Determining Purchase Price when Doing a L/O. An opportunity for SCAM ARTISTS?

I approached my real estate broker the other day and told him that I was interested in becomg a full time investor. He responded by saying, “Most investors are scam artists” and proceeded to give me a few examples of how investors scam homeowners and renters. Here is an example of what he said:

  1. “Investors tie up lease option properties at a purchase price that cannot be appraised. Than they seek out ignorant rent-to-owners, charge them a non refundable fee of 10k, and by the time their lease expires, they can’t obtain the loan. The investor than repeats the process over and over again.”

What are your thoughts on this? Do people do this? I’ve always been under the assumption that its best to fix a purchase price at considerably below Market Value to assure an “appraisable” price for your prospective rent-to-owners.

Which brings me to a second question: what kind of sellers are willing to not only provide lease options, but sell low?



Yes, Mr. real estate broker, you are right. The percentage of real estate investors doing lease/options who are scamming ignorant rent-to-owners is almost as high as the percentage of real estate brokers selling homes to people who can’t afford them and will get foreclosed upon in a couple of years. The remainder are buying homes at a discount, fixing them up, offering them at market prices and giving tenants who may have a bankruptcy or credit issues in their past the opportunity to purchase the home.

The minute this moron of a Broker said all investors are scam artists, his credibility went out the window. Ignorance is bliss. Let him remain so.

Your Real Estate broker: the voice of ignorance-One of the most valuable members of my ‘team’ is a broker.

Is your broker willing to work with you when you become a full time investor?

Great spirits have always encountered violent opposition from mediocre minds…Albert Einstein

Yes it is true that some investors do not keep in mind that their deals should be a win~win~win scenerio for all involved. Yes, some investors are scumbags and take advantage of people. But do some “bad apples” spoil the bunch. No.

You must also remind your broker that not all Realtors are good. Some know nothing other than securing listings and posting them on the MLS for 6 months. Some aren’t even ethical and even once in a while, they are downright pathetic. Ah yes…it takes me back to a nice little article in our local paper…

From the Bluffton Today paper dated Wednesday, March 28, 2007.

"A Hilton Head Island real estate agent has been arrested for allegedly showing more than one of his listings.

Steve Plowden…was charged with indecent exposure last week after allegedly answering the door at a Dinghy Lane property naked from the waist down, said Lt. Glenn Zanelotti of the Beaufort County Sheriff’s Office.

Officers stopped Plowden following a short chase through the gated community, a Palmetto Dunes Security report stated.

He was charged with driving under the influence after failing a field sobriety test and taken to the Beaufort County Dentention Center. He was released the same day.

On Friday he was charged with indecent exposure and was later released on his own recognizance."

Does this article mean that most or all real estate agents are bad…No. There are plenty of Investors who started out as real estate agents and have decided to keep their license <-----as I am doing. Being a very new Investor, my goal is to help as many people as I can to get out of a sticky situation while putting that same home in the hands of a deserving person who may have had some misfortune happen to them.

  1. Sellers may be relocating to another area…
  2. Sellers may have just had a divorce and need to split the assets…
  3. A seller may have had a death in the family…
  4. A speculator may just want to unload a home he didn’t get appreciation on following his/her purchase in 2005…
  5. A seller may even be fed up with a Realtor who didn’t do squat advertising their property and then NEED to sell.

Keeping everything in perspective is a good thing.

HHI Investing

What??? How can you use a story of indecent exposure to compare how investors take advantage of people? Sorry, that just made me laugh. I’m sure an investor has gotten a DUI before or even killed somebody, but to use that to say most investors are bad… lol…

Hey Kevin, it sounds like your going through one of the things I went through when I first started, negative input from people who don’t matter. Take advice from people that are actually sucessfull doing what you want to do, not some real estate broker that has ZERO idea about investing. Good luck!!

Geez, Jared. Why don’t you actually read the stuff before commenting. He was using that as an example of how must investors AREN’T bad, just like most agents. Not sure if I agree, but that was the comparsion.

That said, Jared is correct that you’ll have many, many people that know nothing about RE investing try to dissuade you from pursuing. Take what you can use and brush off the rest.

To answer your questions, yes, some, however few, investors actually try to do this. They take a renter’s option fee, setup a 1 or 2 year term, and when the renter is unable to qualify for a loan, they kick them out and start over. They never intend on selling, just collecting an option fee, higher rent and moving on.

Not only should you setup your business differently, but as a Realtor, you have to (if you want to keep your license in good standing). Try to get people qualified upfront (this also sets up what they need to be doing to fix their credit if they aren’t qualified). Setup a lease-option with an end price that works for the period. Line up a good mortgage broker for the T/B to work with. At this point, if they don’t qualify at the end of the term, you’ve laid out the groundwork for them, they only had to follow it.

My recommendations, don’t do lease-options with sellers. Bad idea. Only lease/option properties that you own out to T/Bs.