Need advice on my current situation...

[Jacob Carlson]

Hello BP community, I have found myself in a predicament and I am in need of advice. So, here is the background: I bought my first investment property through Morris Invest this January 25th in Indianapolis. My plan was to invest with them to get my feet wet and get one rental under my belt then use the BRRRR strategy from there. I was told 90 days and the rehab would be complete and a tenant would be set up in it soon after. Without getting into too much detail, I waited 4 very long months for the rehab to be completed by Oceanpointe and was told several times to trust the Morris Invest system and be patient as this is a “hands-off” way of investing. I came to find out after 4 months that nothing had been done to my investment property. I paid $46,000 for rehab and the property and have NOTHING to show for it except personal lost money and even worse; the loss of money to a private investor. As of right now my property is a complete gut job and needs roughly $30,000 of work (As I was told by Harvey Property Management in Indianapolis). I have city fines piling up and no income producing asset to pay anything off. So, I am in need of advice in what to do in this situation. I, like many others, have been wronged by Morris Invest. Yes, I have come to realize that I should never have done this in the first place and should have done better due diligence - Omaha is a great market to invest in, but I was too excited by all the podcasts and youtube videos that Morris Invest made so I jumped on it. Now, I find myself wondering if I just sell the property as-is and be done with it taking a huge loss or try to rehab it. If I sell as-is I would get $5k-$10k most likely. That is not an attractive option but neither is paying for the rehab that should have been done AGAIN. I will pay back my private investor no matter what with the interest promised. Here are the options that I see: Find a Hard Money Lender to cover rehab costs and have a local contractor and management team complete the rehab (4-6 months) then sell it for as much as I can and pay off the HML and give whatever is left to my private investor. Then I will try to do side jobs and flips (locally) until I have my private lender paid off. Try to obtain a 203k loan for the rehab and roll my expenses into a mortgage for the next 30 years Sell my property. Not sure what implications this could have.. Am I able to write this loss off and benefit very much from that? I need to talk to my CPA If I sell as-is and take the loss I would get $5k-$10k Here are the numbers: Purchase price: $46,000 (P.P. + Rehab) Rehab costs: $25,000 (as quoted by Morris Invest) My rental income would have been $725/mo Currently looking at $30,000 rehab (as quoted by Harvey Property Management) If I sell after a total rehab I would imagine I could get around $55,000-$60,000. So $46,000 + $30,000 = $76,000. Sell it for $55,000 that means we still lose $21,000. As of right now I do not have a Hard Money Lender lined up as I am still trying to pick up all the pieces of this shattered situation and get a bearing on what direction I will take. I would be happy to give anymore information that would be needed. I just know that I am in need of some guidance and would like to move forward and on with my real estate career. It is unfortunate that this happened, but I am not the only one. There are hundreds of other investors that got swindled by Morris Invest and Oceanpointe. And so many more tenants that are affected by this “bomb” that is going off in several markets connected with Morris Invest/Oceanpointe. At the end of the day, I know that my wife and I will get past this, but it is a bad start to our real estate investing career. I am not turned off to investing though, I have never been more sure that real estate is my passion and I will whole-heartedly and more intelligently now, achieve it. My goal is to obtain 15 units, SFH or Multi, by 2023 (3 a year for the next 5 years) and I am not going to let my experience with Morris Invest stop me. If you have read up to this point so far, I truly appreciate your time. I have many questions and do not know exactly what to do at this point but I am going to take the little steps everyday until my wife and I are out of this mess. Your help and replies are appreciated! Thank you in advance Bigger Pockets!

[Brian M.]

@Jacob Carlson  This is all such a shame.  I truly hope that all of the players in this mess are held fully accountable.

To your predicament.. what has the PM told you about the area where your property is?  Is it a D or worse area?  Has the PM given you any insight as to what they recommend?  If it's a D or worse area, I would just sell the property, take the loss and move on.  Otherwise, you are just taking on additional risk - i.e. will it sell in a reasonable time after rehab for the price you think?  Look at it as a painful (and costly) learning experience.

If it's a decent area and your property is the only property in bad shape, then you might want to keep it and rehab it.  I would get suggestions from your PM as well as a 2nd opinion from another reputable PM.  You can find a few that have posted about the Morris Invest/Oceanpointe debacle in various forums here on BP.

[Caleb Heimsoth]

Jacob Carlson you need to owner occupy a house for 203k loan I believe. I would be leery personally if using hard money. I’m not sure a hard money lender would even lend on something like this.

I’m guessing because it’s current status you can’t get a conventional loan of any kind.

Personally I would get the best price you can for it as is and walk away. Spending more money on it is throwing good money after bad.

I wish you luck and recommend staying in Omaha for future purchases

[Mark Maly]

@Jacob Carlson- bummer to hear about this.  Seems this is all too common with that company.  I've known others that have been able to get Morris to purchase the property back from them.  Have you talked to them about this?  

Depending on what documentation was provided to you prior to purchasing the property there may be some legal recourse you could potentially pursue as well.  

Would definitely pursue these two options prior to considering taking that big of a loss on the property. 

Your in a great market though already in Omaha. Sticking with REI and staying in Omaha you can easily make back any monies you may have loss during this first investment. Plus you can find better returns here then what you mentioned the property in Indy would get you.

[Ali Hashemi]

Can you get it to meet code and sit on it? There are people that will rent some pretty run down places. If it were me in this situation I would find someone local to do the absolute minimum to the property and rent it ASAP. Use the small amount of rent to either a) pay back investor or b) slowly improve the property. 

I can refer you to some good people if you want as I’m sire others can on BP. Feel free to PM me. 

Best of luck

[Ritch Bonisa]

@Jacob Carlson  I think it is unlikely you can get a conventional loan.  Hard Money is a stretch on this one.  I've loaned before and I wouldn't touch this one.   

I've talked to some investors that are pursuing litigation on this.  You might consider doing that.  

Feel free to reach out if you think if you would like to discuss anything. 

[Jacob Carlson]

Thank you guys for your responses! So, far I have been able to find out I have several fines piling up from the city and that the property is in worse condition than I thought. It is in a C- neighborhood as Harvey Management told me. I am in the process of getting more opinions from other PMs but it is looking like the numbers work out to be fairly close either way... If I sell now as-is or spend the extra time and money to try to recoup some of the costs. Either way I will be in the hole and still own my lender roughly the same amount. I do not think that the extra effort is a smart move in this position and I think my best move will be to sell it soon. 

First I want to do what @Mark Maly suggested and try to see if Morris Invest will purchase back the property. I have heard some investors sold their properties back to Morris but at this point with the damage so wide spread on so many people I doubt he will buy back now. Its worth a shot though. 

I am also going to get an inspection on the property so I can document everything that did not get accomplished as our agreement said when I purchased the property. I can take this proof to court if I ever need to and hopefully someday there will be justice.  This is a slow process and several steps back. I felt I was gaining ground and starting my climb up the mountain but have to now start again from a lower point.

I will definitely be staying in Omaha and I am kicking myself for not doing that to begin with. I was just so excited to "take action" and start with something I thought was a solid and easier first step to ease my way in... As you know - not the case. So, I am going move forward and treat this as a hefty learning curve and I am going to get a great local property by the end of the year and start paying back my lender. 

Again, thank you all for your help! I will keep this post up-to-date as I move forward.

[Max Richter]

Jacob,

I am sorry to hear you are in your current predicament. As you stated, there is a flood of other folks in the same situation if not worse as you.

Selling and taking the loss may be the most viable option so you are not throwing any more money at the issue, and you may be able to write the loss off.

With that being said, since there are so many other properties similar to this, we are seeing the market (both traditional listings and wholesale listings) being overrun by Morris/OP properties. This may decrease the value since there are so many options to choose from. 

Indianapolis is truly a great market to invest it, but making the right partnerships is crucial! I think everyone has given great advice, but you are the only one that really knows your specific situation. I hope you the best in your investing future! Nothing worth it is ever easy. 

Best, 

Max 

[Jacob Carlson]

Hey guys thanks again for the great feedback! I appreciate your responses. So, just a quick update. I have has several people go look at the house, send me pictures, give me updates and offers. It's looking fairly grim at the moment. I bought the property for roughly $20k (I know now that I was totally ripped off and will not invest out of state) and I'm getting either offers at $2000 our others saying they will not even offer due to its condition. The additional problem with this is that instead of rehab being done it has sat there collecting fines. I now owe over $5k in fines. I would need to sell at least $5k to recoup my fines. Thats to get out at zero and not put additional money in. So, all in costs of about $50k plus $5k in fines  This is the most terrible start I ever could have imagined. 

...and it's going to make a hell of "good" story some day when I get it out this hole and start doing some good deals. My plan is to find someone in Indy willing to pay what it costs in fines to sell it. Post the fines, seek the house and move on.  I will do flips using hard or private money and pay back my lender. This definitely set my wife and I back but we are just learning and are waiting for the next and BETTER deal to come around. 

I've got a question - would I have to pay any sort of taxes on this sell or since it's a loss do I need to?