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It’s like Amway for real estate

January 15th, 2007 by Kenric

Last weekend some individuals from a financial investment company made a sales presentation to me and my friends.  They were selling real estate, more specifically, pre-construction real estate.  They came to my friend’s house and made a presentation.  Is the real estate market so bad in certain parts of the country that they now are making sales calls to sell property?

They were selling four pre-construction opportunities.  Three of them were in Florida and one was in Atlanta.   They consisted of single family homes, townhomes and highrise condos.  Here are the main points from the presentation:

• Pre-construction prices
• Very limited and only offered to a select few
• Once sold, the builder will increase prices
• Only $500 down at contract time till close
• 100% financing available
• $10,000 towards closing costs or cash back
• No HOA dues for 2 years
• No real estate taxes for 2 years
• Guaranteed renter at closing or you do not close
• Positive cashflow

Their pitch was all over the place.  I really wasn’t interested in any of the properties but I was confused at their messages.  For example, they said 100% financing and positive cashflow, so I asked if you got positive cashflow with 100% financing.  The answer was no.  They said you would have positive cashflow with 10% down.  But that was using a negative-amortization loan and because there were no HOA or real estate taxes for two years.

They mentioned $500 down at contract time until closing and then with 100% down means that you can get into the property at basically no-money down.  Then from what I gather, they were saying that you can get cashback at closing, which means you’ll actually get into the property and put cash in your pocket.   Somewhere down the road, I thought I heard a mention of using the cashback to help float the negative cashflow.  I thought it was suppose to be positive.

They threw out statistics, like Florida has appreciated ~20% in the past 4 years.  Of course we all know that that’s probably true.  But what did it do last year?  What is the market like now?  Obviously if it were appreciating 20% a year, these people wouldn’t be here making this presentation.

The guaranteed renter was interesting.  Basically the builder will put a renter in your property with a one year lease before you close.  If you’re property is not rented, you do not close until they find a tenant.  I wonder if they will actually put in a good tenant or just throw some crack head just to make you close.

Out of the four that were shown, I think one had some promise.  It was a single family home subdivision in Jacksonville, Florida.  The starting prices were in the $180′s.  They claimed that these homes would rent for $1,400 a month.  If that were true, these homes may actually breakeven with a regular loan.  My gut tells me that $1,400/mo rent is an over-estimate and that market rent is more like $1,000/mo.  The rest were massively negative cashflowing properties.

Real estate investing is a very competitive industry.  Good deals are snapped up in a few hours if they are available to the public.  Investors know a good deal when they see one.  They do not need a sales team telling them why it’s a good investment.  If anyone is having trouble selling their properties and has to rely on incentives or sales teams to sell their properties, it is not a good deal.  The fact that there is a need for a presentation should tell you something.

Posted in Real Estate | 3 Comments »
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