"We bought 100 properties without using any of our own money"

[Nat C.]

This statement is something I keep seeing again and again on the Bigger Pockets blogs;

people saying they flipped 100 properties using someone else's money.

They proclaim they had one of their investors pay for the purchase and renovation and they apparently have a deep pool of investors ready to throw hundreds of thousands of dollars at each deal. The blog theme is always tutorial, with the message that anyone can do this.

The unanswered question is, where are all these cashed up investors and why are they willing to hand over these large amounts for a non-guaranteed return?

[Lew Payne]

Originally posted by @James DeRoest:

I go to an investment group and there is a bit of this about, but what I keep seeing is that the rehab flippers that supposedly do all these deals, keep going back to the bank.

Never underestimate the power of public records to call bs on someone.

And I don't understand why they keep going back to the bank.

If you are making $20-30-100k per deal, insert whatever amount you want, why do you keep needing investors? Why keep going back to the bank? You are banking some fairly serious amounts of cash and you should be able to keep hold of it, surely? And yes yes I know that people need to pay their own bills, but when I look closely at some of these flippers, they either have a major cocaine habit, or aren't quite as successful as they seem.

There are successful people out there for sure, but I'm not sure people on blogs bragging about it are those people.

Always ask yourself the question when you look at these people - where is the wealth? If you can't see it, they don't have it. People talk a good game.

 I'll briefly address some of the above comments here:

I have personally found that anyone who decides "it would be nice to invest in real estate" begins calling themselves a "real estate investor."  Time and time again, I have been approached by "investors" wanting me to loan them money.  I'm an experienced business person - as with any business investment, I do my due diligence before pulling the trigger.  As soon as I ask them to answer my standard set of questions, they come back and tell me they've never done a deal... but that they "have a friend" that has, who is helping them.  As soon as I ask them to have their "friend that does" contact me in person so I can perform due diligence on them, they go silent.

I have personally found the experienced flippers I lend to tend to want to obtain 100% financing from a private lender like me.  It takes me no more than 48 hours to fund a deal, sometimes sooner (as in zero hours - if we stay in touch and know what's coming up, I keep the cash in escrow even before the deal is signed).  An accounting or finance major can tell you why these flippers don't use their own money - the rate of return on their investment is infinite, as opposed to fixed, while the risk/reward ratio is inverse.  In addition, the ones I work with are busy using their money for purchasing rentals free and clear, while 100% financing their flips.  They are money and business savvy, have a way of doing things which leads to maximum yield, know how to obtain maximum tax benefits, and have a realistic plan they execute.  Above all, they do not spend their time in forums condoning others or calling "********" on their methods.

I have personally found that the majority of people, regardless of income bracket, have expenses that are commensurate with their income.  Not everyone believes in nor follows the "Rich Dad, Poor Dad" forumula (especially given that the author declared bankruptcy and stiffed his lenders), and not everyone's priorities are the same.  It is these innate differences that provide opportunity for others - those of us who are willing to make the sacrifices have a better chance of reaping the rewards (but there's no guarantee).  Were it not for these people (in all walks of life - not just real estate), we would all be on equal footing and have no such opportunities.  Thanks to these people, I can borrow money at 3.5% (prox) from a lender that is making 100% profit on that loan, then loan it out short-term myself and make 300% profit myself.  It all comes at a price, however - I am willing to assume the risk, which applies to my estate.

I have personally found that few people are what they claim to be.  "Investors" are far and few between, especially in real estate - most categorize themselves as such after reading a book on "flipping," joining an online forum, or attending a meeting group or seminar.  The concept of "due diligence" seems to be lost on these so-called investors.  It is my firm belief that both investors and private lenders should do DUE DILIGENCE on each other - specifically, they should VERIFY each others' claims, as that is the first step in establishing credibility and establishing truthfulness.  Expect to be vetted out if you contact me about investing with you (because that is, in effect, what I am doing).

One more thing... a while back, I commented in a different thread about why investors don't respond when contacted.  If you were in the business of risking your money on someone else, would you take them seriously if their first contact with you went something like, "Hello... do you lend money?" or "Hello... I am a real estate INVESTOR and I'd like to borrow money on my FIRST DEAL" (hint - you're not an investor if you have yet to invest) or "I have a property I am looking at - will you lend me money on it" (without providing an address - much less anything else).  This is why people like me don't respond to certain queries - those who don't treat this as a business have broken fundamentals, while those who do (and have common sense) are worth talking to.

I sometimes participate on here (this forum) when I have leisure time and get tired of reading poor advice (of which there is plenty) from inexperienced people dispensing their wisdom (especially questions about LLCs and land trusts) or gurus screwing others over (I was instrumental - as documented on here by the victim - in their recovery of tens of thousands of dollars).  I enjoy helping those who appreciate my help, and I abstain from helping those who place little value on my advice, or participating in threads that deteriorate into chaos.

I guess I'm from the  old school, in that I believe people who need something should come ask for it - and if they're serious, they should persist.  We are no longer children, where our parents attempt to anticipate our needs and spoon-feed us.  Yet that is how so many beginners treat their new "investment" business - they expect others to come to them to solve their problems, or they're incapable of communicating at an adult level when reaching out.  I can't imagine what would happen if they were managing a tenant, much less how they would attend to fulfilling their contractual obligations to their lender.

With that,  I want to close by saying that we must all scrutinize strangers wanting to do business with us, applying due-diligence to the information they provide, regardless of their online reputation.  I have a verifiable (via independent title company property profiles and affidavits from the licensed and bonded escrow company) track record, and I am not offended when asked to produce it prior to consummating a deal.  I have the same expectation of my borrower/flipper - to provide me the documentation that allows me to do due-diligence on them (which only needs to be done once), prior to establishing an ongoing business relationship with them.