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

****UPDATE****
I spoke to the property management company yesterday. It's Fairview Realty Group if anyone knows anything about them. They took over the management last year from Growth Equity Group and he told me that he has several landlords in the same position. He has looked into the situation and confirmed that I was part of a scheme between GEG and Genesis 1, LLC. They sold the property to GEG for $70,000 and he said GEG sold it to me the same day for $100,900, and Genesis 1 became the lender. The whole intent was to sell me an upside down property that did not cashflow inevitably forcing foreclosure so that Genesis 1 would get the property back and then rinse and repeat for the next investor.
He recommended that I stop making mortgage payments and that he would continue to collect rent from the tenant on my behalf. He said that it would take 10-12 months to foreclose, so I could walk away with that much in rent money at the very least. He said that he could not deposit the rent money into my IRA monthly. He would have to keep it and then pay me at the end of the process. I'm not sure why he can't pay me monthly. That sounds fishy to me. I don't know who to trust in this situation, or if I can trust anyone. Can anyone here confirm that I cannot collect rent if I'm not paying the mortgage?
@Clayton Mobley, @Jay Hinrichs, @Andrey Y., I would especially be interested in your thoughts.
that my man is total BS he needs to pay the rent monthly or tell him your switching PM's its your property its your rent. its non of his business if you pay the mortgage or not.. I would not even have discussed that with him.. Clayton can you help this guy !!!
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Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
7y
Originally posted by @Jay Hinrichs:

Originally posted by @Larry Spradling:
****UPDATE****
I spoke to the property management company yesterday. It's Fairview Realty Group if anyone knows anything about them. They took over the management last year from Growth Equity Group and he told me that he has several landlords in the same position. He has looked into the situation and confirmed that I was part of a scheme between GEG and Genesis 1, LLC. They sold the property to GEG for $70,000 and he said GEG sold it to me the same day for $100,900, and Genesis 1 became the lender. The whole intent was to sell me an upside down property that did not cashflow inevitably forcing foreclosure so that Genesis 1 would get the property back and then rinse and repeat for the next investor.
He recommended that I stop making mortgage payments and that he would continue to collect rent from the tenant on my behalf. He said that it would take 10-12 months to foreclose, so I could walk away with that much in rent money at the very least. He said that he could not deposit the rent money into my IRA monthly. He would have to keep it and then pay me at the end of the process. I'm not sure why he can't pay me monthly. That sounds fishy to me. I don't know who to trust in this situation, or if I can trust anyone. Can anyone here confirm that I cannot collect rent if I'm not paying the mortgage?
@Clayton Mobley, @Jay Hinrichs, @Andrey Y., I would especially be interested in your thoughts.
that my man is total BS he needs to pay the rent monthly or tell him your switching PM's its your property its your rent. its non of his business if you pay the mortgage or not.. I would not even have discussed that with him.. Clayton can you help this guy !!!
This. You've gotten some responses from the locals on this thread, so I'd be jumping all over that, trying to figure out what exit plan you have. I love Lynette's idea, but you better figure out the legalities of it. Like Jay said, if it has to be market rent, it might be tough to sell somebody on it. It'll be tough regardless, as it sounds very shady to a potential renter.
0 Reply
Bart H.
Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
7y
Originally posted by @Larry Spradling:

****UPDATE****
I spoke to the property management company yesterday. It's Fairview Realty Group if anyone knows anything about them. They took over the management last year from Growth Equity Group and he told me that he has several landlords in the same position. He has looked into the situation and confirmed that I was part of a scheme between GEG and Genesis 1, LLC. They sold the property to GEG for $70,000 and he said GEG sold it to me the same day for $100,900, and Genesis 1 became the lender. The whole intent was to sell me an upside down property that did not cashflow inevitably forcing foreclosure so that Genesis 1 would get the property back and then rinse and repeat for the next investor.
He recommended that I stop making mortgage payments and that he would continue to collect rent from the tenant on my behalf. He said that it would take 10-12 months to foreclose, so I could walk away with that much in rent money at the very least. He said that he could not deposit the rent money into my IRA monthly. He would have to keep it and then pay me at the end of the process. I'm not sure why he can't pay me monthly. That sounds fishy to me. I don't know who to trust in this situation, or if I can trust anyone. Can anyone here confirm that I cannot collect rent if I'm not paying the mortgage?
@Clayton Mobley, @Jay Hinrichs, @Andrey Y., I would especially be interested in your thoughts.
Dude, you are still getting scammed, dont take this the wrong way, but take control of this thing.
Your seller and lender are running a confidence scam, they ALMOST certainly have worked a deal with a deadbeat tenant to sign a lease in exchange for free rent. Most likely someone that the lender knows personally.
The tenant gets free rent. The landlord rules are stupid in Chicago, so low and behold, there is a decent chance they are hoping for cash for keys after living their for free.
Didnt you mention that the turnkey company found the property manager? There is a huge chance that the property manager is in on it and is either covering for his tenant buddy who isnt paying his rent or is trying to keep some or all of the rent that the tenant may or may not be paying.
Also if the scam is to take the down payment and foreclose, you are playing right into it. Because its an IRA, you cant pay money out of your own pocket to keep the property afloat if the tenant isnt paying. Everyone involved is likely working together hoping that the house will get foreclosed and they can sell it again to another unsuspecting person who comes along.
GET a LAWYER, GET rid of the Property Manager, file for eviction if you dont have the rent.
3 Reply
Bart H.
Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
7y
Originally posted by @Larry Spradling:

****UPDATE****
I spoke to the property management company yesterday. It's Fairview Realty Group if anyone knows anything about them. They took over the management last year from Growth Equity Group and he told me that he has several landlords in the same position. He has looked into the situation and confirmed that I was part of a scheme between GEG and Genesis 1, LLC. They sold the property to GEG for $70,000 and he said GEG sold it to me the same day for $100,900, and Genesis 1 became the lender. The whole intent was to sell me an upside down property that did not cashflow inevitably forcing foreclosure so that Genesis 1 would get the property back and then rinse and repeat for the next investor.
He recommended that I stop making mortgage payments and that he would continue to collect rent from the tenant on my behalf. He said that it would take 10-12 months to foreclose, so I could walk away with that much in rent money at the very least. He said that he could not deposit the rent money into my IRA monthly. He would have to keep it and then pay me at the end of the process. I'm not sure why he can't pay me monthly. That sounds fishy to me. I don't know who to trust in this situation, or if I can trust anyone. Can anyone here confirm that I cannot collect rent if I'm not paying the mortgage?
@Clayton Mobley, @Jay Hinrichs, @Andrey Y., I would especially be interested in your thoughts.
Let me guess, is your house near 71st S and ashland? or are you a little further south like 90th st?
0 Reply
Craig Bellot
Property Manager · CT · Member since 2014 · 687 posts · 329 votes
7y
I would immediately find a new property manager.
If the current tenant is not paying, you need to evict him and get another tenant ASAP.
I would find an Airbnb management company after that tenant is gone to quickly maximize your income.
If you can catch up on the mortgage then do so with the higher income from short term rental. In Bridgeport, Connecticut AirBnB's can provide higher net income than typical rentals. Even with the higher management fee.
1 Reply
Lou Gonzales
Vendor · Chicago, IL · Member since 2015 · 82 posts · 22 votes
7y
I'm sorry you're going through this. Do you have anyone you trust here that can manage the property for you? How many hours are you away from Chicago are you? I would take a weekend and go to the property let the tenants know payments would be going straight to you from now on ( checks made out to your IRA ) maybe give them a couple extra days because of the mail system but you must have it by the 5th. No exceptions!! In Illinois you can serve them with a 5 or 10 day eviction notice. Take the bull by the horns!!!!!
1 Reply
John BrittPro Member
Real Estate Consultant · Chattanoooga, TN · Member since 2008 · 194 posts · 52 votes
7y
@Larry Spradling also have you considered Airbnb?
0 Reply
George SkidisPro Member
Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
7y
Don't cut your throat to go on a diet.
$22.00 a month will not destroy you.
Have you factored in the equity you are building in your IRA through the monthly mortgage payments when you say negative cash flow. $22 out of pocket verses $25 in equity is not a loss. Just really small and painstakingly slow growth.
Because this is a self directed IRA make sure you follow all of the rules and go through your Director to get these things done.
Property manager needs to be replaced. Check around. The rates for property manager can vary as much as 5%. Find one with a good record and negotiate their fee. Then have IRA Director deal with it.
$22 negative cash flow can be solved at next rent increase unless the property is in the Chicago Illinois area. I make no promises about Chicago. I am from Southern Illinois.
Shop the insurance. If this is a clean property in good repair with no losses I would check with your local Shelter Insurance Agent. They have surprisingly low rental insurance rates. They usually beat Country Financial and in my opinion have better claim service. I had to file a lawsuit against county to get paid.
Check into refinancing ONLY if you can get a lower interest rate AND the costs of refi don't outweigh the interest savings.
Members of Illinois REIA have access to additional insurance markets and Equity Trust for your Self directed IRA. Our members pay no annual fees for their self directed IRA for the first year with Equity Trust.
Good Luck and Good Investing
George
0 Reply
Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
7y
Originally posted by @George Skidis:

Don't cut your throat to go on a diet.
$22.00 a month will not destroy you.
Have you factored in the equity you are building in your IRA through the monthly mortgage payments when you say negative cash flow. $22 out of pocket verses $25 in equity is not a loss. Just really small and painstakingly slow growth.
Because this is a self directed IRA make sure you follow all of the rules and go through your Director to get these things done.
Property manager needs to be replaced. Check around. The rates for property manager can vary as much as 5%. Find one with a good record and negotiate their fee. Then have IRA Director deal with it.
$22 negative cash flow can be solved at next rent increase unless the property is in the Chicago Illinois area. I make no promises about Chicago. I am from Southern Illinois.
Shop the insurance. If this is a clean property in good repair with no losses I would check with your local Shelter Insurance Agent. They have surprisingly low rental insurance rates. They usually beat Country Financial and in my opinion have better claim service. I had to file a lawsuit against county to get paid.
Check into refinancing ONLY if you can get a lower interest rate AND the costs of refi don't outweigh the interest savings.
Members of Illinois REIA have access to additional insurance markets and Equity Trust for your Self directed IRA. Our members pay no annual fees for their self directed IRA for the first year with Equity Trust.
Good Luck and Good Investing
George
He won't be able to refi, as this property won't appraise at even his loan balance, most likely. Pretty crappy situation.
0 Reply
Linda Carretero
Real Estate Broker · Chicago, IL · Member since 2016 · 52 posts · 25 votes
7y
Ok I know this has been a long thread, and I apologize if my response has been stated on other threads already. Do not, I repeat Do not. stop payment and foreclose on it. I am so sorry to hear @Larry Spradling that you are going through this. But Foreclosure will sit on your credit for a long time. Seek outside legal counsel if you have not already. These people have scammed you enough. All people you have mentioned sound "fishy" to me. See if you can get a CMA from a realtor, Fire the Property Management, and you may have an eviction in the works. Be prepared to get your hands dirty.
Who will treat your money better than you? Who is looking out for your best interests?
Hope this helps!
0 Reply
Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
7y
Originally posted by @Linda Carretero:

Ok I know this has been a long thread, and I apologize if my response has been stated on other threads already. Do not, I repeat Do not. stop payment and foreclose on it. I am so sorry to hear @Larry Spradling that you are going through this. But Foreclosure will sit on your credit for a long time. Seek outside legal counsel if you have not already. These people have scammed you enough. All people you have mentioned sound "fishy" to me. See if you can get a CMA from a realtor, Fire the Property Management, and you may have an eviction in the works. Be prepared to get your hands dirty.
Who will treat your money better than you? Who is looking out for your best interests?
Hope this helps!
loan is non-recourse and sits in his ira.
0 Reply
Linda Carretero
Real Estate Broker · Chicago, IL · Member since 2016 · 52 posts · 25 votes
7y
@Victor S. Ahhh got it.
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