Deal gone bad, need advice please

Deal gone bad, need advice please

New York City, NY · Member since 2014 · 52 posts · 4 votes

Hi,

I came into contact with an Atlanta rehab/investor named Andy on BP in Feb or Mar of this year (2014). He had a house for sale in Altanta that needed some major rehab work (about $15k). The house was not in a great neighborhood but was on an owner-occupied block, near bus stop, train, and some new construction so seems to be in a neighborhood that is improving. 

I bought the house for $20,781 which included $8000 financed by the seller and a payoff of all outstanding tax liens and other liens for water bill etc on the house for about $8000.

Prior to the sale, Andy was very easy to reach - we had many phone conversations about the planned rehab and future sale of the house. We signed a JV that he'd rehab the house, take videos, keep good records, etc.

The sale closed on 3/27/14. Since that time Andy has responded only a few times to attempted communications. I would say that in the 5+ since close he has responded perhaps 3 or 4 times to my many texts and emails and phone calls (which always go to voicemail). He told me over the 5 and a half months that he's busy (obviously since as soon as I bought the house the long friendly conversations came to a screeching halt). He told me that the city inspector wants electrical re-wired to the curb and he has 2 bids to do it for $4k and $7k but the $4k electrician isn't available. Other than that I know nothing about the house other than its' address and a video of it made in perhaps Jan 2014.

Andy has the keys to the house. I asked him about insurance and he said "we have insurance" but when I asked him later who the insurance is with he hasn't responded - similar to almost every other attempt at communication with him.

I know that a property tax bill will be upcoming on the house for about $1200 in November. I also took a HELOC against my primary residence to buy the house and I'm paying interest on that to the tune of about $100 per month. So my total carrying costs are $200 per month. I'm worried about insurance on the house since at this point it's hard to trust that Andy has done anything about that even though he said he took care of it. And thinking about it now it doesn't make sense to me that he'd carry insurance on my place anyway.

I called a real estate agent in Atlanta who was familiar with the house (listed it in previously) and that agent felt that the house is in a neighborhood that is improving and in demand, and that the house could be rented out after decent rehab for about $800 - $900 per month or be sold pretty easily after rehab since there is good demand by buyers in that neighborhood.

I'm live in Denver so now that my partner on this deal, the seller Andy, has been basically unavailable for 5+ months I'm not sure how to proceed. I sent a text and email to him asking for the keys to the house but like every other attempt at communication I'm sure he'll ignore it. I do have the deed to the house.

What steps should I take? I've no idea how to get the keys to the house or any control over the property. If I'm able to actually get the keys then I could try to rehab the house and rent it using a property management company, or sell it without rehab. I feel quite lost without any eyes, ears, hands on the ground in Atlanta. It's still hard to believe that my JV partner who'd have long conversations with me before I sent money to buy the house and pay off the liens, has gone almost completely silent.

To do either a sale or a rehab-rent I need keys and to do rehab I'd need a trustworthy and reliable and honest general contractor to estimate rehab and do rehab in Atlanta I guess. I would have to pay off the $8000 to Andy in any case although without his response to any communication I'm not sure how to do that. He has never sent me a signed copy of our JV despite my requests (I signed and sent to him then silence began).

Advice?

Thanks

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Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
12y

@John Pruner I'm happy to help in any way including giving you unsolicited advice. :-) 

My plan would be:

1.  Reassess the deal.   What are the real costs of rehab, resell, rent, clean brake from Andy, etc.?  

2.  Review your options for exiting the deal.  Does it makes sense to rehab/sell, sell, rehab/rent?

3. Break up with your partner. I'd let him know you no longer can work with him. JV is off. Rekey the house. Offer to settle the $8k under a new JV where he gets the money at exit or down the road. Most likely, another investor is missing $8k.

4.  Pick a new path and, as we like to say, get 'er done.  

You seem to have a sense of calm (no panic).  First deals are hard for this very reason.  Shake it off and get this deal to exit.  Keep trying, because now you've almost graduated from level 1 of investing (Bad Contracts and Contractors). 

Rick

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  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Steve Babiak:
    Originally posted by @Michael Moikeha:

    ...

    For everyone else who doesn't want to spend a year on a deal with a partner who is unreliable, please help the rest of us out and tell us who this BP'er is so we can avoid him. Good guy or not, he is not someone any of us would like to do business with.

    ...

    I am guessing this is the person:

    http://www.biggerpockets.com/users/myrentedroom

    Yup. Check out the marketing spin from the lender website where the rehab that hasn't happened is referred to as if it's completed and partially rented. The crowd funding lender must feel as bad as the OP.  I suspect the lender is pushing Andy to get his act together, hence Andy's current interest in deal making with the OP.  The good news is that between BP pushing the OP and the lender pushing Andy, maybe this will get wrapped up.

    http://webcache.googleusercontent.com/search?q=cache:L9Of0sUHOy4J:blog.groundfloor.us/loan-11-1371-avon-avenue/+&cd=6&hl=en&ct=clnk&gl=us

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y

    From the link that 

    @Account Closed provided:

    "... Using his MyRentedRoom model, Andy is able to rent the renovated properties and sell to a 3rd party buyer at a premium. ..."

    Why does that sound fishy???

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    Yes, you are right - no permits. I just searched Rick. Thanks. I didn't even realize we could search this way.

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y
    Originally posted by @Account Closed:

    Giving that guy 3 full days to mow and board, after what you've been through the last 8 months, and after the advice and help you've been given here? I'm outta here.  

     I understand your exasperation. But he told me that he spent all day on Wednesday in the hospital with his significant other who just had her 3rd stroke. He's got kids with her and he has to care for them. Could it be B.S.? I don't know maybe but I don't want to be inhuman here. 

    What does it matter if he does this Thu, Fri, or Sat? Not that much the arrest citation is already written. 

    He's also going to do more than board it. He is going to put bars on the windows drilled through the frame and put reinforcements into the doors by going through the walls and through the door frame. He's also going to install new exterior doors. 

    If he just boards it I guess the vandal can pry those off easily? I am honestly not too sure since I've never boarded a house. But his "secure the house" plan seems like a better one than boarding. 

    If he doesn't do it by Saturday then I pay someone to board it myself early next week....a member here has (amazingly) offered to do it and I'll pay him for it. If he does do it then I have a more secure house. I want to get out of this deal and any improvement made to it like securing it can only help that happen.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Steve Babiak:

    From the link that 

    @Account Closed provided:

    "... Using his MyRentedRoom model, Andy is able to rent the renovated properties and sell to a 3rd party buyer at a premium. ..."

    Why does that sound fishy???

    That's the secret sauce, renting by the room. Nothing says mark up like a fully rented by the room turn-key. :)

    Tell the partner what they want to hear, tell the lender what they want to hear (and let their marketing dept. feature your unfinished rehab as a success story). The whole thing is crazy pants.  Groundfloor looks ridiculous here, like teenagers with an idea and an internet platform. 

    The clock is ticking till someone with a law degree or a site owner with liability paranoia shuts this thread down,.....

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    There has been a lot of semi-shouting at me in the last page or 2 of the thread. I'm trying to have thick skin and take it all as constructive criticism. I have read and thought about everything that has been said on this thread. Please bear in mind that this isn't the only story of a failed investment out there. You might have heard a few on the BP podcasts that are much bigger than this one. I've heard a lot of podcast interviewers and guests say that their past failed deals were like paying for an education. I'm in this situation now. Thanks for your support, advice, and offers of help.

    At this point all I care about is exiting this deal while losing as little money as possible. Do I wish I'd exited in fall of 2014? Of course. I mis-judged at that point. It hadn't been a year, it had been less than 6 months. My JV partner had been deathly ill from mold during the summer. He returned enthused and renewed. I should have exited right then but I bought the plan he laid out, in part because I didn't really know if I could sell the house, pay off liens, and still get my money out. I wish I'd tried.

    But I can only go forward. I'm trying to figure out the best way to move on from here. Step 1 is to get the house secured and mowed. If the JV partner will "super" secure it great. If not I'll pay someone board it and mow it.

    Step 2 is to figure out the court case and resolve it. I'll hire a lawyer at end of next week if I can't resolve it by then another way.

    Step 3 is to get as much money as I can back out of the house. I'd prefer not to write off the $21k I have into it when doing this. I'm not sure what the best method to achieve that is. If the JV partner wants to structure a deal with a lawyer that I bring in that allows me to be removed from any liability on the house but have a lien against it then maybe that's a good way. If I can sell it to someone through a realtor then maybe that's a good idea. If I can get it fixed up and rented.....well that doesn't sound so good because I'd have to put more into it to get to that point. Thinking about it even more, perhaps just straight out listing it with a realtor end of story is the best option because then I can avoid legal fees.

  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    11y
    Originally posted by @Steve Babiak:
    Originally posted by @Michael Moikeha:

    ...

    For everyone else who doesn't want to spend a year on a deal with a partner who is unreliable, please help the rest of us out and tell us who this BP'er is so we can avoid him. Good guy or not, he is not someone any of us would like to do business with.

    ...

    I am guessing this is the person:

    http://www.biggerpockets.com/users/myrentedroom

     Thanks.

  • Seattle, WA · Member since 2013 · 2 posts · 4 votes
    11y
    Originally posted by @John Pruner:

    No, actually, you don't. Your continued belief that your JV partner is suddenly, after hundred's of failed attempts, going to execute on what he says means you still don't actually get the problem here.

    Originally posted by @John Pruner:

    I don't know, where the last 30 stories he told you BS?  Why would it change now?

    Originally posted by @John Pruner:

    Seriously?  You think he is suddenly going to go above-and-beyond when he hasn't executed on the basics?

    Originally posted by @John Pruner:

    I might suggest that that statement deserves the most attention of your entire post.  You have repeatedly asked for advice on "how to get out of the deal" and you haven't really taken any of them to heart.  

    You still think you are going to get something out of this deal.  YOU AREN'T.  The money you have in is sunk cost and you are potentially on the hook for more money since you are on title.

    First order of business:  have a couple cold ones and repeat:  "That investment is gone, I can't get it back."  Then:

    - Stop talking to the JV partner
    - Send a check to the BP good Samaritan that is willing to be your eyes and ears and implore them to secure the house, take full documentation pictures and video
    - Call a lawyer

    I know it sounds harsh, but you need to first let go of the investment.  Once you do that, anything you might get back is gravy.  But it is likely gone.  Chalk it up to experience.

  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    11y

    http://www.zillow.com/homedetails/1371-Avon-Ave-SW-Atlanta-GA-30310/35841778_zpid/

    Here is your property listed for sale on Zillow. It has been listed for the past 270+ days. It looks like it has the correct "Last Sold" info, but it is interesting that it is back up for sale. 

    I would call the listing agent and see why and who has her listing it.

  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    11y

    Also @John Pruner, we are yelling. Know why? Because you keep asking for help but then decide to disregard the ONE piece of advise that EVERYONE is giving ...

    STOP TALKING TO YOUR JV PARTNER!!!!!!!!!! (Im yelling this at you!)

    Even your last post:

    "If the JV Partner secures it" .... "If the JV partner wants to structure a deal" ....

    There should be NO MORE Andy in ANY of your plans!

    Start making all your plans without him in mind. It is NOT inhumane to take care your yourself. This is reminiscent of a domestic abuse situation. He comes back with a great story and revives your confidence. "Maybe THIS time it will really be different ....." (Sorry if this hits close to home for anyone, but if so, then you see it as well). 

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    I like your advice Steve.

    About the zillow listing I've already called that agent. It's not for sale by her.

  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    11y

    I have an alternate way for you to think of this if it helps:

    Asking him to split his time between his dying love, and your JV Partnership is unfair of you. Let him be with his love, and find someone else to help you exit this project. Let any liabilities he may have go and all monies he may have spent of yours go as a present to him and his ill partner.

    Do it for him. Let him go, so he can spend his time and energy with his partner.

    (In no way was this sarcastic. Just trying to change the perspective)

    Okay, I think thats all I have to say for now.

  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    11y
    Originally posted by @John Pruner:

    I like your advice Steve.

    About the zillow listing I've already called that agent. It's not for sale by her.

    Interesting ... Does any real estate agent have an answer on how this might have happened, or how to reconcile it? Is this just a Zillow glitch, or can you pull it up on the MLS and get the correct data?

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    I think Zillow data is just old/bad data in general. I find lots of problems with Zillow data. MLS I'm sure would have the correct data.

  • Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    11y

    @John Pruner  I think you're thinking logically and your priorities are straight.  Secure the house and avoid any legal/city issues.  It's no big deal to get these things done. 

    It also sounds like you and Andy have a new agreement.  Don't be afraid to put it in writing, formally or informally.   This is as urgent as getting the house secured.

    You've taken some great steps this week. You've already mentioned having a performance agreement with a timeline which includes near term milestones was one way. Waiving the lien for failure to perform another. Keep wrestling with this and you'll have a framework for Andy or any partner/contractor.   Being repaid for poor performance.

    Getting Andy to finish the work on-time, correctly is a long shot but he may do it and save you thousands.   He may also be willing to pay you back entirely to save his reputation and avoid prosecution for fraud or acting as a GC without a license. 

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by :

    Getting Andy to finish the work on-time, correctly is a long shot but he may do it and save you thousands.   He may also be willing to pay you back entirely to save his reputation and avoid prosecution for fraud or acting as a GC without a license. 

    I'm going with your take.  Andy's got more than one project funded at Groundfloor lending.  He's got the BP community on alert.  If he has funds or access to funds to cash out the OP asap....that would be to his advantage.  He misrepresented property value to Groundfloor. Now you say he is acting as a GC without a license.  He needs to pay the OP to make us all go away.  In his shoes, I'd do so and be happy for the opportunity.

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    The JV partner took a crew out the the property today. These are the things he said he did.

    He said the guy he'd paid to mow it lived 2 houses down and his house burned out. The guy is gone so that's why it wasn't getting mowed.

    He said he would find someone else in the neighborhood to do the mowing. He wants to spend the money in the neighborhood to get eyes on the property. He also walked around and talked to all the neighbors to get them to watch the property.

    He found a guy sleeping in the house. He left his card with neighbors and asked them to give the guy his phone because he wouldn't mind paying the homeless guy to sleep on the property or watch the house.

    He replaced the broken window but left it unsecured because he doesn't want anyone to break it to get in.

    He mowed the lawn. He says he'll be out there every week and keep it mowed.

    He put on a new front door with locks.

    He bolted on the back door and installed a new lock.

    He installed a deadbolt on the front security door.

    He did some roof repair. He cleaned out the gutters. He's going to bolt down the trap door from top floor into basement and remove attic ladder so vandals can't get into attic. He's going to install a fence/gate between front and back yard so someone can't get a truck into back yard. He said he put 8 inch bolts through door frames and later he'll grind them down to finish them.

    He's going to send out electrician to do rough in wiring at end of next week then once he gets the money together he'll do full wiring with inspection, then finish walls and floors and get a tenant in.

    He didn't say when he'd get grates/bars over windows. He left a voicemail for the inspector and will try to make the arrest citation go away by showing him what he's done to the house.

    He will try to put together a buyout for me and leave me in a lien position on the house but a participant in the JV to take profit split if I want to be rid of liability on the house. I told him I'd need to have a lawyer look over it if he puts that together.

    All of this is what he said. I can't verify any of it is true other than these photos. He said he spent the full day there today. He said he's committed to making this property a success and he hopes to get ahead of our timeline. I asked him to prove it by keeping up the momentum. He said his main snag is funding to get full electrical in but he will work on that and do it as soon as he can. 

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    Oh, the guy sleeping in the house ran off when the crew arrived in the morning - he couldn't catch him to explain that he'd be willing to buy him some groceries etc if he'd keep an eye on the house.

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    I asked him about boarding up the house but he thinks that any vandal/burglar would have a pry bar and get in anyway. He thinks boarding it is more an invitation than a help.

  • Investor · Indialantic, FL · Member since 2013 · 111 posts · 76 votes
    11y

    This might be the first time I hoped the OP was a troll because this is too painful to read...

    Here's another way to look at this, I could never F up on any job I've ever had for this long and still be employed. Fire your "JV partner", you are now the boss.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Michael Olesky:

    This might be the first time I hoped the OP was a troll because this is too painful to read...

    Here's another way to look at this, I could never F up on any job I've ever had for this long and still be employed. Fire your "JV partner", you are now the boss.

    Truly one of the weirdest (and most painful) threads ever in my 3 years on BP. I communicated with the OP via PM and off board, providing all kinds of evidence that would make anybody run from the "JV partner". I too thought maybe I was being trolled, but there is easy to find data for the property, the OP and the jv partner. Andy and JP deserve each other at this point!

  • Investor · Tacoma, WA · Member since 2015 · 84 posts · 42 votes
    11y

    I was going to say this whole thread was totally made up as well, as the OP is beyond clueless. At this point he deserves to lose his money. 

  • New York City, NY · Member since 2014 · 52 posts · 4 votes
    11y

    I'll stop posting on this thread henceforth. Thanks for the thoughts.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y

    The person/thing/entity posing as John Pruner wins! Perhaps you are an alter ego for Andy Luick of Handy Andy in GA?  Maybe you are some sucker in Denver who bought into one of Andy's yet to be profitable Atlanta resales?  Maybe the two of you are one in the same and managed to fool Ground Floor into lending you funds. Regardless, it's past your bedtime. 

  • Investor · Indialantic, FL · Member since 2013 · 111 posts · 76 votes
    11y

    @John Pruner

    John, you have to realize you've been asking for advice on this issue for 9 months and instead of taking anyone's advice you have spent this time giving excuses for "JV"'s shortcomings. So folks are obviously frustrated since they've spent their valuable time reaching out to you online & offline to help you out of this mess.

      The advice has been consistent here, HANDLE YOUR BUSINESS. 

    This doesn't mean calling JV and asking him to do anything, this means flying to Atlanta and securing your asset and ending your relationship with the JV. Which was my advice 9 months ago.

    His problems aren't your problems. The guy who's house burned down and he couldn't mow your lawn earned you an ARREST WARRANT and who know's how much in fines and lawyer bills to clean up this mess. I feel for the guy, that sucks, but that should have absolutely no implication on your project except that you have to call someone else to get it mowed. Hell, that could have been a win win if JV was smart enough to offer the guy a place to stay in your vacant home so he could at least continue mowing the lawn if not doing other work. Maybe, maybe not but something I would have looked into.

    I had a good friend when I was younger that always gave me the best advice.  Whenever I came to him complaining about a problem....

    he's advice was always "Handle it!".  That advice hasn't failed me yet. 

    So John, in honor of a fallen friend, Alex and I both recommend you HANDLE IT!

    Report back when you've handled it.

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