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Real Estate Investing: Infomercial and
Mentoring Scams
by Jeanette Joy Fisher
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.
(c) Copyright 2005 Jeanette J.
Fisher. All rights reserved.
Professor Jeanette Fisher, author
of Doghouse to
Dollhouse for Dollars, Joy to the Home, and other books teaches Real Estate Investing
and Design
Psychology.
For more information on
real estate investing, visit Jeanette Fisher's Doghouse to
Dollhouse website: http://www.doghousetodollhouse.com.
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