the loan terms with this lender? Maybe they would agree to extend on the initial terms if they know you are not happy and possibly pursuing legal action for a remedy.

    No legal advice given.

     Well I just talked to George the main guy recently briefly about the balloon payment coming due. He suggested a few lenders that they "work with" that could help me out. However, I was very nice to him on the phone and did not express any dissatisfaction at all. Not sure how I would go about presenting this to him.

    However, after already being ripped off on the purchase price and lending terms, I am not about to pay a couple thousand dollars to the same crooks on a refinance after already being cheated twice over. I would rather pay that money to a different lender, speaking honestly.

    If you could suggest a way I would go about presenting the reneg. of loan terms/my dissatisfaction, either directly here or via p.m., I would appreciate it. I'm not a very confrontational person so threatening legal action is not likely to work. There is another outraged buyer who is going to contact the Inspector General in Virginia. Maybe I will try and get a hold of him and see what his future plans are.

    I think someone's financial situation shouldn't really play a role in things like this. At the end of the day, they could have advertised this where would benefit both parties but clearly they were just interested in making money for themselves. Who cares how many others lost five or six figures! Well, I care.

    The lender that is holding my loan is called Mid Atlantic Holdings LLC. I have absolutely no idea if this is one person or a bunch of investors like Jay said.

  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    @Andrey Y. - If you put that much down, you should have the ability to refi out and not go to 9%, which is what they were hoping for when they structured the note, I am sure.  Why not just do that?

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

    @Andrey Y. - If you put that much down, you should have the ability to refi out and not go to 9%, which is what they were hoping for when they structured the note, I am sure.  Why not just do that?

     The two reputable non-recourse lenders that I talked to basically require that the property is valued at $85,000 and the loan amount has to be $50,000 or more. So basically they were unable to assist me. My current loan balance is about $43,000. 

    Growth Equity Group pigeon-holed investors into a loan product that they knew could not be refinanced unless they used a lender that they work with in-house with their "fantastic" (not) terms.. More $$ for them!

  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    @Andrey Y. - I forgot that important fact that it was owned in your IRA. What if you got everyone in the scenario together and you used each other's IRAs to refi them? Sounds like you don't have enough cash in yours to do it, but chances are some of the others do.

  • Honolulu, HI · Member since 2017 · 247 posts · 315 votes
    7y
    Originally posted by @Andrey Y.:

     sounds like it would be self-dealing...

  • Specialist · Missoula, MT · Member since 2016 · 73 posts · 44 votes
    7y
    @Andrey Y. Have you seen The Wolf of Wall Street or Boiler Room with Giovanni Ribisi? Where do you think these movie ideas come from? Real Life. I have had two friends scammed. Same bait and switch, One friend took $150k each from 6 of his family members and invested in a fertilizer company supposedly out of Alabama. During the Due Diligence period he went out to Alabama to the the fertilizer plant, and these guys had rented a whole fertilizer plant and showed and BSed him through the whole facility. Ran a pyramid scheme until they couldn't cash flow and jumped ship. Everyone lost everything. The second I had a buddy wanted to start a food truck in LA. Bought two food trucks and found someone who said he owned a shop that could renovate his two trucks. He already had one that was broken down he started with. He went to the guys garage to check out the facilities to make sure everything looked legit and he had rented out the entire garage. He went one day to bring his two new trucks to get wrapped and renovated and gave the guy $60k. While he waited 30 days and even got updates on the phone, he did marketing all over social media. The day he went to go pick up the trucks, the garage was empty and the guy was gone. Just two empty trucks in the garage. He is still going to court over this 5 years later. He'll never see that money again. At least you have a deed in your name. So maybe you go move into that condo and start a blog? Start pumping out on social media about how the economy is booming over there and people should start investing in that neighborhood. LMAO SORRY that's all I could think of. I have no idea what to do all I could offer was some personal experience and humor. I am really sorry that happened to you. Point is some people really don't give a sh what happens to anyone. It just facts. Where is Bernie Madoff?
  • Appraiser · Denver, CO · Member since 2018 · 40 posts · 58 votes
    7y

    @Andrey Y.

    I am an appraiser and i Just consulted with my mother, a Certified General Appraiser, about this. Plus, I decided to become an appraiser instead of becoming a lawyer, so I know a bit about both fields. Ironically, so does my mother as she currently has a law degree. Albeit, I didn’t study a lot of real estate law outside of what may affect me, but I have a knack for it. But we both believe that this could honestly be moved into class action lawsuit territory.

    They can use their own appraiser, that is no problem. But they cannot utilize their own appraiser to give you a value, if that makes sense. It’s called a restricted appraisal report and although they’re pretty rare these days, they still exist in a couple forms.

    It’s a bit different if this was a commercial appraisal report (as if they appraised the whole condo unit). But it sounds like each condo was valued individually.

    If this is the case, their in-house "lender" and the appraiser both probably broke the law and USPAP. USPAP is the rule of god in appraising, and a fair, free market value is the ultimate rule. "Fair" includes being free of any conflicts of interest or undue influence. Technically, an appraiser can get past the conflict of interest part by stating in the report their relationship with the client... But perhaps the most egregious mistake was on the lender's part.

    They likely did two things wrong. I bet they used a restricted appraisal report, but those are only allowed to be seen by the clients listed on the report and are generally never allowed as a "real" appraisal. The appraiser must follow this guideline and clearly state that it is a restricted use appraisal report. However, USPAP is clear in that the only people that can see or utilize the report are the clients listed. NOT you. So the lender using this form to convince you of the value would likely be fraud.

    They also made a major mistake, most likely, by not offering you the chance to get an appraisal done and see the report. You have a right to, as a buyer. They might think they’re circumventing this by letting you see the restricted one, but that loops us back to fraud. It’s the fruit of the poisonous tree doctrine, at this point.

    It’s also worth it to point out that after the Dodd Frank Act, lenders cannot typically have “in-house” appraisers. There are some loopholes, but it sounds like you can make an easy case that the appraiser and the “lender” were working together on values, which is one of the biggest no-no’s a lender or appraiser can do.

    If hundreds of units are all valued at 60% and buyers were all misled, this could very easily and very literally lead to jail time.

    I wish you the best of luck. Feel free to reach out and I’ll help in any way I can. I’m sorry that this happened to you.

  • Kingston, NY · Member since 2017 · 252 posts · 138 votes
    7y

    @Lauren B.

    50’s and 60’s aren’t elderly. If you take minimal care of yourself neither are your seventies.

  • Kingston, NY · Member since 2017 · 252 posts · 138 votes
    7y

    @Andrey Y.

    Get an consult from a good lawyer. This may warrant a class action suit. I wouldn’t know.

  • Rental Property Investor · boston, MA · Member since 2017 · 202 posts · 222 votes
    7y

    Hey Audrey I'm sorry this happened to you. As you may remember ( you replied in my post) I was involved in a situation like this just over a year ago. Jay actually mentioned about it briefly in this thread as well. I fully understand knowing older people who have sunk their life and retirement savings into the scammer. If you and other members in your group pursue litigation, just be prepared for a long drawn out process. Meanwhile, the scammer will continue trucking along finding new victims for investments elsewhere. 

    Despite all this do not be disheartened. In my case, I still have the property and managed to achieve minimal COC return this past year. I see you have plenty of people trying to help you on this thread. You'll do the same and turn your situation around. It will take some time, but time is still on your side.

  • Rental Property Investor · Kalamazoo, MI · Member since 2018 · 117 posts · 235 votes
    7y

    @Andrey Y.

    I’m sorry this happened to you and to others. Deception, and theft drive me absolutely crazy. I’m too cautious when it comes to trusting others and don’t like to trust anyone with any part of the process. In the long run you’ll be successful if you find the right partners to put your trust in.

    Don’t mind the old farts on here telling you that you got what you had coming. Just be more cautious when talking to smiling people! Look up deceivers delight, the psychological term. It’s real, man.

    In truth, you’re ahead of most people. You took a risk and went for it. It hasn’t paid out, but at least you were courageous enough to try.

  • Specialist · Louisville, KY · Member since 2017 · 166 posts · 154 votes
    7y
    Originally posted by @Taylor L.:

    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.

     @TaylorL. I'm racking my brain to recall where I saw it. It favorably mentioned Orlando and a couple of other cities, too. If I am able to locate it, I'll be sure and get it to you. 

  • Rental Property Investor · Greenville, MI · Member since 2018 · 36 posts · 9 votes
    7y
    Originally posted by @Russell Brazil:

    @Andrey Y. Im doing the math....is the difference between the 9% and 5% rate just about $115 a month? Thats probably not worth doing a refinance due to closing costs. That seems like a perfectly manageable increase in your payment.

    Just wondering. If the home value is too low for selling to make sense in the foreseeable future, why would you choose to loose $115/mo indefinitely? He has said he’s currently cash-flowing. Would he not recover closing costs in 2-4 years?

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Micah Watson:
    Originally posted by @Russell Brazil:

    @Andrey Y. Im doing the math....is the difference between the 9% and 5% rate just about $115 a month? Thats probably not worth doing a refinance due to closing costs. That seems like a perfectly manageable increase in your payment.

    Just wondering. If the home value is too low for selling to make sense in the foreseeable future, why would you choose to loose $115/mo indefinitely? He has said he’s currently cash-flowing. Would he not recover closing costs in 2-4 years?

     Your payment rising $115 doesnt mean you will be losing $115 a month. Lets say it costs $5k to refinance....in order to save say 3%...well thats like $80. Thats 5 years to break even. People do that all the time, but that doesnt seem like its worth it to me.  

    And lets say he was just break even right now, (which hes not, hes cash flow positive), if you cant absorb $100 a month, then yeah you should sell, and you shouldnt invest in real estate at all.  Because theres going to be lots of problems investing in real estate that cause much more costly problems. 

    It sounds dramatic an interest rate jumping from 5% to 9%. My point was well in dollar amounts....this is no big deal at all. Its a perfectly manageable situation in fact. 

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

    @Russell Brazil

    Thank you for clarifying. Very helpful

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    Micah Watson - Opportunity cost

    If a property takes say 5 years to get to a decent position where you recover the whole funds (theoretically) and value goes back up then the analysis is what could that money have done in the same time with other investments.

    Example a buyer puts 100k into a property. Few years in realizes the investment is not what they thought. They can wait 5 years to try and recover the 20k back in value now that property is worth 80k or take the 80k and put into another investment or investments over the 5 year span.

    So one scenario has an investor getting back to break even. Another over 5 years even though initial 20k loss the 80k might now be worth 400k in other investments. If the 20k loss would break the investor to lose it and sell that is one thing. If the investor makes more money for  a fast regeneration of monthly investible capital then sometimes it makes sense to take the loss with a write off and go after other investments.

    An investor could pursue someone in court for years to maybe eventually win but think of all the time lost that could be spent to finding better properties. An attorney told me one time you can have a strong case but spend 1 year of your life you won't get back winning against someone with a judgement you may not ever see a dime from.

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