How Listening To The
Guru’s Almost Got This Investor Thrown Into Jail
By Sean Flanagan
The author has permitted the reprinting and redistribution of this
article.
I thought I’d heard it all when it comes to real estate
investing stories until I heard this one!
I was speaking with one of my real estate investing student’s
the other day and he told me a frightening story.
Here it is, in his own words
“When I began investing in real estate
he was somewhat clueless! Granted, I had definitely done my homework by
researching everything related to real estate that I could get my hands
on, but I was still desperate to do deals with little real world
experience. The only thing I really knew was what I had read in the
books and heard on the Guru courses I had listened to. A lot of this
information is pretty good. As a matter of fact, most of it is pretty
good. However, some of it needs to be taken with a grain of salt.
For example, one of the first deals I ever did was a preforeclosure
deal and I tried to apply one of the techniques I had learned from a
pretty famous Guru. I will leave his name out, because it is
unimportant.
Before we go any further with the story, let me just say that most of
what I have learned about this technique before I tried to use it as
well as after I used it point to the fact that it probably is not
illegal. If it is illegal in any way, it is possibly a civil
situation…..certainly not criminal! However, what counts is
that the detective who looked at the case did in fact think it was
criminal.
So, here goes……
The deal went something like this I found a motivated seller from one
of my marketing campaign who was in foreclosure. The seller had a
little bit of equity but was 2 months behind on their mortgage
payments. The only way I could see to make a deal out of this
(remember, I was very new to investing) was to find a way to get
control of this property and keep the loan in their name. So, using one
of the techniques I learned from a Guru course, I talked the seller
into giving me a lease on the property with an option to purchase it
anytime I wanted within the next 2 years. I agreed to use my money to
reinstate the loan if she would consider that money the option deposit.
The next thing I did was rush right out and start advertising that I
had a house for sale and I would offer owner financing on it if someone
had $7000 to put down. With that 7k, the monthly payment was going to
be around $1300 or so per month. In other words, the buyers down
payment got them in and their payments kept them in. That was it, no
credit check or job verification required.
As you can imagine, my phone started ring right away with people who
wanted to buy this house. So the first person to show up with 7k plus
the first months payment got the house. I gave them a contract for
deed, which is basically owner financing without formally transferring
the deed into the buyers name, and then I took 2k from the buyers down
payment and reinstated the loan. The paperwork said that the buyer had
to refinance within 18 months or they lose the house.
This worked great for the first few months.
Here’s the short version of the rest of the
story…..the loan got reinstated by me and then the original
seller decided she wanted her house and equity back. So she hounded me
and hounded me to try to get the house back. Of course, that just
wasn’t going to happen. Finally, after the new buyer had been
in the property for a couple of months, the seller came knocking on the
front door while the new buyer was having dinner with her family from
out of town…..showing off her new house!
OUCH!
So the seller and buyer decided that I must have done something illegal
since the deed wasn’t actually in my name and yet I was
“selling” the house to someone already. They ended
up going down to the police department and talking to a detective who
sided with them. The detective called me and told me that if I
didn’t refund the down payment and walk away from the deal
then the seller and buyer were going to press charges on me.
WHAT I hadn’t done anything wrong! I had a legal option to
purchase the property and ifwhen the buyer went to refinance the house
I was going to exercise my option. Legally this should be fine.
However, the detective thought different. To make matters worse, the
new buyer went and got an attorney, Pro Bono (free).
At this point I decided it just wasn’t worth it. I took some
money I had from other deals I had done and refunded the buyers money.
She then ended up buying the house from the owner at a HIGHER price
than she would have with me.
WOW…smart move! Oh well, you win some, you lose some. I
certainly learned a couple of valuable lessons from this experience.
First, you should never do anything without disclosing it to everyone.
Second, you should question everything you learn from Guru’s
or anyone else for that matter.
Third, you should always protect yourself and everyone else involved in
creative deals like this one by having a valid and proven exit strategy.
While what I did was probably not illegal (criminally), it could have
turned into a pretty big mess. Let’s say I didn’t
get thrown in jail because the detective was wrong…..I still
would have ended up getting sued. Anyone can sue anyone for anything
these days. Plus, if the buyer would have forced the issue and tried to
refinance the house, I wouldn’t have been able to uphold my
end of the bargain. I didn’t have the cash to close my end of
the deal at the time and even if I would have, there would have been a
chain of title issue which would have caused the deal to fall apart. In
other words, the underwriter doing the loan for the new buyer would
have seen that I only legally owned the house for a few minutes and
they wouldn’t have funded the deal.”
So, the moral to this story is, of course, be very careful who you take
your advice from and always do your due-diligence before you go jumping
into your first deal. Get a teacher you know you can trust and your
investing career should be in good shape.
Sean Flanagan went from dead broke, to a self made real estate
multimillionaire in under 2 years time. He now shares his secrets with
thousands of students across the country. httpwww.YuckyHouseSecrets.com
also Visit his Blog httpwww.yuckyhouseleads.comblog
If
you would like to take advantage of the market and learn how to invest
in real estate and you are local to the Dallas Fort Worth area, I know
a really great teacher and mentor here in Arlington Texas. Please take
a look at his web site: DennisJHenson.com,
Dennis has a great Mentoring and training program, I know because I am
one of his former students. I learned a lot from his one on one
teaching technique. - Michael Harman 817-457-7572
mchfun.business@gmail.com
http://www.biggerpockets.com/articles/