If you’ve stuck with us this long, you’ve probably noticed that Jason Hartman’s commandments of investing are meant to complement one another. Number fifteen is no different—thou shalt have a reality check is meant to go hand in hand with number eleven (though shalt not be a sucker). While we want you to approach investment with an open mind, we want it to be an educated one. Which means that you can’t get suckered into deals that seem too good to be true. To prevent this, give yourself a reality check.
Imagine a scenario in which a developer guarantees your rent for a set number of years upon your purchase of a property. The promise is often a great one—rent above market value for whatever number of years, excellent financing. It’s obviously too good to be true, but even Jason Hartman can’t tell you exactly why. If you don’t believe us, try this exercise. Call one of these places with a “pie-in-the-sky” rent guarantee and put them through their paces. Jason has done this. What you’ll find is that you won’t get very far in the process without signing papers and handing over a bunch of money.
How can they get away with such unscrupulous tactics? It’s all in the fine print. Never sign a contract of any sort without reading it slowly and carefully. It would be even better to have a legal professional give it a once over also.
Here’s a likely scenario. The company in question has a construction branch, a marketing branch, a rent guarantee branch, perhaps a branch that works in property management. When you purchase a property, the developer makes a lot of money. Then, once you own it, they let it go, pay the rent guarantee, go bankrupt. You’re left in the dust. Be wary of rent guarantees because they’re often scams.
It is often easy to check rent ranges in an area with no extra help. RentRange, Zillow, and Craigslist offer simple ways to browse rents. You might even consider calling a few local property managers to confirm what you’ve found online.
Always use the free market as a simple litmus test to evaluate your investments. If the promised rent is far above market value, something is probably up, and it ain’t going to be your profits. (photo credit: tengrrl via photopin cc)
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The Jason Hartman Team