Advice on a horrible situation

Buying & Selling Real Estate

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

@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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Larry Spradling
OP
Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
7y
Originally posted by @Jeff Ronningen:

@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.
I'm in Cincinnati. The property is located in Chicago.
0 Reply
Brit F.
Rental Property Investor · DFW · Member since 2017 · 143 posts · 120 votes
7y
@Larry Spradling, it's probably time to jump on a plane and do a site visit. It'll give you additional data that will help steer your future strategy with this property. You might need to make multiple trips over time, depending on how things go. Maybe you make one trip now to fully assess the situation, then one or more trips to meet a contractor if you choose to do any rehab, and/or a trip to meet the new PM and walk the property with him/her.
A few plane tickets is a small price vs the potential loss you're looking at.
3 Reply
Ayne C.Pro Member
Rental Property Investor · Tampa, FL · Member since 2018 · 251 posts · 124 votes
7y
@Larry Spradling
There are lessons here to be learned for sure, I won't harp on that.
At this point I would look at the CASHFLOW and try to get that to increase. The suggestion to self manage is good, the suggestion to offer a lease option is good. Look at expenses and rent and see what you can optimize. See if you can turn this ship around.
0 Reply
Ayne C.Pro Member
Rental Property Investor · Tampa, FL · Member since 2018 · 251 posts · 124 votes
7y
@Ayne C.
Oh man, I missed the SIDRA part. Disregard the self management advise. I hope this works out.
0 Reply
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.
Aside from BP posting from 3 month ago above there is still few if any complaints through WWW.. Indictment is a serious matter but I can not confirm through court records, Yelp business claimed. No complaints or reviews.
0 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
7y
First of all, you need new PM who has good reviews in that specific neiborhood of Chicago.
Then, that turn key property might be running a scam involving loan officers, Appraiser, etc
I know a house in Euclid which is sold to an older woman for $125K FHA in a part of city where nothing worth more than$75-80K. The listing agent get a buyer, close sale with no selling agent (marked as no agent, not her as a selling agent). She does that for all their cheap flips, extremely overpriced. It was sold a year ago, now it's foreclosured. Buyer was an out of state older woman.
These companies prey on OOS buyers. There might be some remediation but I'd go and fix what's is still fixable.
1. Hire new PM(huge due diligence)
2. Get CMAs from few agents in the area
3. Try to refinance with an independent company?
Well, #3 won't work since your loamunder water.
Start somewhere! Or you gonna loose money
2 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y
Can you find a local handyman who can handle repairs and manage it from out of state? I know it depends on the tenants and the type of property it is, but it is possible to do.
0 Reply
Christian Becker
Rental Property Investor · Idaho Falls, ID · Member since 2018 · 67 posts · 78 votes
7y
@Larry Spradling
Check with an attorney and accountant first before doing anything.
I looked at the self-directed IRA thing and visiting with my CPA I remember him telling me that the only way that works without getting into hot water is if it's completely hands off. You can have no part in any decision making. Meaning you invest like you would in a mutual fund and someone else runs it completely without any input from you. Has to be separate. You don't deal with the PM, banks or anything. Can't do it. Anything you do would void that separation. The again, losing the IRA tax status may be the lesser of two evils. Just check with the professionals. That's why they are there.
0 Reply
Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
7y
Originally posted by @Steve K.:

@Larry Spradling you might find this thread helpful:
https://www.biggerpockets.com/forums/311/topics/65...
Good luck!
I'll quote this again. What kind of property is this? (condo/house/etc.) What are fixed-up comps selling for around it? If you can't fix and sell for more, then walking away is your only way out, unless you can refi (which, reading the other thread, is highly unlikely).
0 Reply
Clayton MobleyPro Member
Birmingham, AL · Member since 2014 · 875 posts · 947 votes
7y
@Steve K. thanks for the link - I had not heard of these folks before but WOW, that's a lot of red flags. Not quite the Morris 'model' but the 'only our appraisal' and 'only our financing' stuff is so bogus. One reason it's so important for new investors to know what they can and should expect from a real provider.
@Larry Spradling I agree with others here, your PM has to go. Since the prop is held by an IRA, you will have to be careful about self-managing. It is possible, but you can't collect a fee or commission (obviously), you can't pay for repairs etc out of pocket, you can't accept checks to your personal account - all the financial stuff goes through the IRA. But you CAN be the one that picks tenants, signs leases, and does other non-value-adding activities that the IRS doesn't care about because it doesn't impact the value of the asset (but you CAN'T do any repairs yourself, because that adds value they can't tax). It will be tough long-distance but it is technically possible. You may need to bite the bullet and fly out to inspect, oversee any repairs necessary (hire a contractor through the IRA, of course), and find a new tenant if the current one needs to go as well.
I think the first step is to get a real value estimate not from the current PM. Once you know how much you stand to lose if you sell, you can make the decision about keeping it and trying to boost your cash flow by either forcing some equity with upgrades and upping the rent / self-managing, etc. Just remember that you can do the decision-making, but not the actual work. There are IRA services that facilitate this kind of thing, although that's another expense. I'd talk to a CPA first.
Sorry to hear you got caught up in this scam - best of luck in getting to the other side of it.
2 Reply
Will C.
Rental Property Investor · Richmond, VA · Member since 2016 · 279 posts · 133 votes
7y
@Larry Spradling
Was the loan through the turnkey company itself?
0 Reply
Larry Spradling
OP
Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
7y
Originally posted by @Will C.:

@Larry Spradling
Was the loan through the turnkey company itself?
No. It was through their partner, Genesis 1, LLC. I contacted them and they said they did not require an appraisal on the property. They approved the loan based on cash flow.
0 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Larry Spradling. If it makes you feel any better the private investors who funded this loan likely also got hosed.
0 Reply
Matthew Olszak
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
7y
@Larry Spradling I would consider selling and taking the loss. If you hold, you run the risk that the tenant will destroy the property or other costly repairs will arise and put you more in the hole.
At this price point, your buyer will be a cash buyer, meaning they likely won't get an appraisal. So you maybe could squeak by and sell breaking even (minus closing costs). Also, there are a LOT of folks buying homes on the south side who can't get a loan (many because of no SSN), but could put down a decent amount and have an otherwise solid borrower profile. Depending on where the property is you could take a substantial down payment and seller finance the rest, which would allow you to sell it for higher than market value + a decent interest rate.
1 Reply
Henry Marshall
Specialist · Cincinnati, OH · Member since 2018 · 87 posts · 13 votes
7y
@Larry Spradling were is it at Middletown or Cincinnati and what is the rent going for in the area were it is located, and if the numbers are right i would consider doing a lease option with the option to sublease with you.
0 Reply
Neal Shue
Mooresville, NC · Member since 2019 · 20 posts · 14 votes
7y
Maybe the best thing to do is keep it. First fire the PM, and get another one. Hopefully this will get it to cash flow even after the increase in interest rate. Maybe in a few years you won't be upside-down and can get out from under it without much loss, or possibly re-finance it, and keep it for the long term and when you're ready to retire it will be worth more, and cash-flowing.
Real Estate is a long term investment.
1 Reply
Aaron Nannini
Investor · Santee, CA · Member since 2017 · 17 posts · 12 votes
7y
@Larry Spradling. Sorry to hear about this. The first thing I would do is contact a highly rated local agent. Have them run comps for you to find out what the property is really worth.
Once you know what it’s worth, you can decide if you want to sell or continue renting. A reputable agent will do this free of charge for you. PM me if you need help finding an agent or want a list of questions to ask.
I agree with others that something isn’t adding up, properties should not be losing over half their value in two years in this current market.
1 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
7y
Originally posted by @Neal Shue:

Maybe the best thing to do is keep it. First fire the PM, and get another one. Hopefully this will get it to cash flow even after the increase in interest rate. Maybe in a few years you won't be upside-down and can get out from under it without much loss, or possibly re-finance it, and keep it for the long term and when you're ready to retire it will be worth more, and cash-flowing.
Real Estate is a long term investment.
If it's an investment - yes.
If it is a run down POS in ghetto - no, it won't appreciate.
You'll dig the hole even deeper the longer you holding on.
This is in Chicago - someone familiar with the area might help.
1 Reply
Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
7y
Get a new 30 year loan for $62,000 which is what $300 a month? Does that help your cashflow?
0 Reply
Larry Spradling
OP
Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
7y
Originally posted by @Matthew Olszak:

@Larry Spradling I would consider selling and taking the loss. If you hold, you run the risk that the tenant will destroy the property or other costly repairs will arise and put you more in the hole.
At this price point, your buyer will be a cash buyer, meaning they likely won't get an appraisal. So you maybe could squeak by and sell breaking even (minus closing costs). Also, there are a LOT of folks buying homes on the south side who can't get a loan (many because of no SSN), but could put down a decent amount and have an otherwise solid borrower profile. Depending on where the property is you could take a substantial down payment and seller finance the rest, which would allow you to sell it for higher than market value + a decent interest rate.
Sent you a PM
0 Reply
Larry Spradling
OP
Cincinnati, OH · Member since 2018 · 21 posts · 6 votes
7y
Originally posted by @Account Closed:

Get a new 30 year loan for $62,000 which is what $300 a month? Does that help your cashflow?
That's what I have now.
0 Reply
Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
7y
Do you have primary residence with loan u could refi to save monthly
0 Reply
Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
7y
As stated, you need to fly out there, fire the PM, inspect the house get a CMA and then make your decision based on what the facts are now........ right now you don't have enough info to really make a solid decision
If you sell now, do you have the cash to pay off the balance if it sells for under what you owe?
2 Reply
Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
7y
Throw it on bigger pockets marketplace for $65,000 .. some newbie will buy it
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
The most unfortunate thing about your situation is that the perceived loss in value is going to make you extremely reluctant to take action. A 50K property is likely a C class and will not be appreciating in the foreseeable future. The tennat class also means that this tenant will not be your last to stop paying rent. Insult to injury.
You are losing money every month, holding on and losing more is not going to help you catch up it is only going to delay the inevitable. Hope is another word for delayed disappointment.
I would try to do what ever you can to get the best sale price possible and unload the property.
1 Reply

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