Real Estate Investing_ Infomercial And Mentoring Scams (1)
1. Real Estate Investing: Infomercial 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 do 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 (mortgage), 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.
