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Being a real estate investor means protecting yourself from potential scams. Just because someone holds a professional license of some kind doesn’t mean that he is honest. You can probably order one of these licenses over the Internet. We know that it can be scary getting started in this business. We were new once too.
Many “seasoned” investors couldn’t wait to sell us a house, showing us their comparable sales data to prove the value. What do you do when you don’t have the resources to protect yourself?
We wanted to answer that question and share some valuable advice you can use each time you do a real estate transaction.
1. Join your REIA and ask your leaders. Your local real estate investment group should have resources where you can ask for advice when something seems “fishy” or “too good to be true."
2. Ask for I.D. When you are dealing with a seller whom you’ve never met, and the home is vacant, ask for the seller’s I.D. Some scammers pretend to own vacant houses and trade deeds for money.
3. Always place your deposit in your closing agent’s escrow account. That says it all. If the deal goes sour, you’re not chasing your money.
4. Your own attorney reviews all deals. Make sure your own attorney or closing agent represents you in every transaction.
5. Check city liens. Always visit the local governmental agencies to find out about pending liens that may not show up on the title search. This can save you thousands. Ask us how we know.
6. Title Insurance--even for flips. If your name goes into the “chain of title,” purchase title insurance. You only need one deal to go sour to pay for a lifetime of title insurance policies.
7. Run your own comps and drive by the comps given you. Obtain comparable sales reports from your own sources when you are not sure of the area’s value. Drive by each comp to make sure you are making a wise investment.
8. Stay in control of your deal. Don’t be intimidated by your seller. Protect yourself and stand up for your rights in the contract.
9. Use your own mortgage brokers or money sources. Make these contacts before your first deal, so you are not pushed into using a money source you don’t know. Rushing to get financing can be costly.
10. Contingencies can protect. If you feel uneasy about the transaction, be sure to use a contingency in the contract. A contingency is a clause that binds the seller, but gives the buyer the right to cancel within a certain period of time.
Hope we didn’t scare you too much. We practice these tips each time we do a deal, and we’ve learned many of these tips the hard way. Hopefully you won’t have to. This is a great business and we love it.
Bonus Tip #11: When you do make an honest contact, don’t lose it. Build on it and grow from there.
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