[DavidElliott]

I have a seasoned real estate investor mentor in California who is working on a project that needs an investor to invest $250,000. He says he expects to be able to pay back the investor's original $250,000 + $400,000 within 30 days.

I already believe what most of you believe... "It's a scam." "It's too good to be true." "If it sounds too good to be true, it probably is"...

I'm not looking for validation or confirmation of this opinion as they're a dime a dozen. What I'm looking for is opposing views.

Has anyone ever experienced such an outrageous ROI first hand?

My mentor says there are people out there who look for deals like this, but I don't think that's true.

Thank you in advance.

David

[AmotoXracer]

I have experienced deals with the margins your describing first hand. Although, they were my deals with my money.
Not an "investment opportunity" controlled by someone else.

[DavidElliott]

Thank you. I'm trying to meet someone who has been involved in a deal like this where it wasn't their own money. I'd like to learn from them. Not just how they do their due diligence but also how they decide it's a deal they even want to look at. Almost every 'deal' I've heard of like this has been a scam.

I've trusted my mentor for so long and he hasn't thrown any curve balls at me until this one. It really caught me by surprise.

He's convinced it's a deal and says the right investor would recognize it as a deal once he shows them the due diligence. I'd really like to get a fresh perspective from someone who's been there.

Anyone who is willing to respond to this from first hand experience would be greatly appreciated.

Thanks again.

David.

[John_Corey]

In theory it is possible. Some of the time there is a deal where the current owner is in a jam. They are willing to pay really high returns because the clock is ticking and they will get wiped out if they do not come up with a solution.

It is normally a sign of extreme distress and possibly a business / investor who is not very competent. In other words you might make great money but they are not likely to be someone you would want to do a deal with again. They have dug a big hole and they need a miracle.

You have to do your homework and you need control over the deal. Control could just mean that you can force the issue rather than you take over the management.

If the person dug a big hole, they are prone to not evaluating things fairly. This means their estimate of the future could be flawed so the next event that will trigger the large payoff could be delayed, fail to happen, etc. Be prepared to be in long term rather than in and out with a high return.

Luck does happen so there are deals that will pay off. They are rarely repeatable.

[AmotoXracer]

Originally Posted by DavidElliott

He's convinced it's a deal and says the right investor would recognize it as a deal once he shows them the due diligence.

So we are clear. Deals with the margins you have stated do not require "the right investor" to recognize. Usually even a novice will know when something is being sold for dramatically less than its worth. Common sense goes a very long way in these situations. I will also tell you the person or company controlling this deal, will not have a difficult time getting funding for it. Deals like what you described sell themselves, and there are plenty of takers.
I would go look at it if I were you, or at least look at what they will show you. If it looks like a brilliant opportunity then dig a little deeper. Pay particular attention to the vocabulary your mentor is using when describing the investment. If he/she is trying to use hype to sell you on the plan, then its probably not real.

[Jack5]

You do not post any actual details for anyone to provide an actual opinion, the only advice that anyone could put forth to you is that if you have to ask, it is over your head and you should avoid it.

[Michaela-ATL]

yes, there are deals like that out there. I personally haven't done one at that size, so I can't speak from experience.

But as was mentioned, it usually involves some kind of distress. not necessarily your mentor's, but the seller's or maybe a mortgage holder or someone involved in this property, who needs to get out and is willing to do it on a steep discount.

Without further details we really can't tell you anything specific.

I do not agree that every novice will immediately recognize a deal. Most of my rehabs had been passed up by other investors before and I was glad that I did each one.

So, find out more and then evaluate further

[John Merchant]

Every meeting of every comm'l RE brokers group has one or two such deals come to light and tons of owners are really, really wanting to sell to rid themselves of (what's to them) problem properties.

A REB friend called me one morning and told me of a prop in his town that its owner just wanted to dump and if I'd just drive over there the owner would be glad to meet with me and deed me his problem stacked* 3-plex.

I did, taking along a QC Deed form which he signed.

Seems he'd ticked off everybody @ his city bldg dept and just wanted rid of that property. He was a pacifist in a war-zone ;)

I proceeded to make peace on Bob's behalf with the city so as to get them off the back of the property, then holding that deed for less than a year I sold it for $15k cash.

For 2 or 3 years afterward I'd occasionally encounter Bob on the road and he'd honk and wave and was friendly as could be.

* the 3 units were literally stacked one atop the other and an outdoor stairway connected them...one of the oddest looking structures I ever saw.

[John_Corey]

Originally Posted by John Merchant

* the 3 units were literally stacked one atop the other and an outdoor stairway connected them...one of the oddest looking structures I ever saw.

John,

You have limited exposure to the east coast. If you watch the movie, Good Will Hunting, you will notice that the main character lives in one and the whole street is full of them. My grandmother lived in one. The city I grew up in had them all over the place. They can be great money spinners. We used to call them triple deckers. On a few occasions you will see them stacked 4 high. Maybe 2,000 sq ft per unit if it is a large building.

[John Merchant]

John C, I know you're right (as per usual) and in fact one of my Bro's-in-law lives in one in E PA. The crazy thing is 4 floors plus basement and is only 15' wide !

Another thought on learning what's a good deal or not...Lonnie's [b]Deals on Wheels[b] is a terrific primer on learning to spot good deal on a MH and @ its reasonable price I'd recommend for anybody looking to invest in RE of any kind.

[AmotoXracer]

Originally Posted by DavidElliott

I have a seasoned real estate investor mentor in California who is working on a project that needs an investor to invest $250,000. He says he expects to be able to pay back the investor's original $250,000 + $400,000 within 30 days.

I already believe what most of you believe... "It's a scam." "It's too good to be true." "If it sounds too good to be true, it probably is"...

I'm not looking for validation or confirmation of this opinion as they're a dime a dozen. What I'm looking for is opposing views.

Has anyone ever experienced such an outrageous ROI first hand?

My mentor says there are people out there who look for deals like this, but I don't think that's true.

Thank you in advance.

David

On the outside chance this deal was legit..... if you haven't tied it up by now, then you lost it.

[DavidElliott]

Thank you all for your input. I've decided I've been in denial about my mentor. He's done so much for me in the past that I wanted to believe in him, but I've reached the conclusion that he's likely been grooming me over the past 5 years.

I still find it difficult to believe people like this exist, even though I've seen so many of them. It's about time I wake up and smell the coffee.

Thank you again for your input and assistance.

David.

[Ben T]

Originally Posted by DavidElliott

Thank you all for your input. I've decided I've been in denial about my mentor. He's done so much for me in the past that I wanted to believe in him, but I've reached the conclusion that he's likely been grooming me over the past 5 years.

I still find it difficult to believe people like this exist, even though I've seen so many of them. It's about time I wake up and smell the coffee.

Thank you again for your input and assistance.

David.

We all "want to believe" something. But when you think about it, it really has no place in real estate investment. If this guy has been "grooming" you for 5 years, what exactly did he teach you? I don't know of any real estate deals that don't lend themselves to analysis. For instance, if he can buy a property for $250K and sell it 30 days later for $650K+ that should be obvious to you when you look at the comps. There should be recent comps for similar properties in the area at or around $650K. Maybe the comps should be higher because otherwise, it probably won't sell in 30 days. But all of this is available by simply studying the area.

It is not a question of whether you "want to believe". It's also not a question of "trusting' someone either. You do your due diligence. You check out the info he gave you (he did give you info didn't he?), you also find another source to double check...ie check other comps, etc etc. If your due diligence verifies what he is telling you, then there is a deal. Again, it has nothing to do with trust or belief. And btw, if he hasn't taught you this in the last 5 years, get yourself a new mentor.

Ben

[ray@lcorn]

The only way your mentor is guilty of grooming you is if you have the $250T and he wants you to fund the deal. Unless I missed something above you're not considering investing in the deal, just questioning his judgment.

To the "scam" factor: Sounds more like wishful thinking than a scam. I've been in this business about 30 years and have had at least a half dozen deals that generated mid to high six-figure profits in a short period of time, but never in 30 days. The logistics of transaction management usually takes 90 days or so in my space, commercial real estate. I have done house flips in 30 days or less, and oodles of MH deals, but those involved low- to mid-five figure sums at most.

ray

[AmotoXracer]

I only know of one realistic way to actually put a deal like in the original post together.
You would have to be participating in an involuntary sale of some sort, such as a mortgage foreclosure, tax foreclosure, bk trustee auction ect...Thats the only way your going to essentially triple your money. The resell in 30 days inst as hard as the buying at one third of its value, although your buyer pretty much has to have cash, which means your going to discount the price. I guess what that means is you really have to buy at one fourth of the properties value. This kind of thing dosent happen much anymore.
Once in awhile a second mortgage will be moved into a senior lein positon because the previously senior lein is refinanced and the second wasent paid off or subordinated. This happens infrequently but does happen. Usually the junior lein was a line of credit, when the refi occurs the loc is paid down to zero, but not closed. Usually accidentaly not closed. The refi occurs, everyones docs are recorded and everyone is happy, unitll the borrower draws on the loc again, then goes into default. Now you have a tiny balance (relative to value) foreclosing, and a huge junior leinholder who thinks they are in senior position. So they ignore any notices of the pending foreclosure. Anyway, this happens from time to time, and even though a third party bidder will usually end up being sued, they will prevail provided they know exactly what they are doing.
Thats one very real way this could happen. Its not the only way. I would encourage anyone who cares to keep their mind open and not to automatically think margins like the original post are a scam. They are just rare, and thats why you have to investigate them all. Actually, thats just why I investigate them all.

[John_Corey]

Originally Posted by AmotoXracer

I would encourage anyone who cares to keep their mind open and not to automatically think margins like the original post are a scam. They are just rare, and thats why you have to investigate them all.

A very good point above. You have to verify the info as sometimes the deal of the century does happen. If you do not have an open mind you would never even notice that is just passed by.

[ray@lcorn]

Actually, thats just why I investigate them all.

Me too! It's why we play the game... over my whole career my closing ratio is around one out of every ten deals I seriously consider (meaning I at least do market and property analysis).

However in the last few years its been worse... probably closer to 1 in 20, a function of me getting pickier, and offered deals getting edgier. It takes a lot of time, effort, and some expense, but I still chase the 20 because I never know which one has home run potential.

A friend sent me a blog post this week that speaks to this, "Good due diligence is defined by the deals you walk away from." I think it's an axiom every investor should heed.

Your "Professional Rainbow Chaser" host,

ray