There’s an old real estate scam going around again. New investors who don’t know better are being taken in by more experienced investors offering to help them get started investing in real estate.
It goes something like this . . .
“Hey kid, haven’t done a deal yet? No problem! Stick with me and I’ll not only find you a good one, I’ll negotiate it and even get the thing closed for you. You don’t have to lift a finger.”
Sound good? It does if you’re brand-new and don’t know any better. It sounds especially good if you’re hungry and eager to get your first deal put together.
It gets even more tempting when he says he likes you so much that he’ll set it up so you can get into it with nothing out of your pocket. Even better still, he’ll massage the numbers so you can walk out of escrow with a check.
Aye Carumba!
Sure enough, the dust settles just like he said it would and not only do you walk out of escrow the proud owner of a new rental property, you collect a check for your troubles.
Hold on, hotshot because that ain’t the end of our story . . .
You do this deal and you are now the proud owner of a junker rental property that’s been prettied up just enough to sneak it past an appraiser and maybe fool a lender or two.
That new coat of paint, some new cheap carpeting, and a shiny brass door-knocker do not make your property “freshly rehabbed.”
It’s doubtful that your rental unit is actually ready for a tenant to move into. I’m guessing it’s not even close.
More likely, your work is only just beginning because at best, you overpaid for your first investment property by no small margin, and you’ve got a junker on your hands you can’t possibly give away for what you owe, much less rent out to break even.
Soon enough, you’ll discover that the $3,000 you walked out of escrow with won’t begin to cover the expenses you encounter when you find out all the things you must now do to get the place into rentable shape.
The house sits empty for a couple months while you fix the things you missed or didn’t even know mattered.
And it’s empty another couple months while you learn that the only people who want to rent a house in that neighborhood couldn’t possibly qualify to buy a loaf of bread on credit.
And then you run out of money!
But hold on . . . there’s a solution. Your investor buddy calls and offers you another deal just like the first one.
You jump on it because now you need that $3,000 kickback he’s once again dangling in front of you.
This is a formula for disaster
Do one deal, and you’ll likely get out alive. Do a half dozen of these since your hero investor is really on to something good, and you will soon find yourself in enough trouble that you probably will not get out alive, at least financially.
Instead, you’ll be a slumlord with a bunch of garbage properties that are over-financed and are a constant and never-ending pain in the you-know-what.
Hey Newbie! That investor buddy of yours is NOT your friend and doesn’t see you as his anything other than a pigeon with a financial statement.
You can bet that as soon as you miss a payment or two on all those over-leveraged junker properties he fixed you up with, that buddy will move on to the next new kid on the block.
Here’s the part he’s not telling you
That first house you bought, the one he got appraised at $92,000 and sold to you at the bargain basement price of $78,000 (and paid you $3,000 on top of that), did you ever stop and think what he paid for it?
I’m guessing somewhere around $30,000 tops, and he spent maybe another $3,000 or $4,000 prettying the thing up.
The exact numbers don’t really matter, but you can be sure the check he walked out of escrow with was a multiple of your check, and in case you haven’t noticed . . . you got taken.
Avoid “Red Ribbon Deals,” in which someone else does all the work and delivers the transaction to you all wrapped up with a pretty little bow on top.
Rarely is this sort of thing anything more than a con job that’ll leave some sucker out of money, out of credit, and out of real estate investing.
This business is all about work
I get paid because I can quickly solve difficult problems for people who desperately need someone to get things fixed in a hurry.
It’s not easy, and it’s often not particularly pretty, but I wouldn’t want it any other way. Difficult problems are good. Hard work is good. It gives me the opportunity to show off my stuff and make things happen.
Forget about easy ways to invest in real estate. Believe me, I’ve looked, and there just aren’t any. And even if there were . . . what would be the fun in that?