Property Deals Prompt Questions About AZ Firm
Rodney Ernhart of Bigfork, Montana has had enough.
“We’re done. We just want to wash our hands of the whole situation and just walk away. Take our licks. Learn from our mistakes and go on.”
As mistakes go, Ernhart’s was an expensive one, costing him roughly $60,000.
“It’s my own stupid fault.”
In the spring of 2016 at a real estate conference in Las Vegas, Ernhart and his wife were approached about an opportunity in Niagara Falls, New York. The pitch came from a representative of Return On Rentals.
The Arizona-based company says on its website that it “(helps) its clients create long-term wealth, using turnkey, residential rental property as the vehicle. We provide rehabbed, rented, professionally managed, cash flowing real estate for investors. ”
Available for sale was a four-unit apartment building in Niagara Falls. Price tag was $100,250. Ernhart was being asked to purchase, on the spot, without ever seeing the property or hiring someone to have a look at it. He says he see the red flags on the deal now, but didn’t then.
“Ya’ know, they pump you up so much. They convinced you that all their properties were quality properties,” says Ernhart.
After signing the deal, it did not take long for Ernhart to get buyer’s remorse. The local property management company presented bills to rehab just two of the apartments. The tab, close to $9,000.
Standing outside the building at 445 16th Street, it’s easy to see lifted shingles indicating the roof needs replacing. But it’s better than the roof on the three-car garage in the back. That roof has holes the size of phone books.
Ernharts suspects the rehab work Return On Rentals promised was over-blown or never done. 2 On-Your-Side checked. There are no building permits on file with the city which might indicate repairs had been made on the building.
In an email exchange with Return On Rental's head of public relations, Connor Young dismissed any suggestion that work was not done on the 16th Street structure. Young wrote, "If the home doesn't look freshly rehabbed, that's because it was rehabbed over 16 months ago and tenants have ben occupying the property." (The entire email exchange is posted at the bottom on this page.)
But Return On Rentals offer no paperwork or other proof to indicate what work was done on the property.
Last month, tired of losing money in the building, Ernhart hired local real estate agent Bruce Andrews to unload the property. Andrews told us in a recent interview, “We just sold it for $41,000 and he paid a $100,000 for it. A $60,000 bath.”
What Return On Rentals didn’t disclose pre-sale was that it bought the property for $52,500 just 12-days before flipping it to Ernhart. Meaning, on this deal, Return On Rentals netted almost $48,000.
And this is not the only Niagara Falls property Return On Rentals has flipped.
Searching through deed records at the Niagara County Clerk’s office and then plotting them out on a spreadsheet, 2 On-Your-Side has identified at least 85 Niagara Falls buildings bought and sold by Return On Rentals since 2014.
The net profit on these transactions is close to $2-million.
When 2 On-Your-Side approached city government in Niagara Falls, they in turn reached out to authorities. The New York Attorney General’s office is now investigating Return On Rental’s real estate transactions in Niagara Falls.
“It’s gonna take some more detective work which obviously Channel 2 is doing on this issue. We’re going to work with the Attorney General to find out if there’s an illegal practice happening,” says Seth Piccirillo, director of Niagara Falls Community Development.
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NO BUILDING PERMITS ON FILE FOR MOST OF RETURN ON RENTAL'S FALLS PROPERTIES
No Bldg Permit On 82 Flipped Falls Properties
August 23, 2017
We had a question.
So, today 2 On Your Side paid a visit to the acting commissioner of the Niagara Falls office of Code Enforcement.
We knew of the 90 Niagara Falls properties flipped by Arizona-based Return On Rentals, one of them was 445 16th Street.
We knew Return On Rentals touted on its website and in its brochure that the properties it sells “all the work has been done…including…the rehab of the property”.
But we also knew there was no building permit on file for the 16th street structure and there were no obvious signs it had been rehabbed. And Return On Rentals has not supplied any documentation to help us figure what work may have been done.
So, we turned to the Acting Code Enforcement Commissioner Louis Fontana and asked if the other properties flipped by Return On Rentals had building permits.
Fontana says there were a few.
But no building permits of any kind on file for 82 of the 90 properties in question.
“There was no other correspondence from (Return On Rentals) on any other properties that we’ve had on file,” says Fontana.
And Fontana points out that, especially for rental properties, which is Return On Rental’s specialty, improvements almost always require a permit with few exceptions.
“Painting, maybe replacing carpets. Other than that permits are required," says Fontana.
Without permits, Seth Piccirillo, director of Niagara Falls Community Development thinks what happened with the Return On Rentals properties boils down to two possibilities.
“It’s either they did that work without a permit or they just did nothing,” says Piccirillo.
Piccirillo says two people who purchased Return On Rentals property in Niagara Falls have called his office looking for help. The buyers have been referred to the NYS Attorney general’s office which is investigating the real estate transactions of the Arizona company.
The city is also working to get exterior inspections done on all 90 properties sold by Return On Rentals. The sales go back to early 2014.
If the new inspections turn up issues that need correcting, it would be the new owners, in most instances people who bought from Return On Rentals, who could be on the hook to make repairs.
“We’ve got to serve them with what comes down to a court appearance ticket. The problem is that in some of those situations the person you’d be serving is the new owner,” says Piccirillo.
2 On Your Side attempted to get a comment today from Return On Rentals. There was no response. In a previous email exchange the company's head of public relations said it did rental-grade or cosmetic rehab work on the properties it sold and that building permits were not required.
That seems to conflict with what the acting code enforcement commissioner told 2 On Your Side today.
The previous email exchange with the Return On Rentals representative is posted below.