Money for nothing and your bankruptcy for free ....

[Vanessa]

This post is prompted by a heated discussion that occured on Singing Pig recently. Rich Greenland posed the question "Where are all the good deal sourcers?" and it generated a very healthy discussion which threw up this comment:

"The biggest problem with the property market, and why it is so attractive to people, is the barriers to entry are relatively small. i.e. with a small amount of start up capital you can begin finding properties, then sourcing, selling etc. This has resulted in a whole host of people being involved in the property market, some of which are ethical and responsible, some of which see it as the quickest way of getting rich in anyway possible".

But which property "industry" or "market" was being referred to here? You see, Nick and I are in the property industry as a full time professional investor/Landlords and it bears no relation to the above.

The property industry referred to here is the "property marketeers" industry i.e. other people offering "get rich quick" schemes, NMD deals, armchair investment schemes, and teaching others how to get wealthy, rarely actually doing it themselves. As noted, there are low/no barriers to entry. I recently came across someone who was a student on one of these courses six months ago. The person in question has not managed to buy any property themselves, but they are now offering mentoring! If the "system" worked, surely they would be busy buying property?

To clarify something: there was a window of opportunity up to April 2008 to structure legitimate/transparent "no money down! deals. I took advantage myself! However, that window of opportunity was slammed shut when Mortgage Express withdrew the same day bridging/remortgage product.

Unfortunately, many property sourcing companies are living in 2007 and still telling people you can structure deals in this "no deposit required" format. An example is Gekko. In reality, they were unable to pull off any such NMD deals and the whole thing unravelled very quickly when they sold new build properties via a third party without doing enough due diligence. In their case, the reservation fees should have been refunded, but the money had already been spent, as is the case with Passive Investments.

I am not suggesting that there are companies offering to teach a "get rich quick" business model for selling deals. What I am alluding to is those people who go on "get rich quick" training seminars end up finding that they can't actually implement the strategies they were taught, and bring any deals to fruition using these methods, so they then end up selling the dream on to someone else. It's actually a bit like an MLM scheme if you think about it, because many of them get affiliate commissions for referring unsuspecting newbies into the scheme that they got sucked into themselves!!

If you really had a deal that was No Money Down, and £20K cash-back, why would you sell it for a few £K intro fee. Wouldn't you keep it for yourself? If you really have what amounts to the six numbers to the lottery, why would you sell them for a few thousand pounds intro fee? If you think about it, it just doesn't add up.

If it sounds too good to be true, it is, every time. Without fail.

In the property industry I am in, the real world, not marketing/sales hype and dreams of get rich quick, there are HUGE barriers to entry, namely a 25% deposit, stamp duty, legal fees, services charges, management fees, all sorts of legislation to comply with, money for repairs, furniture, blinds, maintenance - the list goes on. Not only that, you need a minimum salary of £25K, a squeaky clean credit rating, three year's audited accounts (if you are self-employed) to even get on the short list for lending/finance.

It is often mentioned that it is investors who demand low/no deposits. Of course they do! But that does not make it legitimate, nor does it make for a long term sustainable business to supply a demand that is based on unsustainable practices. Also, just because you do not know of anyone who has been prosecuted for fraud does not mean it is not happening. It is. From buy to let to mortgage fraud. And this, Mortgage fraud in the headlines , which was posted by a broker which lists a number of cases.

But we can all agree that it is going to take a lot more effort to find clients with big deposits, than it is to offer "money for nothing and your properties for free" to quote one of the greatest exponents of armchair investing, Andy Shaw whose company "Passive Investments" recently went bust taking millions of pounds of clients money with it. I must say it certainly worked for Andy Shaw, but not for his unfortunate clients! ;).

So which property industry are you in? The "head in the clouds" one, or the real world?!

To conclude, myself and Nick are in the business of providing a great service to our valued clients (tenants).

[Louise Reynolds]

Vanessa
I think I am in the real world, because I am working hard, defining my goals, formulating strategies and action plans to achieve this and researching the market and opportunities. This has all taken time and effort and a lot of modification along the way. Don't think being in the real world is meant to be easy.

I am also interested in growing a sustainable business that has a reputation for ethics and fairness. What you describe above, sounds like those individuals aren't concerned with the aftermath, or where they go next in industry, or the marketplace, once their reputations are sullied. They sound as though they are happy to go with the flow and tap into whatever money-making opportunuties are easy-pickings.

If someone, on the receiving end of these schemes, has a sound strategy and business plan, they should be kept more on the straight and narrow and not be so easily swayed by some of these get rich quick schemes, touted by individuals as described above. Because their research and analysis should reveal this.

I've come across money-making schemes through internet marketing, which all sound wonderful to turn a profit in a week, but there is no cohesion, or sense of direction, as long as you are happy to sell other people's products and earn commissions and then move onto the next thing. For me this lacks a sense of purpose and integrity.

Anyway, best thing is to have objectives and a strategy and then opportunities can be evaluated against these, as to whether they help or hinder you, in getting to where you want to be.

Louise Reynolds
http://www.property-venture.com
http://www.twitter.com/propertyventure

[Wasim]

Hi Vanessa

Good post...

"If you really had a deal that was No Money Down, and £20K cash-back, why would you sell it for a few £K intro fee. Wouldn't you keep it for yourself?"

My sentiments exactly...if the deal is that good why give it away. The problem is that most deals are made to look attractive and rely on investors not carrying out their own due diligence.

Claimed rental figures are never achievable, Rental Guarantees are a Con...as most Dubai Investors are finding out.

The ONLY real way to buy and control investment property at the moment is to put your 25% deposit in and get a 75% BTL mortgage.

Forget Lease Options/Option Agreements/NMD's/DVD's/Webinars/Seminars all these are thinly disguised sales tools to make some Guru rich.

Why pay some one to teach how to buy property - when in the real world they are not buying property themselves...IMHO they are just preying on peoples fears of being left behind.

Next week they maybe selling the latest fad on how to lose weight.

Best regards

Wasim

[John Corey]

"If you really had a deal that was No Money Down, and £20K cash-back, why would you sell it for a few £K intro fee. Wouldn't you keep it for yourself?"

If we strip away the hype and assume for a minute that someone was selling on a great deal the only reason they are doing so it because it does not fit with what they can or what they want to do.

1. They might not be able to qualify for the financing. The 'offer' above assumes that someone could obtain the financing. If the person sourcing the deal lacks the credit (personal credit is bad) or they have bumped into some sort of limit (total number of loans, etc) then selling on the lead is a practical alternative to just throwing it away.

2. Some people are really good at marketing and finding leads and they are crap at being a landlord. Or they can do the landlord stuff but still prefer to not do so. Hence they can use their marketing skills to promote something but not be committed to the property business.

Similar to when a social media expert, a business consultant or an advisor provides advice and sells services but does not want to operate the business. Knowing what you are good at and sticking to it rather than going into the related business.

Coming back to reality there are many offers out there which are just OTT or a fabrication. The buyer is the one who has to sort through the bad stuff to find the gems.

John Corey
Follow me on Twitter-> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

[Vanessa]

John,

The truth is that those deals do not exist. And, if they did, you wouldn't sell them for a few £K.

Which property industry are you in?

Why do you keep referring back to "social media expert"? Are you referring to Nick? If so, he has never called himself an "expert". Unlike "get rich quick" Nick offers a service that people actually need and delivers tangible results. Plus he is doing it himself and making it work for him. Comparing that to the get rick quick industry is hard to understand and I am not sure why you persist in doing it.

Nick's consultancy was bourne out of people approaching him and asking for his help. There was demand before Nick ever created a supply.

[Wasim]

REI said:

"If you really had a deal that was No Money Down, and £20K cash-back, why would you sell it for a few £K intro fee. Wouldn't you keep it for yourself?"


2. Some people are really good at marketing and finding leads and they are crap at being a landlord. Or they can do the landlord stuff but still prefer to not do so. Hence they can use their marketing skills to promote something but not be committed to the property business.

Similar to when a social media expert, a business consultant or an advisor provides advice and sells services but does not want to operate the business. Knowing what you are good at and sticking to it rather than going into the related business.

John Corey
Follow me on Twitter-> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

Hi John

Im afraid I dont agree with you. Property is a bug...When you get the bug its difficult to source a good deal and then hand it over to someone else. If in this example, there is a so-called cashback of £20k why give it away?..and just for a minimal fee.

Regards

Wasim

[Ahmwaah Charles]

Vanessa, thanks for posting. I just love how you regularly try to stimulate debate/conversation. It makes this forum great to be a part of.

Regarding the ‘get rich quick schemes’ (GRQS), may I be so bold as to lodge a partial-defence.

During my short foray into the property investing world I’d say these schemes often form an important service for the novice or aspiring property investor.

They raise awareness, intrigue and often reveal something the investor didn’t know or should research further. Seminars are often up-to-date and relevant.

My first introduction to property was a free seminar in London’s excel in the summer of 2007 – held by Parmdeep. I am truly grateful he took the time to share his knowledge and insights. Whilst I did not sign up to the courses I did sign up to his forum (around £11 pcm). There I learned an incredible amount in a short space of time. Yes it’s true that I also did a lot of reading and talked to experts. However, but for Parmdeeps session my passion may never have been realised.

Parmdeep also runs course; some fairly expensive. I would never critisise such activity because it’s up to the buyer whether to purchase. Moreover, some people just don’t have the time/dedication to network and read the books (like I did) so a seminar is a cost effective way for them to learn. Whilst I have never bought a course from anyone, I normally go to various introductory events (usually cost £25) and over the last 14 months I can say I’ve probably spent around £2k+ on property networking, events, food, travel. Had I less free time, it would have been reasonable to spend that on a course.

Yes it is true that these GRQS are often sensationalist and hyperbolic in every sense, however in most cases they have very good underlying principles. You’ve just got to learn to separate fact from fiction.

I’d also disagree with the statement that property marketeers don’t often invest in property themselves. The ones I know most certainly do, but maybe not as regularly as they make out.

Furthermore, consider the gold rush of the 1980’s (America); the clever ones were those supplying the spades to those digging for gold. IMHO this is very much what property marketeers do. They are just trying to monetise the opportunity. This does not mean that you in turn will not make money from the opportunity. It is up to you, as the buyer, to determine the opportunity cost, likelihood of success and whether your current circumstances best positions you to succeed.

Is this really wrong? Would you rather not be shown the opportunity? Would you rather not be given the decision? Personally, I’d rather be presented with the information/opportunity so that I can form my own conclusions.

Underhanded tactics are rife in the property world. People want to get ahead. This does NOT make it right. However, IMHO as long as the investor knows what they are getting themselves into (and it’s not hard to find out) then I won’t be their judge and jury (we’ve got a legal system for that). Moreover, you’d also be surprised at the amount of regulated estate agents who silently help to facilitate these deals.

Furthermore, when it comes to fraud and white collar crime we should be worrying about the million dollar beverage, furniture and insurance companies that are masters at hiding money (thus avoiding taxes).

I hasten to add that there are property scammers out there. I do not dispute nor condone this. However, lets not put all lead suppliers in the same pot.

I know people (one on this forum) who have had fantastic results from aligning themselves with a lead suppliers.

However, ultimately the buyer has to consider all the risks and make an informed decision.

Finally, people often believe something not because it’s apparently true, but because it gives them hope that they can elevate themselves from their present circumstances, in a relatively short space of time. Unfortunately many hopes and dreams are dashed; but that’s capitalism for you.

If it’s too good to be true, then STOP, do some quality research that will lead you to a informed decision. Who knows lady luck my be shining on you today!


[preparing for the onslaught!]

[Vanessa]

Thank you for that Ahm. Great input as always.

Yes, I do often post slightly provocative things to prompt discussion. Guilty as charged!

Please do not get me wrong: I am all for education. You can never learn less and never know it all. I very much agree with your views about the value of joining a network, learning as much as you can, listening to people and picking out the nuggets etc.

My issue is really that it is made out to be easy and quick, no effort required. That is where the problems start. Appealing to people's fear or greed with promises of get rich quick, secrets, short cuts etc. is where it becomes very misleading.

I believe it is a self-defeating business model as it will inevitably attract people who are very unlikely to follow through with anything. I know many seminar junkies who keep going on courses but have yet to buy any property. I guess you might call them "opportunity seekers" as they are more interested in the opportunity than the day to day reality of what it entails to achieve the end result.

I feel that if there was a property course teaching get rich slow, 25% deposits needed, etc, then it would sell very few places as that is not what people want to hear.

The latest fad is lease options and now hordes of new investors are jumping on the band wagon and paying for training from a lot of people who are not in a position (through lack of experience) to train anyone. They are only going to waste time and money and be very disappointed when the practical kicks in over the theory.

My post is to really prompt people to think in real terms about the committment required to be successful in anything in life.

Property is not for everyone and it is certainly not "one size fits all". Many of these courses adopt a sausage factory approach. I think a more personal and bespoke training programme would be a better investment for anyone considering doing any form of education and training.

I do respect people's dreams and hopes of securing a better financial future. It can be done, but it is a lot of hard work and it does require money and financial resources. I suspect most people getting rich are the people providing the deals/schemes/seminars, not the poor person trying to improve their lot in life. Hopefully, they can learn a lot from this forum and from people such as yourself who are shining examples of what can be achieved with effort and commitment.

[Marcus]

Interesting and provocative post, as are the replies.

On the whole I agree with Vanessa’s sentiments, buying property in this market it very difficult, especially if you view it in the traditional sense, i.e. your own money in, all above board etc. This is what I would call raw property investing and yes, the barriers to entry are incredibly high. Personally, the two biggest hurdles for me have been the increase in deposits and the change in earnings requirements, which I think is utter bull if you consider the mind of an entrepreneur - although that’s probably another thread.

If we view property from a less traditional perspective then I can see how someone would describe the barriers to entry as being low, i.e. sourcing, options etc. The start up costs can be extremely low for a business of this sort and is obviously why it appeals to many newcomers. It might not be traditional but hey, if it works.

What I don’t appreciate is the involvement of the parasitic element in property. This group nearly always target the naïve or the lazy. And how do they target their victims? Through businesses that have low barriers to entry of course. When you consider some of the lemons involved in marketing courses, schemes etc. it’s easy to see why people hold such strong and negative attitudes towards this area of property. I think it’s a shame that the conduct of a few numpties affects everyone else; after all, not everyone’s a shyster.

The ‘why pass on a great deal’ argument is terribly flawed. I can think of many reasons why someone might have to pass on a cracking deal, the biggest being a failure to meet the criteria set out by lenders. Vanessa, considering you said you cannot raise finance, if you came across the deal of the century tomorrow what would you do with it?

Wasim, telling people to forget Options is again flawed and too general a statement. What’s wrong with offering a person, suffocated by the credit crunch, an opportunity to buy one of your properties? What’s wrong with me securing a property via an option agreement and then increasing the wealth of all involved?

For the record, in an ideal world I would adopt the traditional model, but it’s not an ideal world.

As Ahmwaah has cleverly noted, very stimulating and good for debate.

[Vanessa]

Vanessa, considering you said you cannot raise finance, if you came across the deal of the century tomorrow what would you do with it?

Good question Marcus. There is nothing wrong with offering good/legitimately structured deals. That is not the point of my post. If I could not get finance for something, I may offer it out but only to someone who I know it would suit. However, it would be a 25% deposit in! No promises of get rich quick either. The barriers to entry are high in reality. At the moment, they are so high that I can't buy anything myself! I know very few people who are buying anything at the moment and sourcing deals for myself or others is not something that I personally have focussed on for a long time now. Granted, the odd deal does come up and I have a few close associates who ask me to inform them when they do.

Also, there is a problem with "wholesale-ing" property - its not a case of one size fits all. A more personal and bespoke approach is needed to enable the individual to achieve his/her goals.

[John Corey]

Vanessa said:

John,

Why do you keep referring back to "social media expert"? Are you referring to Nick?...
.

Vanessa,

I used three labels or sectors - all selling a service. People trading expertise in one area for cash. I have been a consultant for a number of years in the past so just call it IT consulting if that makes for a clearer example.

As to the specific question, I was not referring to Nick. Social media was included as it is something just about everyone on PT has heard about so there is a basic level of understanding. Best to use examples where the audience already has an understanding. If this was a discussion SingingPig I would not use social media as the awareness there is no as universal.

Back to my original point.

Some people are really good at marketing. I was talking to a guy last week who fits the profile. While he could grow his property portfolio he is much better suited to marketing other people's business. He is the talent behind one or more other property investors when it comes to marketing. He likes the marketing, likes working from a computer and does not enjoy all that much the more face to face contact you get with tenants.

I prefer to use a management company as I do not want to juggle the tasks related to direct or active management. It is not what I am best at. I prefer to pay someone else and accept that using an agent might be less 'efficient'. A trade-off that works for me and some other investors who also use agents.

Vanessa, clearly you believe your statement: "The truth is that those deals do not exist. And, if they did, you wouldn't sell them for a few £K." My personal experience says it is not so black and white. Deals are rare. Finding a distressed seller who has more than one property is a simple example where an investor could find more than they could handle. I had such a discussion at the Weybridge meeting we both attended. It is still too early to say what will happen with the possible deal. The seller does have a need to sell and they do own more than the other investor can take down by themselves. Selling on one or more properties is the only way to get the deal over the line.

John Corey
Follow me on Twitter-> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

[John Corey]

Wasim said:

[John,] Im afraid I dont agree with you. Property is a bug...When you get the bug its difficult to source a good deal and then hand it over to someone else. If in this example, there is a so-called cashback of £20k why give it away?..and just for a minimal fee.

Regards

Wasim

As I said, the person is not giving away anything. They could not earn the £20K as they could not close the deal. Hence selling it for something to a person who could earn the money makes sense. How the deal is priced could be debated.

Estate agents are a simple example. They earn 1% to 2% for matching a seller with a seller. The seller might be making large sums when they get the deal right. The agent could have done the same if we believe they have equal ability. If they do not have equal ability to do the deal then we have a whole sector that highlights what I am saying.

Not everyone gets bitten by the property bug or bitten in the same way. Some prefer not to be BTL owners but they do not mind selling services.

John Corey
Follow me on Twitter-> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

[John Corey]

Marcus said:

if you consider the mind of an entrepreneur - although that’s probably another thread.

Marcus,

Are you going to kick off such a discussion in a fresh thread?

John Corey
Follow me on Twitter-> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog