Scam or Golden Opportunity?

Question

So I am brand spanking new to real estate and investing in general. I recently came into some money via inheritance and I had decided many months before that I want to use it for real estate investing. It's not a ton of money, but I think it's enough to get started.

Anyway, I've been chatting with old friend from high school who happens to be a RE agent. He has also been looking to get into the RE market. He recently started working with a fix and flip investor, we'll call him John and my agent friend Paul.

John started fix and flip investing back before the crash, made a lot of money, then lost most of it in the 07 crash. He's ready to get back into the business, he has the know-how, the connections, the experience. He just needs investors. That's where I come in. He says he's got a lending company willing to lend him purchase and repair costs as hard money up front for deals that meet certain criteria. However he needs $9,000 to buy in to this lending partnership. I can provide that, and if this opportunity is legitimate I really want to get in on this. Paul is really excited, he has been learning from John for over a month now but doesn't have the money to invest financially. I do.

I met with John and Paul, John is very charismatic, highly enthusiastic about real estate, seems to have a brilliant business model. All he needs is some start up capital. I am a new investor, excited about entering this world and learning the ropes, all I need is a partner and mentor.

A match made in heaven or a con-man from helvete?

The question is, does this sound at all legit? Have you ever heard of a lending company you had to buy into? How do I best protect myself and verify John's legitimacy? I already trust Paul, and Paul trusts John. But I have only just met John and I feel what he is offering is too good to be true. But what do I know? I'm a complete newb to all of this!

Before I do anything, of course, my lawyer will be running a background check and going over our contract.

Jay Hinrichs · Answer

I think you need a little more education in basic real estate ..  a few hundred bucks with an attorney at this stage who is proficient in RE.. or meeting with a VETERAN real estate broker who has 20 plus years in the industry.. something like that and pay for their time it will be cheap in the long run.. you may not even be describing what they want to do properly.

so the feed back your getting of course is negative..

Wayne Brooks · Answer

Run Forest, run!  John may not be a scammer, but "buying into a lending partnership" sure is.

Account Closed · Answer

PT Barnum had a saying about 1 being born every minute.  Go for it and prove us wrong.

Account Closed · Answer

You are about to be GOLDENED SHOWERED.............................lol.   Is humour allowed here?

Christopher Machir · Answer

For context, John is also looking for investors to invest on individual properties, in which the investor would receive interest, and a cut of the sale profits. This is something I was heavily considering as well.

Tom Chen · Answer

@Christopher Machir,

Probably don't need to say it, but documentation...I would have everything written out, put into an operating agreement for your LLC...

Good luck.

Christopher Machir · Answer

Originally posted by @Wayne Brooks:

I could certainly be way off in my phrasing of this. To me it seemed like a logical way off offsetting the increased risk of funding a project up-front rather than in an as-you-go basis. My greatest fear here is my own naivety. I am in the process of obtaining more information on this "lender".Originally posted by @Tom Chen:

I've never heard of this and I'll certainly be looking into it. However, the one thing I imagine would be missing is the learning opportunity. I'm not terribly afraid of risk, however I am afraid of a man taking my money and running with it. I am really looking for a learning opportunity and a partnership in which I have some degree of control over my investment.

If I were to pursue this further, what should I be looking for, for assurance that I'm not dealing with a scam? Or is the general consensus here that this whole thing is just way too fishy to even warrant wasting the time to investigate? Please do consider that I have highly simplified the overall premise here in the interest of being quick and concise, and also because I frankly don't 100% understand the business. Hypothetically, if I did want to at least do my due diligence on this deal, what should I look out for?

Ray Johnson · Answer

@Christopher Machir  He sounds like a very good articulate salesman, "buy into his lending partnership for $9,000" makes zero sense. There are a lot of ways to structure a deal that will provide more security for your money

Tom Chen · Answer

I've never been in your situation, but there are already reputable peer to peer real estate lending companies that you can contribute to without needing to feel this kind of anxiety.  I think Patch of Land dot com is one of those companies.

Just my 2 cents.