I did a mistake by 100% trust the realtor and end up with a nightmare

[Summer Dechanukul]

Hi everyone!

I'm Summer (Newbie for real estate) 

My stupidity was I 100% trusted the realtor when he said the house (duplex) is a good and I don't need an inspector and I did believed him. Then I sign everything and took this deal with no inspection. Later I got the violation letter , a long list of what needs to be fixed which was a lot. I have done changed the HVAC for both unit, brand new and for HVAC the inspection was already passed. and I changed all windows for both unit. also I changed the new electric panels and changed all outlets for both unit but the inspection said I needs to run all electric the whole house which means I have to pay more for run the electric and replace all drywalls, that means I have to put lots more money into it.

the question is should I go further or should I cut loss? It's very tough decision for me.

- If I should cut loss. I got offered $120,000 with no inspection now

  but  I already spent $107,900 and I have mortgage balance $119,000 that I have to close 

  which means I'm going to lose around $115,000

- if I should go further 

  I have to pay more for run all electric $15,000

  Replace all drywalls $3,000 

  Plumbling $3,500

  and after I got all these done. I have to do the building inspection which I'm not sure how much more that I have to put the money into? Any Idea about the foundation?

  If I can make it done. the rent around that area for 2 units will be $1,700 monthly 

Option 1 = Cut and loss around $115,000        (which is so painful T_T)

Option 2 = Put more money $30,000 or more and get a rent $1,700 a monthly 

Please help me with my stupidity. Please give me advice. I would like to get away from this nightmare.

Thank you so much for your help.

[Shaan Kashmir]

Hi Summer, i am really sorry this happened to you. I will be honest, i have bought properties without inspection and understood what that meant, which was i could potentially have to redo everything or almost everything.

I dont think any one of us can tell you what exactly to do here since it depends on many factors such as :
1. Your financial ability to fund this and recoup
2. Would the deal make sense if you funded it and got rented it out?
3. Do you have time to do all the remaining work? or are you burnt out?

Personally, at this point if we are only talking $30K, I would finish it and rent it out with slightly above market rent since it will have newer finishes.

Plus also not sure who sent you the violation letter? the city? You can also try to work with them.

[Russell Brazil]

Was the agent your agent or the sellers agent?

[Summer Dechanukul]

my agent. I used him because one of my friend bought a house in that area with this realtor then I got referred from my friend and I trusted everything he said. After I got the violation of course, he disappeared. I did a huge mistake T_T

[Bjorn Ahlblad]

Your unfortunate experience is summed up in the word ‘trust’. Whatever happens to us in this business is OUR own fault! All the best!

[Sastry Srini]

Quote from @Summer Dechanukul:

Hi everyone!

I'm Summer (Newbie for real estate) 

My stupidity was I 100% trusted the realtor when he said the house (duplex) is a good and I don't need an inspector and I did believed him. Then I sign everything and took this deal with no inspection. Later I got the violation letter , a long list of what needs to be fixed which was a lot. I have done changed the HVAC for both unit, brand new and for HVAC the inspection was already passed. and I changed all windows for both unit. also I changed the new electric panels and changed all outlets for both unit but the inspection said I needs to run all electric the whole house which means I have to pay more for run the electric and replace all drywalls, that means I have to put lots more money into it.

the question is should I go further or should I cut loss? It's very tough decision for me.

- If I should cut loss. I got offered $120,000 with no inspection now

  but  I already spent $107,900 and I have mortgage balance $119,000 that I have to close 

  which means I'm going to lose around $115,000

- if I should go further 

  I have to pay more for run all electric $15,000

  Replace all drywalls $3,000 

  Plumbling $3,500

  and after I got all these done. I have to do the building inspection which I'm not sure how much more that I have to put the money into? Any Idea about the foundation?

  If I can make it done. the rent around that area for 2 units will be $1,700 monthly 

Option 1 = Cut and loss around $115,000        (which is so painful T_T)

Option 2 = Put more money $30,000 or more and get a rent $1,700 a monthly 

Please help me with my stupidity. Please give me advice. I would like to get away from this nightmare.

Thank you so much for your help

 I am confused.. would you please clarify a few things

1. What was the purchase price for the duplex? The post says , I spent $107k and $119k mortgage balance .. 

2. Additional spend you have identified for electric work ,drywall and plumbing ~ $30k

3. Unknowns - foundation? Additional items..

Given all of the above, is there a way you can get an inspection to identify the total cost of rehab ? Once you have the data, you can make better sense of After Repair Value of the property, then decide to cut your loss or hold/rent it. 
Hope it makes sense and things work out for you. 

[Ke Nan Wang]

Personally I wouldn't give up that easy I'd keep going and try my best to turn it a profit. 

I believe how a person treat one deal is how they will treat every deal. If I made a mistake, besides learning from the mistake, I'll work extra hard to make the deal as best as possible. 

The minimum I would do is to finish this property and list it on the market with the right realtor for sale so I'm not wasting the money I invested in the property. I may take a small loss but it wouldn't be over 100k. 

But if the property will breakeven or cashflow, and there is a chance for appreciation, I would rent it out and sell it at the right time. 

[Mark S.]

@Bjorn Ahlblad What’s your point in posting that? The first thing the OP said was that she made a mistake in trusting the realtor.

[Bjorn Ahlblad]

Quote from @Mark S.:

@Bjorn Ahlblad What’s your point in posting that? The first thing the OP said was that she made a mistake in trusting the realtor.

 That, and anything else is on you/me. Trust no one.

[Greg M.]

Everything you've spent so far is a sunk cost. Take all that out of the equation and you have two options. Option 1, someone takes the property off your hands and your mortgage goes away. You're guaranteed a loss of $115K. Option 2, you risk $30K with the belief that the unit will begin generating some free cash flow. 

Some rough numbers, a $119K mortgage is about $800/month. I don't know Cleveland, but let's say that taxes and insurance total $200/month. Rent will be $1,700/month. Therefore, the unit has the potential to free cash flow $700/month right now. Are you willing to risk $30K for the potential to free cash flow $700/month? 

You'll recoup your $30K in 3.5 years. You'll build another $5K in equity in the place over that time. The unit may also appreciate in value. 

You bought a lousy investment. However, given the mortgage and the rent levels, you have the ability to let time dig you out of your hole. With the level of free cash flow, you can easily be paid back all the money invested in this place, all the while building decent equity. It won't happen over night, but it will happen. 

I'd spend the $30K and keep the place. 

[JD Martin]

Well, as someone who has lost over $100k before (listen to my podcast in my signature!), I have three observations:

1. Losing that much money really sucks;

2. You can recover from losing that much money;

3. If you don't panic you might not have to lose that much money.

A big part of this is your ability to carry the note right now. If you are about to lose the house to the bank because you can't afford to pay the mortgage, then you are going to have to make some fast and hard decisions. If, however, you can afford to pay the note, then I would definitely spend the last little bit, get it finished and either rented or sold as a completed, rehabbed property. The biggest mistake I made when I lost my money was failed to consider what other options I had other than selling short to get out from under the note. Of course, back then (in the 90s) there wasn't any real internet or Bigger Pockets to get advice from, so I had that disadvantage, but nevertheless I made a poor decision by selling in hindsight. 

[Theresa Harris]

I'd talk to the building inspector and get an idea of all of the work that is required to get it to code.  Then talk to your contractor and get an estimate of the costs and how long it will take to get it done.

[Anthony Swain]

@Summer Dechanukul 

I'm so sorry this happened :/ 

Reading this was painful and it wasn't even my investment. Unfortunately, a lot of unexpected costs with potentially more down the line. Silver lining, EVEN MORE lessons learned. In the future, when you deal with any RE professionals make sure to properly "vet" them by reading reviews, conducting phone interviews, speaking to previous clients ,etc. If you do work with another agent, then I would look for an investor friendly agent with experience in these type of investments. A good place to start is here on BP or referrals from other successful investors in the community. 

I would piggyback off of what @JD said. If you sell at $120k then you're locking in a six figure loss. There is potential that you can finish the job, rent out, and recoup some or all of your investment in the future. 

I would do what @Theresa Harris mentioned. Try to set up a walk through with a building inspector to know exactly what needs to be done to pass, then get a scope of work with a contractor. If the contractor says it will truly only cost another $25-30k to get done then it might be worth it. If the contractor says it will be another $50-$100k, then that might be a different story. 

You also have to consider the ARV in your decisions. Is a completely renovated duplex in that area worth $350k-$400k or is it worth $225k. If the latter, then maybe investing another significant chunk might not be worth it.

This was just my quick thoughts. I hope it works out for you. I'd continue to post your questions on here and seek guidance from vetted professionals. 

-Ant

[Ray Hage]

Hi Summer, sorry to read this nightmare of a story. Your realtor was looking for the quick money. I would report them to their broker and also consider a lawsuit as Realtors should not be giving advice about not doing inspections. I am not sure about whatever other advice you were given but it might be worth chasing him through his broker. If he is the broker himself, you could report to the state and see what happens from there....That doesn't solve your current problem however.

If you only need an extra 30k to get everything up to code and have the place rented out, I think it is worth doing. Do you have the ability to pay the monthly mortgage and get funds for the 30k? If yes, I would lean towards keeping it up and holding for a while as others on this thread already stated.

I started as and still am an investor. I also became a realtor a couple years ago. It is really difficult finding a realtor you can fully trust so be careful out there. I run into dishonest ones all the time who withhold information from clients and this is both on the buyer and seller side.

[Lynn McGeein]

@Summer Dechanukul If your agent really represented that the home was in good working condition and actually told you that you didn’t need an inspection to verify, you should report him to his broker and file a complaint with the state real estate board, maybe talk to an attorney about a civil suit for damages against the agent and broker if they misled you. If the agent/listing disclosed it needs work, selling as-is but that you likely wouldn’t win bid with an inspection contingency, then you decided not to have it inspected, that’s a different, hard lesson. Get contractor estimates for total repair and if numbers still work and you can afford it, keep going. If not, sell. Most of my investor clients are contractors or come to showing with their contractor to get estimate of repairs before writing an offer. For competitive investment property, not being prepared to evaluate costs at initial showing, before making offer is really a waste of everyone’s time. Real estate agents are usually not also licensed contractors who can provide that information, so unless yours is, he should not be stating everything is in good working condition unless he can provide you with a professional report supporting that.

[Gregory Chadwell]

I really get uncomfortable when we write without a home inspection.  Instead, i suggest put in a home inspection contingency with a clause stating anything under $1000   We would not request...

[Mark Cruse]

Please, stop referring to yourself or actions with terms like stupidity. You made a costly mistake, and any senior investor here saying they have never made one is lying. This is a tough one. What you are describing to get it to code could be way way way beyond what you are expressing here. Iḿ not a fan of losing anything let alone 100k, but sometimes it cant be avoided. You appear to be very young so just having 100k is impressive in itself. If you can stomach losing it, you sound like you will be ok eventually. Its just too many unknown variables for me to lean in on it. However, if all those costs to code makes the property double or triple the ARV, it kind of speaks for itself. You have to seriously assess the actual numbers you are dealing with, then you can create a viable strategy. Another alternative is creating some incentive to bring on an experienced investor and maybe work this stuff over the years to possibly navigate the pain. Good luck. Be proud you took the first step where many afraid to.

Question? You said it was a 2 unit. Is that $1,700 a month for each unit meaning a total of $3,400? 

[Jeff S.]

@Summer Dechanukul if someone can't say they have been deceived by a contractor or someone else in business then they haven't done much business. You are almost there so finish it up and you will know going forward what is new so years can go by before (hopefully) more big ticket repairs. And stop being hard on yourself. Trusting someone shows you are an honest person. Good luck.

[Summer Dechanukul]

Quote from @Sastry Srini:

Quote from @Summer Dechanukul:

Hi everyone!

I'm Summer (Newbie for real estate) 

My stupidity was I 100% trusted the realtor when he said the house (duplex) is a good and I don't need an inspector and I did believed him. Then I sign everything and took this deal with no inspection. Later I got the violation letter , a long list of what needs to be fixed which was a lot. I have done changed the HVAC for both unit, brand new and for HVAC the inspection was already passed. and I changed all windows for both unit. also I changed the new electric panels and changed all outlets for both unit but the inspection said I needs to run all electric the whole house which means I have to pay more for run the electric and replace all drywalls, that means I have to put lots more money into it.

the question is should I go further or should I cut loss? It's very tough decision for me.

- If I should cut loss. I got offered $120,000 with no inspection now

  but  I already spent $107,900 and I have mortgage balance $119,000 that I have to close 

  which means I'm going to lose around $115,000

- if I should go further 

  I have to pay more for run all electric $15,000

  Replace all drywalls $3,000 

  Plumbling $3,500

  and after I got all these done. I have to do the building inspection which I'm not sure how much more that I have to put the money into? Any Idea about the foundation?

  If I can make it done. the rent around that area for 2 units will be $1,700 monthly 

Option 1 = Cut and loss around $115,000        (which is so painful T_T)

Option 2 = Put more money $30,000 or more and get a rent $1,700 a monthly 

Please help me with my stupidity. Please give me advice. I would like to get away from this nightmare.

Thank you so much for your help

 I am confused.. would you please clarify a few things

1. What was the purchase price for the duplex? The post says , I spent $107k and $119k mortgage balance .. 

2. Additional spend you have identified for electric work ,drywall and plumbing ~ $30k

3. Unknowns - foundation? Additional items..

Given all of the above, is there a way you can get an inspection to identify the total cost of rehab ? Once you have the data, you can make better sense of After Repair Value of the property, then decide to cut your loss or hold/rent it. 
Hope it makes sense and things work out for you. 

 The purchases price was $165k 

I spent on the closing date for $47k 

I spent for improvement, mortgage and etc around $60k until now

Additional spend roughly $30k and not sure about the building inspection.

I'm not sure about the foundation of this house if the building inspection what else needs to be fix

I'll hire the inspector to inspect the house and let the contractor estimate the cost and see what decision I should make.

Thank you so much for your advice. It's very helpful

[Summer Dechanukul]

Quote from @Shaan Kashmir:

Hi Summer, i am really sorry this happened to you. I will be honest, i have bought properties without inspection and understood what that meant, which was i could potentially have to redo everything or almost everything.

I dont think any one of us can tell you what exactly to do here since it depends on many factors such as :
1. Your financial ability to fund this and recoup
2. Would the deal make sense if you funded it and got rented it out?
3. Do you have time to do all the remaining work? or are you burnt out?

Personally, at this point if we are only talking $30K, I would finish it and rent it out with slightly above market rent since it will have newer finishes.

Plus also not sure who sent you the violation letter? the city? You can also try to work with them.

 Thank you so much for your advice

I'm a bit burnt out because I work a full time job and also I live out of state but I would like to fight and learn by my huge mistake.

I got violation letter a long list from the city. I flew there once and went to the city but it's a bit tough for me since I live out of state but I'll try my best. Thank you so much for sharing your experience and give me an advice. Wish me luck. 

[Sastry Srini]

Quote from @Summer Dechanukul:

Quote from @Sastry Srini:

Quote from @Summer Dechanukul:

Hi everyone!

I'm Summer (Newbie for real estate) 

My stupidity was I 100% trusted the realtor when he said the house (duplex) is a good and I don't need an inspector and I did believed him. Then I sign everything and took this deal with no inspection. Later I got the violation letter , a long list of what needs to be fixed which was a lot. I have done changed the HVAC for both unit, brand new and for HVAC the inspection was already passed. and I changed all windows for both unit. also I changed the new electric panels and changed all outlets for both unit but the inspection said I needs to run all electric the whole house which means I have to pay more for run the electric and replace all drywalls, that means I have to put lots more money into it.

the question is should I go further or should I cut loss? It's very tough decision for me.

- If I should cut loss. I got offered $120,000 with no inspection now

  but  I already spent $107,900 and I have mortgage balance $119,000 that I have to close 

  which means I'm going to lose around $115,000

- if I should go further 

  I have to pay more for run all electric $15,000

  Replace all drywalls $3,000 

  Plumbling $3,500

  and after I got all these done. I have to do the building inspection which I'm not sure how much more that I have to put the money into? Any Idea about the foundation?

  If I can make it done. the rent around that area for 2 units will be $1,700 monthly 

Option 1 = Cut and loss around $115,000        (which is so painful T_T)

Option 2 = Put more money $30,000 or more and get a rent $1,700 a monthly 

Please help me with my stupidity. Please give me advice. I would like to get away from this nightmare.

Thank you so much for your help

 I am confused.. would you please clarify a few things

1. What was the purchase price for the duplex? The post says , I spent $107k and $119k mortgage balance .. 

2. Additional spend you have identified for electric work ,drywall and plumbing ~ $30k

3. Unknowns - foundation? Additional items..

Given all of the above, is there a way you can get an inspection to identify the total cost of rehab ? Once you have the data, you can make better sense of After Repair Value of the property, then decide to cut your loss or hold/rent it. 
Hope it makes sense and things work out for you. 

 The purchases price was $165k 

I spent on the closing date for $47k 

I spent for improvement, mortgage and etc around $60k until now

Additional spend roughly $30k and not sure about the building inspection.

I'm not sure about the foundation of this house if the building inspection what else needs to be fix

I'll hire the inspector to inspect the house and let the contractor estimate the cost and see what decision I should make.

Thank you so much for your advice. It's very helpful

Thanks for additional info ..I am not sure how you are handling the repairs? By yourself ? Or do you have a PM? 

typically if you are out of state investor, I recommend you have a local PM to rehab and manage the rental. The PM will also help in getting the pos violations from the city.

i am not sure of city ( where your property is located )  . Please DM me if you wanta referral to a PM.
PS: I am also out of state investor and I use them. They have been good. 
All the best.. 

[Jay Hinrichs]

my wife just sold a property for one of our new construction buyers.

this client also got talked into buying the property without a home inspection.

so she had to put a new roof on it new Hvac upgrade electrical panel and a plumbing issue.

the agent that sold it to her is known to us and he is a slime ball no question.

bottom line your the client you dictate what you are going to do or not do never let the agent tell you what to do.. 

[Henry T.]

Sorry to hear this. If this agent is working for you, he's supposed to be looking out for your best interest. He probably said "no inspection" knowing it would kill his deal. At the very least he should be reported to his agency or proper authority. 

 Who is the violation notice from? I would not toss everything and quit.  Try to get the fixes done as cheaply as possible, delay those not critical, and move ahead.  Over time cash flow will come, it just may take a little longer.

[Jeff S.]

@Summer Dechanukul take a look at your earnest money agreement. If it is anything like ours it says that the sellers and/or agents know of no material defects. Maybe the agent and seller and broker would like to buy the house back. It is worth talking to a lawyer about it a demand letter for some cash back would be a good first step.

[Dan H.]

Quote from @Greg M.:

Everything you've spent so far is a sunk cost. Take all that out of the equation and you have two options. Option 1, someone takes the property off your hands and your mortgage goes away. You're guaranteed a loss of $115K. Option 2, you risk $30K with the belief that the unit will begin generating some free cash flow. 

Some rough numbers, a $119K mortgage is about $800/month. I don't know Cleveland, but let's say that taxes and insurance total $200/month. Rent will be $1,700/month. Therefore, the unit has the potential to free cash flow $700/month right now. Are you willing to risk $30K for the potential to free cash flow $700/month? 

You'll recoup your $30K in 3.5 years. You'll build another $5K in equity in the place over that time. The unit may also appreciate in value. 

You bought a lousy investment. However, given the mortgage and the rent levels, you have the ability to let time dig you out of your hole. With the level of free cash flow, you can easily be paid back all the money invested in this place, all the while building decent equity. It won't happen over night, but it will happen. 

I'd spend the $30K and keep the place. 

 In a low rent market such as Cleveland ($1700/month rent for 2 units is low rent) the 50% rule is aggressive.  This puts cash flow at $1700 - $850 - $800 = $50/month cash flow.  As indicated in that market I believe 50% rule is aggressive and she will be lucky to get $50/month cash flow.  It will take 600 months at $50/month cash flow to recover $30k.   Even if my numbers are slightly off, the $30k will take many months to re over via cash flow

I am often the contrarian.  She is ill prepared to efficiently deal with the $30k of additional repairs.   In addition, I am unconvinced that $30k has a chance to get this property into a rentable state.  Finally, I am unconvinced that the remaining repairs will produce a return greater than their costs; I suspect the remaining repairs will cost an OOS investor more than they increase the value of the property.

I suggest she sell capping her losses.  A local contractor would be an ideal buyer and could likely complete the repairs far cheaper than the OOS OP.   

It will be unfortunate to have such a significant loss, but I suspect continuing will be frustrating, take time, and is likely to increase the loss.  

Best wishes to the OP.  They can learn a lot from this and be better prepared for their next Investment.  

[Regina Blake]

Hi, this is very unfortunate that this happened but, as an Ohio Realtor, I am very impressed with the replies of positivity from the BP family. Overall, the BP family, gave you great advice. It was very brave of you to invest in real estate that is a HUGE step one in life. SOME people will just talk about investing in real estate and will never complete the task. I really appreciate that people may run into different negative/positive situations, and they are brave enough to reach out for assistance.

Let me inform you that Ohio is a great place to invest in Real estate. At the end, I know you will come out on top. But, a lot of times, things happen to ALL of us as a lesson to learn from that particular experience. We all go through it is called "life." I cannot speak for ALL Realtors but, I can speak for my clients/myself as an Ohio Realtor. It is always good to do your own HOMEWORK that is what I stress to EVERYONE. I do not care if it is Real estate or whatever you are doing in your life.  Goodluck and always keep your head up!

If you have any questions, please feel free to contact me.

Regina Blake-Ohio Realtor