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 recently convinced a seller of their no down payment home with owner financing?
Real estate infomercials do a lot of damage to first-time investors, who spend hundreds of dollars on old information. Worse yet, those beginners soon get discouraged and miss out on the real (and profitable) adventure of investing in real estate.
One of the most popular late-night infomercials tells newcomers that it’s possible to make a fortune 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 with no down payment, but requirements include having good credit, a good income, and owner-occupied home.
Rentals typically do not qualify for no down payment financing. Institutional lenders aren’t supposed to make no-down-payment loans on investment properties, and even if you could buy an investment home with no down payment, the monthly payments would usually eat up the rent.
Late night scammers also claim that investors can make homeowners pay closing costs, including a down payment. But when a lender asks where your down payment will come from, saying “the seller” is not the right answer! Sellers today are also pretty savvy and understand that with no money invested in a property, a buyer could easily walk away and be left with a home that has been ruined by careless tenants.
Another TV show offers a fake system for buying houses at ridiculous prices, but think about it: has anyone bought a house, free and clean, for $345.00 at a tax sale recently? Hordes of investors flock to tax sales in the area where I live, bidding foreclosure property prices 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 to his credit card to hire a real estate “mentor,” after the mentor drank and dined with him at a posh Beverly Hills restaurant.
In exchange for the fee, the mentor instructed Charles to find dilapidated houses by driving around the area and writing down addresses of ugly houses in nice neighborhoods. Once Charles gave him the addresses, the mentor got the owner’s address and sometimes a phone number. He then it was Charles’s turn to call the owners and convince them to sell their houses with no money down, and take the paper (mortgage) too!
I met Charles when he called me to purchase 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 a $1.2 million house, he told me that he planned to rent the house for enough to make the payments.
As a real estate investor, I tried not to laugh at his naivety, and after talking to Charles and hearing his frustration at trying so hard to follow his mentor’s advice, I offered to help him find a property and I’m happy. say that Charles now owns his own house. But he will 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. He can do it with no down payment if you have good credit, or with a relatively small down payment if your credit is bad. Once you’ve bought your own home, fix it up and then sell or refinance it and use the proceeds as a down payment on an investment property.
Don’t pay hundreds of dollars for outdated methods that may have worked in the middle of the last century! They are a waste of time and money. Investing in real estate really is a great way to make a fortune, but you have to stick to tried and tested strategies that work in today’s real estate market.
Copyright © Jeanette J. Fisher
