Every day, real estate investors receive offers that just sound too good to be true. In the past, these offers came through e-mail, telephone and trade shows. As with all scammers, they have one goal — to separate you from your money!
One of the “opportunities” that I am seeing is under the guise of “turn-key rental property” sales. These companies sales pitch is that they take care of everything for you. They find the deal, buy the house, fix it up, get the renter in place and then manage the property for you. All you have to do is collect the check!
Be careful. Remember the old adage, “if it looks to good to be true, it probably is”
The most abusive are the folks in Tennessee who work with real estate information gurus. They pay a commission to these real estate gurus at $4,000 per house sold to their students at seminars.
I can imagine that if I make a call to ask them to explain their pro forma, they will have their lawyer threaten me with litigation. (What else is new?)
Here is what they do:
Here is what they should do:
Plus the rent! They use an inflated rental fee – $150 over normal and their lease up fee is one whole month, NOT the $516 used in the calculation.
This in fact reduces the NOI by another $2,316 to a total of $4,327 to a true net return of just 4.87%. or a 44% misstatement of the number presented in their proposal/pro forma.
They either do not understand generally accepted real estate accounting principles or they are consciously bending the rules. This is plain misrepresentation.
What’s worse in my book, is that this company runs a Mastermind group to teach other turn-key real estate companies how to promote to investors so they can also rip people off!
Guest Author – Andrew Waite
Personal Investor Magazine