Investor warning.

[John Harris]

I post this here because new investors make this mistake more than others.

I am a builder/developer in Texas. We have had a few investors invest in our neighborhoods at the advice of an unscrupulous realtor who also was to be the property manager. We were happy to sell the home (at full retail) and even referred customers, who could not buy, to the realtor as possible rental customers. After several of these deals we have stopped dealing with the realtor and have turned down several "investor" deals because we don't feel that they are getting a good value.

I'm no investing expert but in my opinion, any customer who I can't get financed (in this market) will not likely pay their rent anyway. Our mortgage brokers are very good and lenders are still very lenient. These investors now own several vacant homes which is bad for us and horrible for them.

None of these "investors" asked to talk to me (the seller) before the closing. I have no clue what they were being told, but they are all in trouble now. They insisted on using a different title company and I suspect mortgage fraud which the buyers were involved in.

Unless building costs go up like crazy or the market goes through the roof these guys will either sell at a loss, rent with negative cash flow, or suffer a foreclosure.

The moral of this story is: Be careful investing out of state. If homes are selling for 100 gazillion dollars in California and New York that doesn't mean that paying 75 gazillion in Texas or South Dakota is a good deal.

I hope this post saves someone some misery. Please do your own due diligence and don't let greed convince you to make a bad investment.