Real Estate Investing_ Infomercial And Mentoring Scams (1)
Real Estate Investing: Infomercial And Mentoring ScamsFlipping through late-night infomercials recently, I saw two real estate get-rich quick schemes, and Icouldnt help but wonder--why do people still fall for those old scams? Has anyone really talked aseller 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 oldinformation. Worse yet, those beginners soon get discouraged and miss out on the true (andprofitable) adventure of real estate investing.One of the most popular late night infomercial shows tells beginners that its possible to make afortune by buying houses with no money down and then renting them out to cover the monthlypayments. Its true that you can buy a home for no money down, but the requirements include havinggood credit, good income, and the home should be owner-occupied.Rentals dont normally qualify for no money down financing. Institutional lenders arent supposed tomake no money down loans on investment properties, and even if you could buy an investment homewith 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 thedown payment. But when a lender asks where your down payment will be coming from, saying, "theseller" is not the right answer! Todays sellers are also fairly savvy, and understand that with nomoney invested in a property, a buyer could easily walk away and leave them with a home thatsbeen 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 investorsflock to the tax sales in the area where I live, bidding up the prices of foreclosure properties farbeyond a few cents on the dollar. It just doesnt happen.Today, another real estate investment scam is popular in Southern California. Heres how it works: ayoung person well call Charles charged $4,000 on his credit card to hire a real estate "mentor," afterthe 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 thearea and writing down the addresses of ugly houses in nice neighborhoods. Once Charles had givenhim the addresses, the mentor obtained the owners address and sometimes a phone number. Thenit was up to Charles to call the owners and talk them into selling their houses for no money down, andcarrying the paper (mortgage), too!I met Charles when he called me about buying a property that my husband and I had on the marketfor $1.2 million. When I asked him how such a young man was going to make the payments on $1.2million 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 andlistening to his frustration about trying so hard to follow his mentors advice, I offered to help him finda property, and Im happy to say that Charles now owns his own home. But hell still have to spendyears paying off a $4,000 credit card bill.