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What Investors Can Learn From 'Windy City Rehab'

Millionacres logo Millionacres 10/17/2020 Deidre Woollard
Chicago River over a body of water with a city in the background: What Investors Can Learn From 'Windy City Rehab' © Provided by The Motley Fool What Investors Can Learn From 'Windy City Rehab'

Fans of HGTV's Windy City Rehab may be aware that the star of the show, Chicago house flipper Alison Victoria, has been facing a series of lawsuits from angry purchasers of the properties she renovated on the series. In this season, Alison Victoria has dealt with the fallout from her partnership with her main contractor Donovan Eckhardt. She terminated the business relationship and has filed a lawsuit against her former partner. Her experience may be instructive for any house flipper building a team.

Lawsuits over shoddy work

At the end of 2019, a couple who bought one of the homes featured on Windy City Rehab sued Alison Victoria (real name: Alison Gramenos) and Eckhart, alleging that the home has a leaky roof, poorly installed windows, and other issues. James and Anna Morrissey say that the troubles began shortly after they moved in. The property had been listed for $1.36 million. The lawsuit also includes other contractors who worked on the home and requests a reversal of the sale of the Chicago property as well as a repayment for upgrades and punitive damages.

A second case, filed in the spring of 2020, tells a similar story. A couple who bought another home renovated by the Windy City Rehab team cost its owners over $100,000 in repairs to fix cracking columns, leaks, and a botched garage.

The Morrisseys recently filed an emergency motion to stop Gramenos from selling her personal home because they're afraid she will sell her home and transfer the funds to an LLC in order to shield her finances. Her home was listed for $2.295 million, but Gramenos and her boyfriend, Michael Marks, used a quitclaim deed to transfer ownership of the home to AVMM Properties LLC, a company that bears their initials earlier this year.

Signs of trouble

Windy City Rehab has been a top-rated program for HGTV, but it has been dogged by problems on its Chicago projects. Eckhardt and his Greymark Development Group had their licenses suspended after neighbors complained about unpermitted construction and improper trash disposal. Block City Chicago reported that the city had issued 12 separate stop-work orders against different projects being rehabbed by the team. The orders led to delays on many projects, costing both time and money as loans became due and carrying costs increased.

One takeaway for any investor who's interviewing contractors is to ask about their permitting process and research any past violations. A contractor with a lax approach to filing the appropriate paperwork or who runs a messy job site is never a good sign. Gramenos said that she found out about Eckhardt's license violations through social media and didn't know about his past issues with the city. She had met him on a previous HGTV show and appeared to take him at face value.

A challenging partnership

Eckhardt and Gramenos didn't just work together; they partnered on buying some of their flips. Gramenos has said that because she was mostly responsible for the design, she didn't pay as much attention to the construction end of things. This is a very important lesson for any aspiring house flipper or anyone involved in a real estate partnership. While you may not want to focus on the financial end of things because it isn't your area of expertise, it's important to understand all aspects of the business on a basic level. Even if you aren't involved in the construction work, you still need to keep an eye on what your construction team is doing.

Gramenos has had to go through a complicated process of removing Eckhardt's name from properties they were partnering on -- a process she has compared to getting a divorce. Just as no one wants to get into a marriage thinking about divorce, no one wants to start a partnership by preparing for what happens if it doesn't work out. However, a formal structured agreement that addresses potential outcomes can prevent a lot of trouble later.

The value of a good reputation

Gramenos has told the media that she believes she spent as much as $700,000 on projects to try to finish work already in progress. Although she has filed a lawsuit, she's aware that she may not recover much of her money. While she has an ongoing career with HGTV, she is still facing the damage to her finances and her reputation. The story makes for good television, but it's also an important reminder that any real estate investor needs to screen contractors carefully and follow up with every stage of the process to make sure the work is being handled correctly.

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