There they sit, on the patio behind their water front homes with yachts clearly visible in the background. They are often chatting with their "students" who only a few days ago lived in squarlor, living on slave wages, but now earn hundreds of thousands buying and selling real estate. "Yes, you can do the same if you only attend the free seminar soon to be held in your area."
You've seen this pitch on TV, time and time again, but What gives? Is there any real truth behind all of the hype? To be fair, just about anyone can make money investing in real estate. Ot happens all of the time, but for the most part, never overnight. Real estate is one of the great wealth building methodologies available to anybody who works hard and is motivated to succeed. You can literally achieve financial independence starting with nothing more than gritty determination and some knowledge. The real estate gurus mount massive marketing campaigns to promote this, because they make millions of dollars promising to provide the "secret" to real estate investing success.
You've likely seen their full-page ads splashed in your local newspaper. They proclaim that they are willing to share with you the magical secret to making tons in real estate if you only come to the free seminar that is coming to your town soon, for one day only. But hurry because seats are limited! If you go to one of these seminars, what can you expect? Commonly, these real estate seminars will take place on a weekday evening over an hour or two and take place inside a local hotel ball room. In these seminars you are not going to be taught anything about how to make money in real estate. Instead, you will learn a lot about why it is important for you to enroll in their soon-to-be-held 3 day paid seminar that will cost you anwhere between $300 and $500. If you decide to take this paid training this is what you can expect.
On the first day of yoru training don't expect to learn much about how to make money in real estate. Instead, expect to learn how much you currently don't know about real estate, and why it is important to follow the program. Your "training" will mainly consist of them telling you how much you are going to learn on the second day of your training. One thing that you are sure to learn about in your first day of training is how to increase your credit card limits with your banks, and how to check your credit as soon as you get home. Basically, day 1 is a setup for what comes next.
On Day 2 they will likely teach you how to do an owner financed transaction which on the face of it sounds really good, but is riddled with problematic issues, and we will examine some of those problems later in the next paragraph. At some point in the second day of training your instructor will spend a few hours on a hard sell pitch for additional education packages because there is really no way to learn everything you need to know in three days. These additional education classes can range from $3000 to $20,000 and they are heavily "discounted" if you buy during your 3 days there only! So far, all of the training that you paid good money for consists mainly of pitches selling you additional classes for even more money. Buy the way, this is the reason that you were taught how to increase your credit card limits on the first day. And you thought it was about buying property on your credit cards.
Creative Financing
One of the most famous ways gurus teach you how to buy property for "no money down" is through simple seller financing. With seller financing, you convince the seller of a property to turn over the deed to his property to you in exchange for your agreement to make payments to him in the form of a private note that he can rely upon as steady income. On the surface, this seems reasonable, but ther are potential problems. If your seller already has a mortgage on the house or other property that you want to buy, the existing lender will want to be paid off at the time of closing. Where is that money going to come from if you are doing a "no money down" deal? That is a good question and ofthen it is ignored in the training classes. Almost every existing mortgage contract has something within in called the "due-on-sale" clause. What this means is that the mortgage loan has to be paid off as soon as the title of the property changes hands. When you buy a house from another guy using "creative financing", you will very likely trigger the due-on-sale clause.
The gurus have solutions for this problem. One way to get around this is to simply not tell the lender. I am sure that many try to do this, but be advised it is against the law, and no real estate expert should ever advise their clients to do something that is against the law. Now, different gurus use different methods of concealing transfer of ownership and/or occupancy. Each of those methods likely requires one or both parties to breach ethics or to commit crimes or violate common laws like fraud or breach of contract. If a borrower promises to inform his lender that if the ownership, occupancy changed, and fails to do so, then they have committed breach of contract. Persuading someone to commit breach of contract could be illegal interference on your part. Violations of common law are civil, not criminal, matters, that means you cannot be imprisoned for committing them, but you could be made to pay damages or forced to take some action. But, we are not finished with the matter. It is hard to get insurance on a house that you do not own. And if you going to try to have the previous owner to keep his insurance on the property effective and in his name to conceal this change in ownership, then this is arguably conspiracy (two or more persons), possibly mail fraud (something related to insurance will likely go through the mail either from you or to you), concealment of a material fact, and false statements (to the insurance company about who is the current owner). The big news is if you do two such deals within a ten-year period, you have arguably violated the racketeering law.
The penalty for conviction of violating federal racketeering laws is 20 years in jail, or $25,000, or both. Under title 18 USC 1964, a lender could sue you for racketeering and they would be entitled to collect triple damages from you if they won. The bottom line is take the real estate codes seriously, and be careful about what the real estate gurus try to talk you into.
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