Beware Norada and Marco Santorelli

[Melanja K Jones]

Beware of Norada and their recommendations.

I live in Southern California and bought an investment house in the midwest through their recommendations.

Several takeaways-

1. the ProFormas are complete fiction, listing only 5-10 percent for vacancy and repairs and on the flip side, steady growth on appreciation and rent increases. One tenant turn after a year and a half completely destroyed all cash flow for those two years and the next 5 years. Even though I had insurance and had even added on a couple optional items, it was death by a thousand cuts on the repairs. Broken doors and windows, paint, stolen smoke detectors and missing window blinds, plus trash removal, all that adds up very quickly. When the initial tenant broke the lease (after not paying rent for a month and a half) the PM advised me to lower the rent instead of raising it as advertised in the initial proforma.

2. Property management. I cannot stress enough how important a trusted PM is out of state. Norada told me over and over that this PM was "one of the best in the business." However the tenant was constantly late with rent, the lease was written so that the PM kept all late fees (thus incentivising late payments), and after being assured that this was a good tenant on renewal, 6 months later I was handed a $3500 repair bill for the initial tenant turn. Then the website for the PM company crashed just as my property was to be listed for rent and their main point of contact left town. Paperwork and billing was poorly explained and often incorrect. At that point I had enough and moved my property to another company, first having to pay a $500 early termination fee and an imaginary cleaning fee to ransom my property. The new PM found several other essential repairs that had not been handled by the Norada approved company (leaking pipes, non- grounded electrical outlets) so there was another huge repair bill. The new PM did rent the property for more money. Three months after I left the first PM that Norada had recommended, I started receiving emails that they were being investigated for fraud, then they dissolved the company. Thank goodness I had already moved my property to other management. Looking back on the sketchy documentation for the initial repairs I feel was scammed. $780 to repair one window? In a house that only rents for $1095? Clearly Norada does NOT vet the out of state managers and I cannot emphasize enough how stressful and difficult this has been because of that. Every month there was some kind of disaster

Norada states on their website that they do "initial due diligence on property managers, as well as ongoing oversight and dilignce on their performance." However when I contacted the BBB, the response back from Norada denied all responsibilty for everything. They basically said they don't have anything to do with the ProFormas and Property Managers of the places they advertised. They acknowledged there had been multiple reports of fraud and police reports field on this particular property manager (Tam Hofhines, Kansas City, Real Deal Managers) and said they had stopped working with them. However, Norada never notified anyone who they had directed to these people to buy a house that there were any problems.

3. Mis-represenation of tax benefits. As I was exploring the idea of buying a property through Norada, they extolled the out of state tax benefits because I live in a high income tax state. THERE ARE NO TAX BENEFITS UNLESS YOU ARE ABLE TO PROVE TO THE IRS THAT YOU ARE SPENDING MORE THAN 750 HOURS ON REAL ESTATE. Most of us wouldn't be investing in turnkey real estate if we had that kind of time to spend managing properties. For most people you will only save a little money on any PROFITS if you have a loss the first year. If the property loses money, you just.. lose money.

4. Lack of a exit strategy. So now what? Now that I have owned this property for almost 2 years and lost thousands and thousands of dollars, what is the next step? Norada has no guidance or infomation on that.

I was really excited to buy my first investment property because of the high price of entry on the coast but I would have been better off taking that money and buying eggs or lottery tickets or at least Tbills.

[Sahil Tadwalkar]

I'm really sorry about your experience. I've considered platforms like this in the past and your post is a good reminder that they're not always as advertised. I can quickly see how bad contracts can misalign incentives and how real estate is never completely passive. 

Hopefully you can continue to invest in real estate on your own or with trusted partners!