the Aftermath of Buying Houses from some Seminars and Bus Tours

Seminars have their place. Learning and networking in person is a great way to get out and improve your investment game. Bus tours are useful for introducing investors to a new area or to teach
on site lessons such as estimating repairs.

The problem is when unscrupulous operators and presenters use these events to sell overpriced houses to new investors. I speak weekly with people who have fallen prey to these practices.

Here’s how it goes…. the seminar presenter will throw some numbers on a whiteboard or overhead to show how a property cash flows.
He or she will include vacancy and repair allowance but will usually underestimate them. The cash flow numbers will then be inflated compared to reality and the new investor attendees are now super excited to buy their first house.

Then Voila! It just so happens that the presenter has some ready made deals that a few of the lucky attendees can purchase! Huge profits are about to be made!

Unfortunately for these new investors they are about to PROVIDE the profits and not MAKE them. Alas the presenter has lined up a bunch of investors who are more than happy to take advantage of newbies. These investors are paying the presenter thousands of dollars to have their already overpriced houses sold from the stage to these rather eager buyers. There are different degrees of this and sometimes it is less blatant but you get the idea.

So the investor who buys one of these houses happily cruises through the first year or two while the sun shines and the birds sing. Sooner or later though adversity hits. Maybe a tenant damages the property or stops paying rent. Maybe the house remains vacant for a long period of time. Our investor can usually weather this first storm. Future negative events continue to drain the underestimated repair budgets and vacancy allowances.

When these budgets are invariably depleted the next adversity is the one that can break the investor. If the investor is cash poor he or she ends up in a situation where the house needs to be sold for lack of repair money available. If the investor has money then many times the will to keep spending it on this house is exhausted.

That’s when I get a call. Sure I can help them cash the house out but when I offer a fair price for their house they realize just how much they overpaid. Not all events are traps but be careful.