Real Estate Investing: Infomercial, Tax Sales And Mentoring
Scams
Flipping through late-night infomercials recently, I saw two
real estate get-rich quick schemes, and I couldn't help but
wonder why people still fall for those old scams? Has anyone
really talked a seller out of his home for no money down with
owner financing lately?
Real estate infomercials do great harm to beginning investors,
who waste hundreds of dollars on old information. Worse yet,
those beginners soon get discouraged and miss out on the true
(and profitable) adventure of real estate investing.
One of the most popular late night infomercial shows tells
beginners that it's possible to make a fortune by buying houses
with no money down and then renting them out to cover the
monthly payments. It's true that you can buy a home for no money
down, but the requirements include having good credit, good
income, and the home should be owner-occupied.
Rentals don't normally qualify for no money down financing.
Institutional lenders aren't supposed to make no money down
loans on investment properties, and even if you could buy an
investment home with no money down, the monthly payments would
generally eat up the rent.
Late-night scammers also claim that investors can get owners to
pay the closing costs, including the down payment. But when a
lender asks where your down payment will be coming from, saying,
"the seller" is not the right answer! Today's sellers are also
fairly savvy, and understand that with no money invested in a
property, a buyer could easily walk away and leave them with a
home that's been ruined by careless tenants.
Another TV program offers a bogus system for buying houses at
ridiculous prices, but think about it: has anyone bought a home,
free and clear, for $345.00 at a tax sale recently? Hordes of
investors flock to the tax sales in the area where I live,
bidding up the prices of foreclosure properties far beyond a few
cents on the dollar. It just doesn't happen.
Today, another real estate investment scam is popular in
Southern California. Here's how it works: a young person we'll
call Charles charged $4,000 on his credit card to hire a real
estate "mentor," after the mentor wined and dined him at a fancy
Beverly Hills restaurant.
In exchange for the fee, the mentor instructed Charles to find
distressed houses by driving around the area and writing down
the addresses of ugly houses in nice neighborhoods. Once Charles
had given him the addresses, the mentor obtained the owner's
address and sometimes a phone number. Then it was up to Charles
to call the owners and talk them into selling their houses for
no money down, and carrying the paper, too!
I met Charles when he called me about buying a property that my
husband and I had on the market for $1.2 million. When I asked
him how such a young man was going to make the payments on $1.2
million home, he told me that he planned to rent the house out
for enough to make the payments.
As a real estate investor myself, I tried not to laugh at his
naivete, and after talking to Charles and listening to his
frustration about trying so hard to follow his mentor's advice,
I offered to help him find a property, and I'm happy to say that
Charles now owns his own home. But he'll still have to spend
years paying off a $4,000 credit card bill.
If you want to make money as a real estate investor, a good
first step is to buy your own home, like Charles did. You can do
that for no money down if you have good credit, or for a
relatively little amount of money down if your credit is poor.
Once you've purchased your own home, fix it up and then either
sell it or refinance it and use your profits as the down payment
on an investment property.
Don't pay hundreds of dollars for out-dated methods that may
have worked in the middle of last century! They're a waste of
your time and money. Real estate investing is truly a great way
to make a fortune, but you must stick to tried-and-true proven
strategies, ones that work in today's real estate market.
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