Lead investor of apartment complex fraud

12 Replies

We are investors of a five apartment deal in Houston.  We all mostly live in Austin.  The main investor, we suspect, are falsifying the books as although the rental market is hot here in Texas, we get paltry distribution checks.  He complains that the apartment rental market in Houston is very competitive, that tenants are lured away by move in specials, etc.  How can this be as more and more people are moving into the larger cities of TX.

How can we start an investigation?  I think a lot of the investors are older folks and $50,000 does not mean a lot to them and they pretty much wrote it off.  The lead investor says that the apartments are for sale but no one is buying them since two years ago when they were listed.  I think he is riding high on the rents and leading all of us on.

Please help.

Does the Managing member not share the books?

Happy to help being local but you really need to contact an attorney.

@Audrey C.  We have done audits before for out of state investors. We know the Houston market very well, are local as we live and invest in Houston. If we can be of any assistance please let me know.

Thank You,

Ronnie Young

@Ronnie Sparrow first let me say a few thoughts,

Management is a large part of keeping tenants. Poor management can drive tenants out due to pricing, conditions, just normal service failures and many other things.

A property for sale 2years? Give me the address! I know tons of people looking to buy, including me!

- now location is key to MF properties as well as price and condition... This may be why it's -not selling.

Now my opinion: 

Have you thought of hiring a different management company. That is the best idea and will solve many of your possible issues. They will also find fraud if there is any by doing the books.  If you bought the properties 2 years ago (30-35k a door) and are below 75% occupancy there may be no fraud... Rents are not yet up to the pricing over these last few years.

As for the sale- I know people that can get them sold but I would like to see them first... I may want to buy them. 2 years is a long time, are you over priced? A class C is not selling at 45k a door but I can't imagine not being able to sell in this market. You may need to contact a new broker.

either way, send me an email of the property listings, addresses, and financials(I can sign confidentiality docs if you need). I can get it to the right people or tell you why it is not selling. @Account Closed  .

As for the fraud, seriously think about hiring a different management company. This will get the lead out of the books for the most part and make it harder to steal without notice. They may also be able to increase occupancy or come up with a few things that can cut costs ( possible fraud area) and improve the sales aspect of the properties.

I have an old family friend that has managed our MFs and made them great. I can't remember the name of his management company but he does great work.

Originally posted by @Audrey C. :
I think a lot of the investors are older folks and $50,000 does not mean a lot to them and they pretty much wrote it off. 

 $50,000 doesn't mean a lot to them???  I wish I knew people who were willing to "throw away" $50,000. They could throw it away to me!  (j/k)  

I hope you get to the bottom of your mystery!

@Audrey C.  

  what you described has been described to me ever since the 1980s about apartment investing in Dallas and Houston there was some pretty big SF bay area players that went to those markets in the 80's and early 90's that ended up losing their buildings to foreclosure for those exact reasons... Competition for tenants with move in specials brand new buildings being built down the road the next thing they know they are 40 % vacant and of course anything approaching 20% is going to cause negative cash flow if you have standard leverage...

Then again you could have a PM that is stealing you blind I have seen that many times in the industry.. and or a promoter who is either doing poorly because of all of the above or just is cooking the books like you are thinking..

When folks go into these deals it is so imperative to do a full background and business search on your General Partner sponser.. a bad one can ruin a good property and good one can turn around a poor performer...

But again I would start with other PM's in the area and ask about your units you may have units that are undesireable and are suffering from rental competition like was mentioned ot you.


@Audrey C.  lots of scenarios could be happening. Could be mismanagement, a property with tons of deferred maintenance that's being addressed, a property that isn't competitive based on how it looks, or as you mentioned the investor is simply taking cash out of it. 

First and foremost you need the reported #s on the property. That includes an Operating Statement, Balance Sheet and Rent Roll. You should be getting that already as an investor. Then determine if those #s are accurate and speak to a couple people on this thread who are in the market and offered to help. 

The market here in Houston is the best it has EVER been for finding tenants. If you look at historical occupancies vs. current occupancy rates, there has never been a better time to own residential rentals in this market.  

Mismanagement or fraud is the culprit, not the market.  

Thanks for all replies.  I am sorry as after I wrote this post, I had to go away on vacation. 

I am now working with other passive investors and hoping they all will cooperate with my intentions to see what is really going on.

@Michael Ran, if you care to supply your business email, I will be happy to email you and ask you what you may need like addresses, financials, etc.

You aren't THAT far away. Just roll into town and take a peek.

@Audrey C. , would you mind sharing the name of your lead? 

[email protected] is my spouse's address and you can use his.  I will email you the lead's name.  Use subject "lead investor." 


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