How One Property Manager Defrauded An HOA Out Of $75,000 | Ep 61

James: Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both properties and residences so that together we can build wealth while improving housing. I'm James, and this is my wife, Jessi.

Jessi: Hey, I have been having these conversations with people recently about cleaning and I had another one today and it just struck me. That there's, there's, I, there has been a distinct difference between like surface level cleaning and deep cleaning. Okay. But the line in which That changes over I am realizing is very different for certain people and so it's like Well to me like deep cleaning means You know, like let's say it was deep cleaning a closet.

It means everything's coming out of the closet You're vacuuming you're washing things. You're like maybe putting in new organizational type structures to reset it and then like Before you put the stuff in, you're going through the stuff, throwing stuff out, making sure that's clean, putting it where it belongs, like, it's a whole process.

James: Versus?

Jessi: Versus, like, just opening the door and, like, actually vacuuming the closet. Which to some people was like, well, I never vacuum in there anyways, so that is deep cleaning. Which is like, wait, what? No, it's not. That's a weird definition, yeah,

James: I agree with you. Or like,

Jessi: you know, like, deep cleaning being, like, the things you don't typically get to, you know, like washing windows.

I'm like okay. No? Washing windows, just like wiping the window. That's surface level. A deep clean would be like, I'm power washing the outside, I'm cleaning the screen, I'm like scrubbing the seal. So then what do you call it

James: if it is like, hey, I don't normally clean this, but At surface level cleaning, I don't usually do.

Oh, okay. Interesting. Yeah, I might be more like, yeah, I have regular things that I clean, and then there's more occasional Yeah, intermittent

Jessi: things that I clean.

James: Yeah. Which is a deeper clean. Which is a deeper clean of the entire The entire space, what you typically do of the entire space is a deeper clean

Jessi: for me.

The deep, the clean. Yeah. What makes something surface and deep clean is, is just really hard thing to debate. Go ahead. It, it is strange. I just, it just struck me because the person I was talking with is like, have has roommates and it was like finding that right balance of like, okay, to me this is dirty and the other person's like, no, it's not.

And it's like, oh, okay, well how clean do you need to clean the thing to have it be clean, you know? And. Here's another example, like, for me, the sink, if you rinse it out, that's surface level. If you take the scrubby and you put soap on it and you like scrub everything and you take the little strainer out and you scrub that off and you scrub inside the drain and then you spray it all down, that's a deep clean.

Which you don't do every single time, but it's also cleaner than just spraying down the stuff. . Hmm. . So maybe it's like the intensity of which you, or like the intensity. I don't know. Not the intensity. It's, Hmm.

James: It's like,

Jessi: like maybe

James: you've thought about a thousand times more about this than I have. Oh, I

Jessi: absolutely have.

James: I'm, I'm like, cool. Clean the windows. Don't clean the windows. I don't care.

Jessi: I know,

James: but , dang. It's all right.

Jessi: Cleaning. I'm passionate

James: about this.

Jessi: Well, we just, it's come up in conversation like five different times over the past few days. And so I'm just like, wow. All right. Cleaning is a thing. It's

James: interesting.

Yeah. I self evaluating. I don't have those kind of randomly come up types of conversations. I didn't

Jessi: have a great, like this person I was talking with her and I love vacuum cleaners and it was like, Oh yeah. Like that's my go to, if something just needs to be cleaned, like I'll just hit the, that's the quick.

You know, quick fix.

James: Okay. It's

Jessi: like, I'll just, I can run that over any floor, I can take the wand out, I can do a corner, I can do the window sill, I can do under stuff, like the vacuum. That's, that's the thing. I was like, yeah, I even vacuum furniture and my kids think that's weird and I'm like, that's a normal thing.

Like there's crumbs and there's hair and there's things on it. Like you, you gotta clean it. But I don't think, I don't think you have ever once like vacuumed our couch, but like I regularly vacuum our couch. I'm trying to think.

James: Well, you said like you just grab it as opposed to, I don't know, I'm

Jessi: well, as opposed to like, I'm going to vacuum the carpets, but then I'm going to like sweep in the kitchen and you're saying instead

James: of vacuuming in the kitchen,

Jessi: right?

Yeah. Instead I would just grab the vacuum and just vacuum all the floors or like dusting. Like instead of grabbing the duster and going around and dusting everything, I just grabbed the vacuum. I do the floors, I do the corners, I do everything. Okay. So it's like, it's like a multi use. Kind of tool, although I have been known to suck up things.

I'm not supposed to, when I use it for testing or that's

James: the thing too. Yeah. I don't ever see myself starting up a cleaning company. Not

Jessi: your passion. Probably not what you want to

James: do. Yeah, that's

Jessi: all right.

James: No, it's all good. I have no idea how to transition out of this. And so that's a cleaning rant with Jesse.

There we go. If you have cleaning comments or thoughts on cleaning. I wonder if

Jessi: there's a cleaning podcast.

James: Oh, 100%. There's a cleaning podcast. That's gotta be a thing.

Jessi: Alright, yeah. Well, there are, there's like YouTube videos of people cleaning things, which are highly satisfying.

James: Right. But that's different.

Maybe it's not a podcast, just cause It seems like that's a visual type of thing, but more video based as opposed to podcast. Talking about

Jessi: cleaning.

James: Talking about, let's see, what would you talk about? You talk about vacuum cleaners, rating them, talking about how they're good, they're bad, then talking about techniques.

It is, yeah. a very visual thing though. That's like a review thing, that's not a podcast necessarily.

Jessi: Yeah, a tool review would be different.

James: I bet you there's cleaners out there who have a podcast. Dude, I don't know. I'm probably going to search. Let us know if you listen to podcast stuff. Oh man. Cool. So anyways, what we're actually talking about.

The thumbs down in the thumbnail was my reaction to Jessie talking about cleaning. That's what that represented. Not the topic you thought.

Jessi: Yeah, that's kind of accurate.

James: Oh, my word. Cleaning. Cool. I've been

Jessi: known to use old toothbrushes to clean things. I can get intense sometimes. Okay. Okay. Yes.

James: Yeah.

So, our actual topic has Absolutely nothing to do with cleaning. So if you hung around this long, congratulations, good job. Appreciate it to get through that

Jessi: crazy topic.

James: No. All right. So what I'm going to talk about is I'm not gonna let you pull me down the rabbit hole is I got an interesting phone call from somebody.

They they actually, they went through to a website and and so the way it works is you go to furlough. com and on there you can set up a call to talk to me just to learn more about my investment thesis, what I think is important, and then I can learn more about you and what your goals, aspirations are, what you're looking to invest.

Actually got a meeting like that coming up tomorrow. It's exciting, but I had one earlier as well, and it was Got it from this person. I was like, sweet, cool. Didn't know who she was. It was fine and We hop on the phone and I was like this confirm. Hey,

Jessi: but you knew you knew where it came from like three Yeah, I came to the website.

James: Yeah, she scheduled a meeting with me.

Jessi: Okay

James: is what happened cool. So I was like sweet Yeah, it's a phone call. Yep, and We hop on the phone and I'm just like hey, just double checking. That was a good time and And she goes good time for what? to talk? Yeah. I'm like, I'm assuming to talk about investing. I don't know.

That's so awkward. So I'm confused now. What an awkward start. And, and she goes, Oh yes. I know you thought I might've been calling to invest, but that is not why at all. She goes, I am calling you to warn you about a property manager. Do not work with him. He is Horrible. Do not do it. I was like, Oh, okay.

Yikes. And so she had seen on a webpage website somewhere that I had mentioned this guy as a property manager that we were considering in using. For an investment and she had a horrible experience. She's a board member in Otter Rock, Oregon. So this is like North West Oregon area. And he was their property manager for their HOA and he defrauded them out of 75, 000.

Yeah, not great. And apparently that organization is not the only one that he has caused a problem with. That's not good. And and so she, for obvious reasons is very upset about it. They did get reimbursed for most of it through insurance. But you know, just great. Yeah. And yeah, so she is making it a point to go around to warn people about this guy

Jessi: because

James: he, like, this is what he does.

He, he essentially sets up a shell company. Says he's a property manager tells you all the things that you want to hear. Mm hmm And then gets your contract starts taking funds on your behalf. Yep, and then they are not pay you out And maybe he starts to it. He claims he has a big staff and he doesn't to the point where like he'll well Yeah, I'm gonna email all these people and then through her sleuthing.

She'll figure out like oh, it's all him. It's just different emails He's pretending to be different people and that

Jessi: level of deception. It's like oh,

James: yeah, it's kind of huge

Jessi: seems like it is A lot of effort.

James: So, well, I mean, you know, getting the money.

Jessi: Well, okay. So how is he able to do this over and over again?

Like, do they know who he is? Didn't they?

James: So here's the fascinating thing. Well, so here's what's interesting. It's in North Oregon. And so he is, he has a bank in Washington and he does business in Oregon. And so it's crossing state lines. So it's not just a state issue. Technically it's an FBI type of issue and he's just small fry, small potato and he keeps moving around different companies and you know, starting us up, shutting them down, that kind of thing.

Jessi: Yeah, it just takes a while to track it down and yeah, and at least initially

James: a couple years ago Like none of this stuff was online. And so we're like as she's sleuthing and learning. She's slowly putting stuff together

Jessi: Wow,

James: and so she saw for us when we were looking at investing in Astoria he was the person that we were looking into I am I by the way, I I talked to a broker friend of mine who actually helped with that Astoria deal.

I was like, Hey man, have you, have you heard of this guy? I'm trying to decide if I'm going to say his name or not. I haven't decided. I was like, have you heard of him? And he goes, Oh yeah, stay away from him. He's bad. I was like, dang, okay, good to know. And he goes, yeah, he's actively managing a property that they're trying to sell.

And it's like a pizza hut or something. And he's like, Oh, it's just horrible. And he's like, yeah, he's trouble. I was like, all right, good to know. So I shared with her my experience because I was interviewing property managers as well for, for this deal. And he was one of a few. And I remember I took some notes, but my, my general takeaway from him when we talked on the phone, I was like, dude, it was awesome.

Like, yeah, it was said all the right thing. Oh, a hundred percent. He. He was like, yeah, we got a flat pricing. We've got good deals on maintenance stuff. Here's what we're going to do. Duh, duh, duh, duh. Like he said, all the things checked all the boxes. Like it sounded great. Well, she said the HOA board interviewed him for an hour and she was like, and he said great things.

Now I, it's funny. I remember the first time that we talked, it was a zoom meeting. And he looked like he was just in like some ratty dorm room type of thing. I was like, where are you? This isn't super professional. That's weird. And then we had other phone call stuff, but like I said, it was, it was a great conversation and then something happened.

Oh, I remember I asked about recommendations. It's like, Hey, do you have anyone who you're currently managing for that? I can talk to you. And he said, no, it's like, it's a privacy thing, which I think is weird, but whatever, I've gotten that answer multiple times now. So it must be a thing. So I was like, okay, well, what about like contractors or service providers?

Someone else can talk to you and actually gave me a couple of names. And so I called them and they were like, I, we don't, we've never heard of this guy or this company. I don't know what this is. And I was like, dang, it really sounded like he was like big, like managing. I think he said, like, what did he tell me?

He told me he'd been doing it for more than half his life. They had 86 properties, 2, 700 doors. Oh, wow. That's, that's pretty big. That's pretty big. People would

Jessi: know who he was.

James: That was kind of my If he was that size. That was my assumption. Yeah. And they'd never heard of him. Huh. Or that company. I was like, huh, that's super weird.

So then, I started looking into the In Oregon, you can do an LLC search. And so I pulled up his company, and the company was expired. I

Jessi: That's weird.

James: And so then I went to the Oregon e license thing to look up his property management license and couldn't find him in that either. I was like, huh. Also weird.

And so I called him and I was like, Hey man, like this is weird. Right? And he goes, yeah, it was my business partner. He forgot to, he forgot to redo the thing. So we're getting it taken care of. And I was like, yeah, but it was like expired like two years ago. Like this isn't like you missed it by a month, you know, like I kind of get a month, I guess, but.

Yeah, it's just super weird. And, and, Oh, I remember I also asked him about the property management software that he used, which was a tenant cloud. And I actually had experience with that. And I was like, tenant cloud, like,

Jessi: Oh, how could you like, why that one? That's such a

James: bad one. And it was fine. I think I caught him off guard.

Cause I don't think he. Was expecting me to know.

Jessi: Hmm.

James: And he was like, oh, well, you know, we we had customizations done with it 'cause, you know, we're big enough that we could do that. And I was like, huh. All right. I guess I didn't know that, but I was like, man, I don't, you must have had some massive customizations done.

Right. Because I just, I do not think the way that they want me to think.

Jessi: Mm-hmm .

James: And yeah. So he was. But anyways, so many red flags, but so it was one where I went, I remember we talked about it and I was like, I, there's so many things that I like about him or I like about like what he's told me that I like and I don't think I can use him.

I was like, I just, I can't go with him. I was so, I was so bummed cause I wanted to go with him, but I was like, I just can't. Yeah. And ultimately was, I just kept interviewing companies and I found another one that actually had a, they were a. Big company in Portland. And then they had a satellite office here with like one guy.

And so I was like, Oh, this is great. Cause I can have one guy he's local, he gets it, but he's backed by a bigger company and I was like, Oh, that's so much better. Or I just felt really, I felt a lot more comfortable with

Jessi: that.

James: And

Jessi: that's wild that it came back,

James: you know, it's been a little while. And so yeah, man, like.

Just kind of nuts. Apparently he defrauded another person 150, 000 and he's been reported to all sorts of people. I'm trying to think. Yeah. Oh, another thing that he would do is they would like, we need a check. We need a check. We need a check. He wouldn't do a distribution. So he would send him a check, but not sign it.

Jessi: Oh my word.

James: Right? So annoying. And at first they were like, well, let's just send it ourselves. And I was like, no, because the second you do that, he's going to sue you for fraud. Right. It's like, he's just like baiting people and like, Oh yeah, sorry, my bad. Just send it back and we'll get it signed and you know, send it back to you and just do those kind of delay stringing people on and then just shut down the company.

Be done. He'd move, move on. Wow. That kind of thing. Just kind of wild. That's crazy. It's crazy

Jessi: that he's still. So let me put it this way, I kind of feel like you should, yeah, it sounds terrible to like give a negative review, but it's kind of like, if, yeah, if someone's looking for a property manager and they've got questions, like, feel free to reach out and ask.

Yes, especially if it's

James: Pacific Northwest, right in Oregon. Yeah. And in this, the guy who sounds almost borderline too good to be true. Yeah. Come like, feel free to reach out and I will, I'll share the name that way. I'm not, I don't, like I said, I don't really want to, I don't want to have this cause we had to do transcripts and stuff to pop up and for him to sue me for defamation or what's the one where you say bad stuff about people that's not true.

This is true.

Jessi: This is true. So but yeah, just kind of crazy. So.

James: One of the things I wanted to share and not just be like, crazy story. How about that is this is why it's important to do property manager interviews. And I, when I was looking for mine, by the way, I am, I am a licensed property manager now, so problem solved.

But but at the time I came up with 61 questions. I remember

Jessi: I

James: was like, that's

Jessi: intense.

James: I've learned that you cannot ask all of them cause probably they'll just get angry at you. It's like,

Jessi: Oh my gosh, this is overkill. Like what is your problem, dude?

James: I even highlighted the ones I thought were important and I learned like, Hmm, I got to pick too many.

Well, what I've learned is I got to pick like what are my five that are really important for a first conversation. And just be okay with that and like a screening thing. Yeah. And then if that all sounds good, be like, sweet, let's get together again.

Jessi: And

James: let's just talk some more. And then I get another five to 10, depending on what they are.

And then. You can probably pull off like, and on each one, you kind of got, you got to give a little, right? Like, Hey, this sounds really great. I would love to send you some more information about my property. What's going on, let you look at it and kind of come up with a game plan. Let's get back together and let's chat about it.

And then you can do that. And then you say, Hey, that sounds great. Send me over your property management agreement. I'd like to review that. And then you have an excuse to ask some more questions. Yeah. And so, and you could do all sorts of regular stuff. Like you can ask how long they've been in business.

You can also just look that up in the LLC registry. You can ask how many licensed people on their team, which again, look that up. You can ask how many properties they manage and if they have a specialty, I think are. are good to, good questions to ask. I've got a bunch of others. I think a really good one is to just ask about extra fees that they have.

Like are there advertising evictions, tenant placement, late fees, lease renewal, onsite manager, leasing agent type of stuff, maintenance, which this guy, he was like, none of that just flat fee. We do everything. And it was like 8 percent or something like that. And I was like, wow, that's amazing. Cause normally those are all additional things that are on top.

And yeah. How often can you expect to talk with them? This was one where I always struggle. Cause I want to meet like every other week and most private managers are like, how about once a quarter? And so, and I get like, I'm, I'm an asset manager. And so I think about those kinds of things and. And what I want to do is I want to have like two meetings, one meeting, maybe at the end of the month is like, Hey, financial reports, let's just go over them.

Let's see if there's anything weird. Let's just talk about it. And then the other meeting is more like, Hey, let's just talk operations. How are we doing on maintenance? What's coming up? What's moving out? That kind of stuff. Yeah. Which

Jessi: most owners I think are way more hands off. Oh, a hundred percent.

Yeah. And they're just like, yeah, just tell me if something wrong happens and keep it in the loop.

James: I ask about what property management software tools they use because I've researched all of them and so I'm interested in that. I don't know if that changes my decision criteria. But it's like, I just like to know what I'm jumping into, which 99 percent of the time, the answer is going to be at folio unless you're awesome like me and the store loop, because it's better, but whatever.

I do want to know about their reporting process and what I can expect to receive from them. And if you can get a sample, that'd be great. I could, I could ask about their occupancy vacancy rates, a positive portfolio. My experience has been, they don't know the answer to that. Really? Or they're like, it's a round of murder.

Oh, you know, we're pretty full. It's kind of the answer we get. Like it's, you would

Jessi: think they'd want to know

James: that because that's something you could measure and improve upon. Yeah. Yeah, no, I agree. I just, it's just my experience. I mean, honestly, if you were to ask me right now, I mean, mine's pretty easy answer.

I'm like, well, I have one vacancy, I guess that's it. I'll take it. Oh, I'm asking about tenant qualification requirements and how they screen their applicants. Right. That's a good one. And honestly, it's one of, that's the kind of answer where they're either going to give a, a good, solid, confident answer, or it will be like mush.

Right? Like, so for me. If you asked me that, I'm going to be like, Oh, well, it's pretty easy. I actually have this 18 point checklist that I run through for everybody. And it goes from everything from I'm asking about their credit, their income to their tenant history background check, that kind of stuff.

But I'm also doing searches online to see what I can see. Cause I've had situations. We're like, it was this one guy. I remember I asked him if he smoked and he said, no, went on to Facebook and there are all these pictures of him smoking. It's like, dude, what the heck? And so there's that kind of stuff.

And so I've just got a checklist and it's like one point, one point, one point, and if they get, I think it's 16 points total, it's like, cool, we're going ahead. And I got a couple that are like, they're infinitely negative, you know, where you're just like, yeah, if you don't make three times the income, I don't care.

I'm not renting to you. So yeah. Things like that. They should have that kind of answer for you, you know, whatever that is, or be able to say, here's my screening criteria.

Jessi: Yeah.

James: Take a look.

Jessi: That's what I was thinking in my head is like, they probably have some sort of documentation that they give to people when they apply.

Here's the criteria.

James: You can ask them about what's their cost and timeframe for an average apartment turn when they have a vacancy. Which for me, it's kind of like, well, if it's a quick turn, it's like a week, but if we're doing repairs and stuff, yeah, it can be longer and you can ask about an interesting conversation to ask about an Oregon is about just like, what's the rent increase policy?

How do they go about it? What's their strategy? Because Oregon's kind of weird. Yep. And you just, again, a lot of these answers are going to be the same. It's not like they're like going to be ginormously different, but you're just trying to get a sense for where they're at. So there's an interesting thing in Oregon.

It's a property manager. Oh, I just got a paper cut. Oh, man. A live paper

Jessi: cut.

James: Oh, that hurt. It's okay, it's not bleeding yet.

Jessi: Ouch, ouch.

James: I was at I volunteer for, for Love Inc. And they had some boards out, and there were signs all over them saying, Do not rub your hands against this. Because I guess they were like, metal edges.

They were like, it will be like a ten times worse paper cut than you've ever had in your life.

Jessi: Oh, that's terrible.

James: And I was like, hmm, this is written not hypothetically. It's like someone knows what did this. Oh, that's fun. That's how it was like. And there was like the solution. I mean, there's like four of these boards and there must have been 20 of these stickies

Jessi: on it.

James: Ah, man, it's okay. I'll survive anyways. In Oregon, private managers have to hold your money in a trust account. And but there's different ways you can do that. Like you can have a totally separate trust account for an owner, or you can have them all groups together, pluses and minuses, honestly, as an owner, I don't think you ever know the difference.

But you can ask, right? Hey, is this going to be a totally separate thing?

Jessi: At the very least your property manager should have an accounting of what you have in there.

James: Yes. Yes. You can ask other stuff, like if they provide full service accounting or not, like are they actually also going to pay your insurance and taxes for you?

Pay your loans. Interesting questions. Who knows? I think my advice to homeowners has been, nah, you can take care of it. It's honestly, it's all on autopay anyways. And just take care of it and, and just, and have it like let operations be operations. And then this is other and I think it's okay. Makes sense.

But either way. And then Oh, and then I, I, this is a kind of a, maybe a later one, but like, do you have any advice or suggestions for how to separate ourselves from other investors in this market? And, I mean, another one, which I usually get ahead of time is like, what do you think they'll rent for?

You know? And the person with the highest answer isn't necessarily the one you want. You know, but and I've like, that's just like a couple questions. You're very

Jessi: thorough

James: in the entire list. I want to know all sorts of stuff. But but yeah, I think this just points out to. Why it's important to not just go with that first person, talk to two or three, even if that first person, like they're amazing.

Yeah, cool. Talk to two other people just so you can hear other answers and actually talk to them, ask questions, walk in with kind of a plan for what you want to ask. Sure. I think it's just important to, to get a sense for, for where they're at. So that you don't. Even though she's like, we, we talked to him for an hour and like, dude, he was like, that's a professional.

Jessi: I think had

James: I not, had I not asked for the references piece, dude, I wouldn't have known. Like I think, right.

Jessi: Cause he said all the right things.

James: Yeah. Yeah. That was, that was the only thing. That gave me my initial, oh, this is weird. I guess besides the property management software, but I was like, this is weird, which then sent me down this rabbit hole.

And so in some ways I got lucky. So ask about that, right? Ask for, again, most property managers, they're not going to share you with you. Their their tenants though. I'm going to try to be like, Hey, can I use you as a reference in case someone asks?

Jessi: Right, well, and even if they aren't willing to share their tenants, or their Because I don't want tenants, I want owners.

Clients, yeah, other owners Investors. You would think that at the very least they'd be willing to give you like a character reference or something.

James: Yeah,

Jessi: it's not as helpful, but

James: yeah,

Jessi: I don't know.

James: I'm totally gonna give it all but I call my wife She thinks I'm great and she has pretty high standards.

Jessi: I'll be honest.

James: I mean her definition of deep clean He

Jessi: doesn't deep clean things If you

James: ask me, he's got a good relationship with cleaners. So that's true. That's all I do. I call up people. Yeah. He will call and get it deep clean. Yes, exactly. So anyways, I thought that was just kind of interesting. Just kind of a blast from the past.

And man, it's kind of a strange, kind of crazy, man. Yeah. I mean, I feel horrible. That just, I, that just must. That must just like to know like it's gone. I'm never getting that money. That's a lot of money, too Yeah, that's crazy I'm sure like they had they had dog eared that money for doing new roofs and yeah for road repairs and all sorts of stuff Yes, I can't imagine Having to go back to your HOA and say, Hey, everybody, we need you all to contribute like an extra five grand and make it up, which again, insurance got them covered.

Yeah. So there's that have insurance to cover you. Yeah. As well. But yeah, man, just kind of nuts. Crazy story. So yeah, if you are investing in that area, you want to just double check that who you're going with the dude who you're going with it's not the one guy I'm thinking of yeah. Reach out to me.

I'll let you know. Yeah. Anyways, there you go. Craziness. That's where we're at. All right. Well, hopefully you enjoyed this and you learned something to, to ask questions. If you're looking for a property manager, by the way, if you're in the Willamette Valley, give me a call. I'm happy to, to give you my thoughts on your investment and how I can best help you do that.

And so you can check us out at furlo.com. And we've got a whole bunch of other options too. Like if you just want to straight up, like, give us your money to invest for you so you don't have to worry about trying to hire a property manager. That's also an option. So yeah, with that, thanks for listening and have a great day.\