Duped - Motivated Novice Investor


I’ve been recently motivated to get into real estate investing. My (over)enthusiasm led me to get duped by a group that shall remain nameless. Long story short, I’m out of 10K that I wanted to invest in a deal but now I have absolutely no legal ramification to get the funds returned to me. :flush

Because of my poor credit history and lack of liquid investment, I think I should start with wholesaling/contract assignment…but that is as much as I can be sure of. I don’t know if I need to build a team or how to actually get started in that to at least get recoup the funds I lost due to poor decisions and start on a positive journey of wholesaling that I hope leads to lease options or rehabbing.

Please :help I am in Michigan.

Thank you.

It has happened to us all.

I think you should name names.

I know many investors that lost all, or part, of their fortunes through ignorance, stupidity, or no fault of their own.

I know many investors that came back stronger, wiser and richer as a result of not quitting after suffering those losses.

In fact, one of my subscriber friends lost everything in the McMansion Bubble collapse of 2008. He said his credit was still shot with all those foreclosures on his record. In 2013 he had about $15k in savings and wanted to start investing again.

Well, $15k isn’t much to start with, but I shared a low-cost, low-risk ‘sub2’ solution I was taught, that had been working for me ever since my bank refused to finance my two board and care facilities back in the early 1990’s.

After showing him what to do, he found two sellers that wanted out of their houses. One seller was an investor that bit off more than he could chew, and the other seller was out of state, and not managing the house profitably. Both properties were in the half-million dollar range (in Southern California where I live) with LTV’s (loan to value) of about 90%. These were not steal deals, per sé, but they were newer, vacant and ready to rent.

To make a long story short, he offered to make the seller’s payments if they would give him their deeds. Both sellers agreed, but both seller’s wanted about $5K to make the deal work. One seller needed to bring the payments current, and the other seller just wanted some money.

Here’s the rub. The rents from these houses would not cover the expenses in this price range. That’s one reason the sellers were motivated to do something quick. So, the play was not to rent them out, but to flip them on seller financing contracts. He offered to finance any buyer whom had 10% for a down payment.

Short story, he raised the price about 8% over retail, offered no-qualifying financing, and resold both houses using installment loans. This was all done within three weeks of closing with the original sellers.

This exit strategy put almost $90k in his pocket up front, with another $70k coming when his buyers cashed him out (refinanced).

***He has since been cashed out, and grossed $160k in profits, off just those two deals.

His combined investment was about $15k, but that included advertising, making up back payments for the first seller, and giving the second seller spending money. However, within a month he netted $75k in down payments.

***My friend never actually gave the first seller money to bring up the back payments. He made up the back payments himself, from the down payment he got from his first buyer. So, really he got into both these deals for the cost of marketing; five thousand dollars paid to the second seller; and the cost of transferring both deeds. Not too shabby.

BTW, his first buyer cashed him out in just a few months time, and the second one refinanced within two years.

This can be done with houses in any price range, or type of home, but the ‘trick’ to doing all this fast, is sticking with vacant houses that are ‘rent ready.’ And houses in areas that everyone wants to live. This doesn’t work efficiently with frumpy and dumpy houses.

BTW, neither seller asked about my friend’s credit history or his income, and they still gave him their deeds, and let him take over their payments.

Hopefully, that story will provide some encouragement and inspiration about what’s possible in overcoming bad credit, lack of down payments, and a ‘hiccuppy’ past.

I am sorry this happened to you. I would speak with an attorney and explore any and all recourse you can.

That said, I want to speak to one thing. This has not happened to us all. When you want to “get into” a business, investment, etc. – if you do it the right way, be prepared, be educated, be over-prepared and over-educated, measure 3 times, cut once, ready, ready again, aim, aim again, and then fire…get my point. I am not saying a person with poor credit history and a lack of liquidity investment capital should not get into the real estate business – but in certain respects, you already have two strikes – major strikes – against you. I don’t live by the force a square peg into a round hole mentality. Sure, there are plenty of ways to “get into” the business – but they are not the more traditional and more normal way of doing it.

In business, your first loss is your best loss.

Learn from this. Re-group, clean up your credit, save some money, keep getting educated, and then take your next shot, next time, and make it a better one. Whether you follow this route or not – I wish you the best of luck.

Evidently, you haven’t done a lot of investing, because you haven’t experienced a loss. I’m also certain that you haven’t done a lot of investing, because you are unfamiliar enough to appreciate the various, creative financing strategies that cut through credit and income issues like butter. In fact, any investor will run out of money and credit, and then what?

The conventional investor will be stalled, until his investments grow enough to leverage into more real estate.

The creative investor will use other people’s money and credit, and continue to leverage himself into more real estate.

These two approaches separate the professionals from the amateurs.

I ask, “Why not operate like a professional from the get-go?”

That’s also why I recommend leaving as much of your own money in the bank as possible, and instead leverage other people’s resources to invest in real estate. This requires some study, as you’ve mentioned is necessary, and is not ‘normal’ for amateurs to put into practice.

Amateurs rely on their own resources, and when they run out, they’re done investing.

Some great resources for creative financing include Ron Le Grand (Control Without Ownership), Robert Allen (No Down Payment), and Bernard Zick (Negotiations, Options, Deal Structuring, etc.).

The best strategy for overcoming both credit and down payment issues for me is ‘sub2’ investing. I’ve illustrated the power of ‘sub2’ in the above post.

Meantime saving for down payments, and/or waiting for your credit to improve, and/or being “over-prepared and over-educated, measuring 3 times, cutting once, ready, ready again, aiming, aiming again” seems to be the surest way to avoid ever ‘firing.’

Real estate investing isn’t rocket science.

Actually, I’ve had a loss, more than one, and I’ve invested and own a great deal of real estate. I’ve used plenty of creative and non-traditional methods as well. Being you know nothing about me, your opinion is based on nothing more than your interpretation of my comments. You took my comments to an extreme and drew conclusions. In this case, he’s a newbie. Never did it before. Was undercapitalized, and inexperienced, and the results showed it. Even if he was successful, it would not have given him a full, experience, education, etc. Just a one time experience.

Being prudent, due diligence, etc., is certainly not the surest way avoid ever firing – that’s simply your opinion and an effort to prove my comment/suggestion wrong. I don’t disagree with creative strategies, non-traditional, or anything of the like. And for this person, he waded into the deep water and drowned. I agree, doing it is how you learn – but he could have learned a bit more before doing it. After dinner speaker? Doesn’t sound like it to me, but maybe. Take what you like and leave the rest.

And, if you are certain – simply based upon my comments – then I rest my case. We just agree to disagree.

I would consider myself a seasoned real estate owner/operator and in 30 years, I’ve never ran out of money. Not from a simplistic portrayal like you seem to imply. Do I use OPM – absolutely. But when the economics work, are prudent, etc. –
and I have left as much money, in cash, available. Enough to pay off all mortgages. That seems to work for me. LOL.

I think for someone who no money who is seasoned and a pro – they can be fine. For a newbie, no money, no experience…you are playing in the real world. Good luck being a newbie and playing with advanced strategies and techniques. Some of them are like plutonium – very powerful, very dangerous…and perhaps should only be handled by experts…or else.

I can’t disagree with the above. However, what you said was:

This [experiencing loss] has not happened to us all. When you want to "get into" a business, investment, etc. -- if you do it the right way, be prepared, be educated, be over-prepared and over-educated, measure 3 times, cut once, ready, ready again, aim, aim again, and then fire...get my point.

This sounded like you have not experienced a loss. But now you say you have. OK.

Meantime, over-preparing is what people do to procrastinate. I was guilty as sin back in the day for over preparing. I purchased a library full of real estate investing books, and devoured them, but it took forever to pull the trigger on my own deal. Even then, my first single family deal blew chunks, because I had too much money available; got in a hurry; believed the agent’s promise that a leaking basement wall was ‘normal’ and only leaked in ‘frog-choking’ rains. Of course, the ‘frogs choked,’ the walls heaved, and I lost nine thousand dollars on that deal.

That wasn’t my first and only loss. I’ve had partners steal from me; managers bill me for work never performed; apartment managers skim side money from resident drug dealers; and I could list many more losses. The bottom line was that none of the books I endlessly studied, prepared me for these losses. I had to experience them first hand. If I had known or understood the risks, I would have continued to over-prepare, procrastinate, and likely never pulled the trigger on the ‘frog house.’

BTW, that ‘frog house’ was one of my best training experiences. Nothing after that was theoretical for me. I finally knew my market; knew the rental demand; knew the costs of ownership/management; and owned responsibility for every decision. That meant I had a new appreciation and regard for due diligence, before I put money at risk.

Even then, I learned how much of this business is based on relationships, and the better you are at establishing and maintaining them, the more opportunities seem to plop in your lap.

Notwithstanding, I don’t recommend waiting to become an expert, or worse, becoming a jack of all trades. Rather, focus on one investing strategy to the exclusion of all others, and master it, by doing it.

Later, you learn more strategies, as different opportunities show themselves. Otherwise, becoming a well-rounded investor by actually investing is the fastest way to learn.

You are taking what I said out of context, inferring I said something which I didn’t, and it appears to be for (an) argumentative purpose and/or to serve your own purpose to be right. If I am incorrect, so be it. If not, that’s fine as well. Good luck.

This chicken pen aint big enuf for 2 roosters. It’s interesting raising chickens. The pecking order is something to see.
As the pea brained chicks grow they are constantly fighting for dominance, soon they have a leader, the roosters are of course dominant over the hens and the hens continue to scrape for that number one spot. Why all the fuss? The dominant chickens get to eat first and as much as they want. the subordinate chickens will sneak in for a quick peck of grain but they get a sharp beak jabbed into their skull.
As the chickens grow you always see some fighting, even the lowest standing chickens want a better life and to own real estate which is just a spot in the pen where they can groom and strut. If a chicken becomes sick the other chickens will peck it and eventually kill it. Chickens have no morality and no justice, just eat and survive. When a hen lays an egg she will cackle loudly and announce to the world her accomplishment.
The roosters have evolved a crow that can be heard for a mile, they can be aggressive and will attack a larger animal encroaching on their turf.
Do chickens and humans share some of the same traits? Maybe so, we are animals.

I’m not certain you need a team. I mean, who would be even on a wholesale team?

You don’t need an agent, an attorney, a VA, a property manager. Plus, why would anyone with experience want to regularly working with a wholesaler with no experience?

You just need a lead, contract, buyer. Getting each of those easier said than done - but you don’t need a team.

Well your best bet is to start in wholesaling if money is an issue. Assigning contracts will give you the best opportunely to get some cash flow and build the bank account to do some fix and flips. keep pushing…

Bummer that happened to you.I would try and find a mentor. Maybe try marketing for motivated sellers a cheap way like driving for dollars or bandit signs. People are more willing to help you if you provide something in return. In this case you would be trading leads for mentor ship in a way

Great tip @House Buyer and I like the idea of quid pro quo - that way everyone has some skin in the game

There is a lot you can do that does not cost much money to bounce back. We also got screwed at one point. Have you noticed that ALLLLL the leading investors out there have a similar story? All of them lost everything and they stepped it up and bounced back? I am telling you, your drive and aggression changes when you have been through it. If you do not give up you come out WAY stronger.

Get a website, get a FB business page, twitter, youtube linkedin, get out there, place CL adds, drive traffic to your site… you just have to keep one thing in mind…
Yo do not need to make 15 deals to bounce back.

You just need to make ONE deal. With That money you invest it back into your company and make 3 deals… then you make 5 deals…

So don’t linger on the bad and the past, focus on that next deal that is right there to grab!