Ken Williams' success tips

He was a newbie, eager to get started in the business of making real estate deals! Along the way he encountered a seasoned investor who had many years in the business and was open to taking the new investor by the hand.

Beneficial arrangement on the surface

On the surface this seemed to be a mutually beneficial agreement for both parties. The eager beginning investor would be able to offer what the grizzled veteran wasn't willing to do any longer which was digging in the trenches for deals. The veteran was able to offer the newbie the obvious which was knowledge of deal making, and more importantly the vet offered strong financial backing. How could the newbie resist? In case you didn’t know deal funding is where most inexperienced investors get stumped, even those who have their own money.

From the inside out this seemed like a partnership made in the heavens of deal making. The hot, hungry, eager, and available, partner hooks up with the seasoned pro who could now lay back and direct traffic. Of course his role also included coughing up the dough when the cake was ready to stick in the oven.

Money producing machine

The arrangement went on for some time where both partners made huge financial gains for months at a time without any apparent hitch. The partnership matured and became more aggressive with its deal making. Mainly due to the fact the newbie gained steam in his confidence, developing an unflinching posture knowing his offers were backed up by heavy financial artillery. The match seemed like it was destined for infinite success. There was no end in sight for this steam rolling, money producing machine. That is until.........

Until that is, there came a time when this fast charging team over drove their headlights. They became too big for their britches. Greed and recklessness became a foundation of their "MO" (mode of operation), only the newbie was unaware of his own role in such a outfit. As it would soon be revealed he was an unsuspecting accomplice to some very shady practices.

Sensing from time to time that a few of their deal making moves were a bit on the edgy side, the newbie spoke up in inquiry. Each time his concerns were met by his veteran partner/menotor with reassurance their actions were in compliance with the way everyone was doing business.

Initial arrangement began to change

The initial arrangement called for the newbie to concentrate on deal finding and setting up sales contracts on properties for which he would assign to his veteran partner/mentor. He was supposed to be "in and out" quickly with no role on the back-end of the deal. That seemed simple enough, after all that’s wholesaling in it’s simplest of forms. However, the waters became a bit murky when the veteran employed an exit strategy which included allowing the owner of a pre-foreclosure property to remain in their property as a tenant after a deed was given to the investor. It was the newbie/mentee who was pursuaded to interact with the tenent/homeowner.

Anytime you try to get fancy with the consumer you're playing with fire! That is precisely how our rambunctious super heroes got burned.

(If you have any of my wholesaling materials you know I am dead set against allowing an owner to remain as a tenant in her property after our closing, except to allow a few days to relocate.) If you don't own my real estate wholesaling course then click now on this link www.thewholesalewizard.com , don't forget to return to read the rest of this article.

Purchase, Lease Back

Their troubles began when they set up an agreement allowing a home owner to remain as a tenant with the right to purchase her home from the investors after a year or so once she was financially on her feet. This is known as a “purchase lease back.” She would have to re-purchase her home at whatever the current retail market value at the time her execution period was due, say 18 months later.

That agreement appeared fair enough at the time everyone was smiling, hugging and signing. However, the market was appreciating 2%- 3% every month! Our super heroes had rescued this damsel in distress by bailing her out of a foreclosure situation by paying a small reinstatement of her loan in exchange for her deed. Had the investor not done so, she would be out literally on the street and financially ruined. Ever hear the saying, “no good deed goes unpunished?”

Feeling Abused

When time came to execute her option to purchase she felt more clear headed than at the stressful moment when she signed her home away 18 months previous. She soon decided she had been victimized during her time of financial vulnerability. Facing a significantly more expensive purchase of a home she previously owned for years, she became peeved! Resentment swelled within her every being when she realized the tremendous equity she gave away to that pushy investor. (Isn’t it something how the selective memory operates?) Encouraged by her family and friends and the rampant reports by the newspapers of illegal investor activity she sought legal advice.

The attorney she retained quickly decided he smelled a rotten fish when he looked into her signed agreement to sell, then rent her own property with an option to purchase at a higher price. His extended research led him to file a suit against the newbie investor, since he was the front man the homeowner had contact. Of course the old pro was soon named in the suit as well. Now it was the newbie who needed answers as to what went wrong with their seemingly smooth operation. It all seemed so innocent at the time, benevolent even. He thought to himself, “how could this lady turn on them like this?”

Openning a can of worms

The situation became ever worse for our super heroes. As the investigation progressed it revealed the old pro of the team arranged the purchase lease back strategy for many homeowners he bailed out of foreclosure. The investigation also proved in some cases he jacked up their purchase price to artificially high numbers. What probably sealed his fate are the few times he refused the sell back the home to previous owners who were late meeting their purchase deadline dates. To the consumers and their lawyers this whole procedure reeked of consumer abuse. The problems of our old pro spilled over into other jurisdictions as well when word got out about his abuse of homeowners. I'll even bet opportunity seekers jumped on the bandwagon.

Newbie let off the hook

It was soon determined by the courts the newbie investor was an innocent accomplice and was thus vindicated. However, the "old pro" “the mentor”, “the grizzled I’ll lead you by the hand veteran” was on the hot seat. It was also discovered that this old pro had an old past run in with the law related to real estate deals.

The newbie, though terribly shaken, has been let off the hook. He’s also been left with a bad taste in his mouth with regard to real estate and he's taking some time off from the business. Unfortunately, he must endure the occaisional summons as a witness in the ongoing case against the grizzled pro.

Moral of this story

The moral of this story is beware who you choose as your mentor. You could be sucked down the drain with the dirty, murky water by a less than thorough leader.

How to screen a Mentor or Coach

My friend and real estate mentor the late great Ernie Kessler offered some basic criteria for the members of our Washington DC Real Estate Investor Association, when choosing a mentor or coach to lead them by the hand in this business. Here are a few questions Ernie outlined for our members to ask a prospective mentor or coach: (questions I endorse and use myself)

1) Can you provide any proof/references of your experience? (ie. successful clients, attorneys, other industry professionals etc.)

2) Have you been in the business long enough to understand how to make money in all market cycles? (what’s their track record)

3) Have you any real estate convictions? (don't expect honest answers here)

4) How many different strategies can you lead me through? (beware of the one trick pony in a tight spot)

5) Do you have a network, and how will I benefit from this network? (a good mentor helps you get connected)

Some of these questions may be uncomfortable to ask, but by comparison they will be easier than you yourself having to answer uncomfortable questions later. I see many unsuspecting new real estate investors getting hooked up to a mentor who may be like the old pro in this true story, or even more common is the inexperienced mentor who unknowingly leads his flock down a treacherous path.

Beware! Always know who you're dealing with. When it comes to the so called experts, the proof is in the pudding!

To Your Success

Ken Williams aka The Wholesale Wizard