Advice on a horrible situation

Buying & Selling Real Estate
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Advice on a horrible situation

Larry Spradling
Cincinnati, OH · Member since 2018 · 21 posts · 6 votes

Two years ago, I was brand new to real estate and transferred my IRA to a self-directed IRA. I was introduced to a company called Growth Equity Group that specialized in turnkey rentals for folks like me who had IRA funds to invest. I thought I knew enough to move forward, but clearly didn't ask enough questions or exercise enough caution. I received a letter last month from the mortgage company stating that my loan was going to go into default if I didn't make the last 4 payments. Turns out that the tenant wasn't paying rent and the property manager didn't bother to let me know what was going on. I got that straightened out and then started digging more into the property. After running the numbers, my monthly cashflow is NEGATIVE 22.00 a month. I talked to the property manager about selling the property so they sent me a market analysis that shows the average comp is $40,000 to $50,000. I paid $100,900 for this home two years ago. I owe $62,000 on it. This is so upside down that I don't know what to do. Would greatly appreciate some advice. What I don't need is a lecture. This is my fault as I knew just enough to be dangerous and now I'm paying for it. At this point, negative $22.00 a month seems less costly than taking a multi-thousand dollar hit by selling it for signficanly less than what I bought it for. Am I right in this thinking? Are there other options I should consider?

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Joseph ODonovanPro Member
Property Manager · Ridley, PA · Member since 2017 · 427 posts · 449 votes
7y

@Larry Spradling Just to clarify, the turnkey provider is out of business? Does your PM have any relationship with Turnkey? Why didn't your PM notify you that your tenant was not paying rent?

Based in the info you provided, I would immediately fire PM. Can you self manage the property? If so, do it now! You need to be hands on with this. By self managing, you will probably cash flow positive. If the PM's market analysis is truly accurate, then selling it would create a $50K loss. That being said, you should do your own market analysis as I would not trust the PM's data.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Larry Spradling. If you have a loan you got an appraisal 2 years ago right? If so, what’s the appraisal say? Something isn’t adding up exactly. You should have gotten an appraisal.

    Don't get a CMA from your PM, use a third party agent. How did you not know your loan wasn't being paid for 4 months? You didn't notice the rent not being collected ?

    8Reply
  • Larry Spradling
    OP
    Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
    7y

    No I didn't it. Everything runs through my IRA custodian. The rent check goes straight into my IRA account, so I'm completely hands off. I worked directly with Growth Equity Group, but I would assume the loan approval was contingent on an appraisal. I searched for threads on Growth Equity Group in the forums of Bigger Pockets and found that they are known for selling properties well above market value. Not sure how they got away with it. They are no longer in business.

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Larry Spradling could you possibly rent out the property by room and increase your total rent received? Have you thought about doing a lease option (not sure this could work at that price point)? This would eliminate your property management expense and transfer the maintenance, repairs, etc. to the lease option buyer. 

    You said: "At this point, negative $22.00 a month seems less costly than taking a multi-thousand dollar hit by selling it for significantly less than what I bought it for." What you paid for it is irrelevant but if you owe $62k and it's only worth $50k you would have to come out of pocket around $15k to sell it. Dude, sorry you are in this situation, you will be a wiser investor as a result. 

    7Reply
  • Joseph ODonovanPro Member
    Property Manager · Ridley, PA · Member since 2017 · 427 posts · 449 votes
    7y

    @Larry Spradling Just to clarify, the turnkey provider is out of business? Does your PM have any relationship with Turnkey? Why didn't your PM notify you that your tenant was not paying rent?

    Based in the info you provided, I would immediately fire PM. Can you self manage the property? If so, do it now! You need to be hands on with this. By self managing, you will probably cash flow positive. If the PM's market analysis is truly accurate, then selling it would create a $50K loss. That being said, you should do your own market analysis as I would not trust the PM's data.

    17Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Larry Spradling. There had to be some appraisal somewhere to get a loan. At this point I would get another CMA and then consider selling for loan amount most likely.

    3Reply
  • Shazia Chiu
    Real Estate Agent · Heber, UT · Member since 2016 · 56 posts · 46 votes
    7y

    @Larry Spradling I'm sorry you're going through this--what an awful situation. It seems like it might be best to start fresh by hiring a new property manager, getting a third-party opinion on the home's value, and finding reputable help for determining what you can rent it out for. It may very well be the right decision to sell the house and view this experience as a hard lesson that you've learned, but it's possible there are other options too. It sounds like you need some fresh eyes and experienced help for fully evaluating the situation. Again, I'm sorry you're in this frustrating spot, and I hope things start to look up soon! 

    4Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Larry Spradling. I was reading some old threads about these guys and looks like what happened to you is very common. Looks like they didn’t have an appraisal or it was “in-house” appraiser.

    Do you have a balloon payment coming up in a few years? You’re probably best off just selling it

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    Not a lot complaints from Growth Equity Group.  This is another reason one needs to take charge on paying mortgage and getting receipts from PM. My style is tenants make direct payments to borrower electronically such PM does not look suspicious. Check your private mail.

    Sam Shueh

    2Reply
  • Larry Spradling
    OP
    Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
    7y
    Originally posted by @Caleb Heimsoth:

    @Larry Spradling. I was reading some old threads about these guys and looks like what happened to you is very common. Looks like they didn’t have an appraisal or it was “in-house” appraiser.

    Do you have a balloon payment coming up in a few years? You’re probably best off just selling it

     Yes, I do have a balloon payment coming up in three years.

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y
    Originally posted by @Larry Spradling:
    Originally posted by @Caleb Heimsoth:

    @Larry Spradling. I was reading some old threads about these guys and looks like what happened to you is very common. Looks like they didn’t have an appraisal or it was “in-house” appraiser.

    Do you have a balloon payment coming up in a few years? You’re probably best off just selling it

     Yes, I do have a balloon payment coming up in three years.

     Probably get an appraisal but you won’t be able to refinance and pay off the underlying loan, so selling sometime before the balloon payment is probably your best option.

    The good news is next time you’ll spend more then 5 minutes on due dilligence.

    0Reply
  • Adam Apalategui
    Member since 2018 · 44 posts · 26 votes
    7y

    Larry,

    If you don't have an appraisal the lender should and can give it to you. Maybe they used an express process since I am guessing it's a low LTV.

    Best of luck to you,

    Adam

    0Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    7y

    @Larry Spradling you might find this thread helpful: 

    https://www.biggerpockets.com/forums/311/topics/65...

    Good luck!

    1Reply
  • Brian Midden
    Flipper/Rehabber · Kansas City, MO · Member since 2018 · 44 posts · 9 votes
    7y

    @Larry Spradling

    What about firing the company and managing the property yourself? At -$22/ month that seems like it would put you in the positive.

    It seems like your going to evict your tenants, after that what if you raised the rents and got a better quality tenant in there.

    Something doesn’t really add up. It’s hard to say without knowing what your expenses are.

    1Reply
  • Tony Mai
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 137 posts · 80 votes
    7y

    @Larry Spradling

    First sorry to hear this.

    second this is what I would do if I was in your shoes.

    1. Get a new PM

    2. Get an third party appraisal

    3. Then reevaluate, after the new PM and appraisal is completed. You should have the best numbers to work with after they finish their work.

    4. Hopefully after it won’t be as bad as your thought.

    2Reply
  • Jeremy Z.
    Tacoma, WA · Member since 2018 · 230 posts · 257 votes
    7y

    @Larry Spradling

    Get a CMA from at least one other local agent. Some agents will provide this info free of charge in hopes that you will utilize their services if you elect to sell the property. Don't shell out money for a full blown appraisal unless you need to (like for a refinance).

    3Reply
  • Brandon Hicks
    Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
    7y

    @Joseph ODonovan you can’t self manage a property that is owned by your SDIRA

    7Reply
  • Jeff Ronningen
    Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
    7y

    @Larry Spradling. Larry, you didn’t state where the property is located but I’m familiar with SW Ohio. There are many homes in that price range so I’m going to assume you live within a reasonable driving distance. I would do my own research and I’d invest a lot of time and effort. You stand to lose your down payment and over $10K more, so tens of thousands which is worth a lot of time and effort. Research the area and make your own determination of the value. Determine if improvements to increase rent or sale price are a good idea. Evaluate market rents. Research PMs. Research the rules for rehab/improvements, changing PMs, selling, etc. so you are equipped to make good decisions. Then make your move.

    2Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    @Larry Spradling

    Sorry this is happening.  I agree with the others, get a real estate agent to look at it for a proper assessment.  Then fire your current PM after they evict the current tenant and either manage it yourself or find a new PM.  The PM should have told you that they hadn't paid rent for 4 months AND they should have evicted them after the first month's rent was late.

    Renting by the room may bring in more money, but it could also be more work.  If it is near a college or university or an area with younger people, it might be worth it IF it will bring in that much more money.

    What is the market like in the area?

    1Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    Larry, I'm sorry this is happening to you. Unlike others commenting in the thread, I know something about using an IRA to buy a property. You are a victim of fraudulent dealing by this company, no matter what legal niceties are used to argue that isn't the case, and are currently in an untenable situation. I would use whatever's left in the IRA to flip the property to the nicest condition you can and sell it through a boutique real estate agency that specializes in marketing cheap flips as trendy starter homes to a gullible young client base with significant W2 income. I've seen companies like this pull off miracles in my area.

    5Reply
  • Brit F.
    Rental Property Investor · DFW · Member since 2017 · 143 posts · 120 votes
    7y

    @Larry Spradling, have you visited the property and talked to the tenants? Is there any opportunity to improve the property to drive up the equity? If the tenant's lease is still in place, and if you want them out, see how much cash they'll accept to vacate (i.e. cash for keys). Might be cheaper to do this vs eviction. Agree with firing the PM and finding a new one or self managing. You can do it yourself, but there are limits under the SDIRA. If you go that way, talk to an attorney or whoever helped you set up the SDIRA LLC to make sure you understand the self-managing rules.

    0Reply
  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    7y

    What's the area where the property is located doing? If it's up an coming and you can float the $22 a month. Hold until the market rises high enough. 

    If the city and neighborhood are good, all buildings are cheap if your time horizon is out long enough. 

    0Reply
  • Larry Spradling
    OP
    Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
    7y
    Originally posted by @William Kyle Walker:

    What's the area where the property is located doing? If it's up an coming and you can float the $22 a month. Hold until the market rises high enough. 

    If the city and neighborhood are good, all buildings are cheap if your time horizon is out long enough. 

     It's in the south side of Chicago.

    0Reply
  • Larry Spradling
    OP
    Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
    7y
    Originally posted by @Brit F.:

    @Larry Spradling, have you visited the property and talked to the tenants? Is there any opportunity to improve the property to drive up the equity? If the tenant's lease is still in place, and if you want them out, see how much cash they'll accept to vacate (i.e. cash for keys). Might be cheaper to do this vs eviction. Agree with firing the PM and finding a new one or self managing. You can do it yourself, but there are limits under the SDIRA. If you go that way, talk to an attorney or whoever helped you set up the SDIRA LLC to make sure you understand the self-managing rules.

     No.  I live in Cincinnati and the property is in the south side of Chicago.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    Fix it up and dump it before the economy turns or the ballon begins . Another reason I don’t do balloons in loans  

    4Reply
  • Larry Spradling
    OP
    Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
    7y
    Originally posted by @William Kyle Walker:

    What's the area where the property is located doing? If it's up an coming and you can float the $22 a month. Hold until the market rises high enough. 

    If the city and neighborhood are good, all buildings are cheap if your time horizon is out long enough. 

     I'm not sure.  I live in Cincinnati and it's located in the south side of Chicago.

    0Reply
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