I received a request from a local attorney on Thursday to investigate a property purchased by a potential client of the attorney. The attorney had received a call from a nice lady living in another state concerned that the incredible investment she purchased in a Metro Denver suburb might be a problem.
The nice lady was receiving advice from a web based investment club, and made the purchase through a local affiliate of the investment club. The local affiliate employed Colorado real estate licensee’s. The claim made on the web site was that this property could be purchased way under market value, creating “instant” equity, and that a lease would be executed creating monthly “cash flow”. The nice lady bought the property site unseen.
P.T. Barnum was quoted as saying “There’s a sucker born every minute”. The World Wide Web has just provided a great new way to fleece the gullible, especially those looking for the fabled “great deal”.
The truly amazing thing about these so called “investment clubs” is their ability to convince otherwise smart people to buy property sight unseen using the internet. The advice from these “club” leaders is that they don’t need Realtors, because a Realtors fee just runs the price up. Some people, when offered the “great deal”, seem to go silly, and seldom seek a second opinion. Gotta grab the deal while it’s hot, can’t wait, or some other sucker will get there first.
People will believe what they want to believe, so I suspect nothing I am writing here will stop the stampede of suckers looking for a deal, but perhaps if I could save one or two people from acting stupid, it’s worth my time to write this, so please consider:
1. Do not buy an “investment property” sight unseen. In the situation presented above, the nice lady bought a really pretty home backing to a busy street that will get busier. Busy streets negatively affect value. Not to mention the 5 foreclosed properties down the street.
2. Always get a second opinion. If nothing else, contact an independent appraiser and pay a fee for a unbiased opinion. $400.00 may save you thousands of dollars.
3. If you are buying sight unseen, have the contract reviewed by an attorney. That may be good advice in many real estate transactions anyway.
4. Make sure you have escape clauses in the contract. Perform “due diligence” during the alloted time.
5. Do not obtain an “owner occupied loan” to buy an investment property. That is known as loan fraud. Participants in a loan fraud can look forward to spending time as a guest of the United States in a B&B in Leavenworth, KS. Many times, to create “cash flow”, the happy investment club lender will create an owner occupied loan on a non-owner occupied property.
6. There are 15,000 Realtors in the Metro Denver area. I suspect there are large numbers of Realtors in your neck of the woods. Every one of those Realtors are looking for a deal, either for themselves, or their investor clients. Why does anyone think that there a “secret” good deals? There aren’t.
A savvy investor can do very well buying real estate. There are no “secret” formulas or super deals. Money is made in real estate today just like it has always been made: Slowly, by people who really take the time to understand the local market and the property they are buying.
I know, you have heard all those testimonials from “investors” that have done really well. OK, understand that there really are a few great deals. They are almost always made by people that have taken the time to really understand the local market. (There is also dumb luck.) There are also “shills” chanting the incredible opportunity offered by the “investment club”. If it sounds too good to be true, take 5 steps back and slow down.
The nice lady noted above was taken advantage of by unscrupulous people that search for nice people that want to believe in the “great deal”. There really is no free lunch.
Lastly. are there good investment clubs? Of course. Any club, individual or company that is operating in an honest and ethical manner will provide verifiable information so a prospect can perform independent due diligence. Don’t be in a hurry, there will always be a deal out there tomorrow.
Written by Larry D. McGee, Denver Realtor - Visit Website
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{ 3 comments… read them below or add one }
Carole Cohen 09.10.08 at 7:30 pm
Always get a second opinion. If nothing else, contact an independent appraiser and pay a fee for a unbiased opinion. $400.00 may save you thousands of dollars. This sounds like a must in these cases. And your post is written amazingly well. I have a feeling the Internet is taking over where time share scams used to reside?
Carole Cohens last blog post..If You Want to Get Your Mind Going With Ideas, Read Instructions from The Cook.
Laurie Manny - Long Beach Real Estate 09.10.08 at 7:40 pm
It doesn’t matter how many time we preach to people to be careful, there is still a sucker born every day and 2 criminals ready to take advantage of them. Everybody wants to believe that they are the exception to the rule.
Laurie Manny - Long Beach Real Estates last blog post..Long Beach Real Estate Sales - Market Report - Statistics - 2008
Kristal Kraft 09.13.08 at 8:13 pm
I like Carole’s suggestion of getting an independent opinion. Nothing speaks louder than the opinion of someone who has nothing more to gain, and a responsibility to prove value based on actual sales, not hype.