We could make this article really short and simply say, “In real estate, there are no guarantees.” That’s all, folks. Over and out. Laid bare to the essentials, that’s what property investors should keep in mind while out combing the hinterlands for the next great deal. But for the marketing companies that are trying to get you to buy their property, no wild-eyed guarantee is too crazy to lay claim to. Without a working time machine, no one can tell the future, least of all those sketchy marketers looking to sneak a curve ball through the strike zone a new land investor.
Over twenty-something years in the business, we’ve come up with a list of eight guarantees, call them scare tactics if you like, used to pressure the rookie income property investor to sign on the dotted line – quickly. Here they are one at a time.
1. “This is only available today because I have other buyers that want the house.”
Maybe there are other buyers lined up to buy the thing, but that should have absolutely no impact on your decision. This isn’t a contest to see who can sign the contract the fastest. Take your time and make sure that the deal makes financial sense the day you close on it. Who really cares how many other people want the thing? If the agent is using this monkey business too hard, tell him the deal moves at your pace or not at all.
2. “There is a lease option tenant in the house for twice the amount you are paying.”
Lease options mean less than nothing. More often than not, lease and purchase options are not exercised. The promoter is trying to lure you into the deal with the vision of selling the house for twice what you paid when the option is exercises. IF the option is exercised. Don’t place any faith in a lease option.
3. “Your rent is guaranteed by Section 8.”
While a section eight tenant does receive financial help from the government and might constitute a lower risk of losing rent, there’s no guarantee how long they will stay there. Half your section tenants could walk out the door and never come back the day after you buy an apartment building. Where’s the guarantee against that? There isn’t one! When a marketer tells you something is guaranteed, you can rely on the fact that it’s not. Pretty simple business model, eh?
4. “The tenants are in credit repair and they will buy the house when their credit score rises.”
If you place any credence at all in a statement like this from a person who is trying to sell you, as a property investor, a house, you really shouldn’t be allowed to buy real estate for at least ten years. So the fact is already established that the tenants have treated their credit like drunken sailors, and you’re going to rely on the chances that they will repair their credit enough to get a loan AND then buy your house. It might happen. Then again, it might not.
5. “We will pay you a year’s rent in advance if you buy this house.”
It’s a fact that some house selling companies will actually write you a check for one year’s rent and hand it over at closing. The check might even clear, but the very fact that they can afford to do that should raise a question in your fertile brain. A question like, “How in the world do they make money doing such an astounding thing?” Maybe they don’t understand the concept of profit and loss in business, and maybe they overcharged you so much for the house they could afford to give some back as an incentive. We’re not saying rent paid for a year is always a bad thing. Just make sure you’re getting a good deal.
6. “We guarantee the rent.”
Sure, they guarantee the rent as long as everything looks good from their side of the profit equation. What about when when repair costs skyrocket and thirty percent of the tenants decide to leave? Try getting your guaranteed rent then. Even if you have it in writing, you might be looking at a lawsuit to actually collect the money. Legal entanglements are sometimes necessary but do you really want to spend your time and energy chasing down a lying property company? Don’t let the success or failure of your property investing portfolio depend upon someone guaranteeing the rent.
7. “Prices will double in three years.”
Hmm, we can’t help but wonder if any seller in the United States uttered those words at any point during the year of 2006, just before the Great Recession and foreclosure debacle? If so, there’s a good chance they were as wrong as a person possibly can be. Once again, who can predict the future? No one!
8. “You have to give us a down payment, and then wait until we find you a house.”
If you would consider doing this even for a moment, we hereby forbid you from ever buying a house. No property investor in his right mind would drop money into such an open-ended proposition.
There. Now you’re all educated up on eight scare tactics you might run into some day whilst buying income property. Don’t say we didn’t warn you and please, pretty please with sugar on top, don’t fall for one.
The Creating Wealth Team
Flickr / giarose
