3 Ways to Combat Real Estate Red Flags
It’s time for a real chat.
Because we care about our clients and anyone else who decides to invest in real estate.
So, here’s the brutal truth: there are people who will lie to you in this industry. Lenders, realtors, other investors, and so on. Or only tell you half-truths.
I know. This is a HUGE surprise.
Okay, maybe not.
But, even if common sense and experience tells you that people lie, you can’t always believe it when it happens to you.
Because, more often than naught, you WANT something to be true, especially when it comes to making money. You want to believe you found an incredible deal, or an incredible lender, or an incredible something that nobody else has had the luck to find.
We all want those incredible moments to be true, right?
But most of the time, they’re just not.
So, what can you do to protect yourself and your wallet from real estate red flags?
Well, here are 3 tips we give to our clients:
First, if it seems too good to be true, it probably is.
For example, “If you buy this property, then you can generate $5,000 – $6,000 every month.”
Okay, that’s definitely a red flag.
Sure, we all want to make excellent cash flow on our properties. But, even in our competitive market, it’s near impossible to make $5,000-$6,000 every month on a standard rental in most towns or cities. The norm is more like $200-$500 a month…at least until a property pays off.
But, even then, making $5,000 – $6,000 every month with a single property is…too good to be true.
Unfortunately, we’ve seen this situation happen more than once to our investors. They get convinced of a sweet, sweet deal and jump into it. And…it doesn’t take long for them to figure out the person who convinced them to buy the property streeetched the numbers and the truth…a lot.
So, what can you do when a red flag waves in your face?
Okay, someone told you something that’s too good to be true. Now what?
That’s right: ask questions. A lot of them!
For example, let’s say a lender quotes you a 4% rate when everyone else is quoting you about 10%.
Your first reaction is to cheer and think, “That’s amazing! I’m so happy I called this lender.”
But your second reaction should be, “Wait, why? Why is this lender quoting me so much lower than everyone else? What do they see that the other lenders missed? Why are they so much more forgiving and accepting of my financial history?”
There’s gotta be a catch.
Trust us, there is.
When lenders give quotes that are significantly lower than their competitors, it’s because they pad the rest of the loan with junk fees. They charge for everything, not just the loan itself. So, before you know it, you’ll be paying more than the 10% interest you would’ve paid with one of the other legitimate, honest lenders.
So always ask questions when a red flag pops up.
And, part of that process includes…
Getting a second opinion.
So, a red flag went up. Then you asked the lender, realtor, seller, investor, or whoever a bunch of follow-up questions to figure out if they’re telling you the truth…or yanking your chain and taking advantage of you.
Sadly, even if you grill this person, you might not get a direct or honest answer from them.
So, go and get a second opinion. Heck, get a third opinion! There are plenty of experts in the field to ask. Go out and see what they think of this “too-good-to-be-true” offer. Is it real…or fake?
Spoiler alert: it’s probably fake.
By taking these simple steps, you can protect yourself and your wallet from falling into a bad situation.
If it’s too good to be true, ask questions and then get a second, third, or even fourth opinion. Do your due diligence to save yourself a lot of hassle…and money.