Understand the Deal BEFORE you get involved!
By Donna Robinson, Publisher, REIHelp.com
Over the past few weeks, I have been contacted by a few of my
private clients, concerning investment opportunities that are being offered to
them by other investors or companies. There is usually a "great" or
"new" opportunity involved that will allow you to get in on a special
deal, and therefore, make lots of money. Typically these opportunities require
you to deposit your dollars in the care of a company or individual who will then
obtain properties from special sources on your behalf. In most cases, the
investment required is substantial, ten thousand dollars or more. While the
details vary from one "pitch" to another, this is the basic idea.
When you are presented with this type of
"opportunity", you should be sure you understand exactly how the deal
will work. There should be some kind of agreement drawn up that explains
everything in detail. Just as a Georgia Association of Realtors contract covers
the details involved in any typical real estate transaction, your investor
agreement should detail the responsibilities and rights of both you and the
person or company you are investing with.
You should understand how your money will be used, the time
frame needed, and what happens if the party you are investing with cannot
complete their end of the agreement. Will you get your money back if they fail
to perform? Are there limitations on what they can do with your money? What
recourse do you have in the event that the property purchased with your money is
a loser? Do you have the right to approve of the deal before your money is used?
You must understand the risk you are taking.
I find it interesting that people who are obviously intelligent
and capable of accumulating significant amounts of money for investing, will
then turn their money over to someone they don’t know, for a deal they don’t
understand fully, just because this person appears to be an expert real estate
investor.
Here are a few tips from the "pros":
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All deals should be written to specify critical information
such as the amount invested, the interest rate you will earn, when can you
expect to get your money back, (or, what happens if you need to cash out),
and most importantly, what is the actual risk you are assuming? Are you
being protected by a first mortgage on a property, or are you making an
unsecured loan? What about net cash flow?
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Have the deal and all paperwork reviewed by your attorney or
an experienced investor you can trust. NEVER sign a deal or turn over money
to anyone if you are not clear on ALL of the details. The vast majority of
real estate transactions require only relatively small amounts of earnest
money to bind the agreement. Most of the funds will not be needed until the
closing takes place.
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Even "experts" lose money from time to time.
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There are no magic answers or get-rich-quick deals. Check
everything carefully. |