Monday, June 12, 2006

Check your Bank Account - YOU have been SWINDLED!

These days working in the real estate field has shown me alot of things from the good to the bad. Some of the things in creative real estate that I have seen enters the gray area to even the illegal. I have a few leads in which the homeowner has been "refi'ed" from lower rate to a higher rate in order to get their equity and the "professional" took their equity! I have even seen several properties appraised over 25% of their fair market value at EXCELLENT condition and the property needs about 100K in work!

In my case, I have been defrauded by various "friends" and also "contractors" who can get me a great price. Even then I have talked to various people who said they can do something and afterwords when I confronted them about their credentials they say, "you either take it or leave it". I left it.

Just this morning my friend from the west coast is leaving the country after an incident in which his group lost the capital of the investment group. They lost the money to a "dealmaker" who was giving them a great discount on some assets.

There is much to be said about trusting people. Giving them the benefit of the doubt, treating them with respect, and creating value for others. What is least talked about is how to insure your interests in things.

I spoke to an investor in California. I asked her does she invest her money with other investment groups. With a quick answer she said - NO! She shared with me a story of how a guy was taking money from a fund of investors. She instead will do her own deals and make them work.

Like Warren Buffet mentions, do not diversify but instead take on the responsibility of investing on what you know and watch the basket of eggs like a hawk! Yet even the best hawks got swindled.

Suffice to say I can go on and on on some of the various scams I have personally seen and heard in my circles but here are some best practices when investing:

1. KNOW WHO YOU ARE INVESTING WITH. How long have they been doing this? What is an example of their project? Do you feel comfortable with them? Are they putting money up in the first few projects to show how confident they are in the deals? Any references?

2. CHECK THE REFERENCES. After I lost money last year to people who promised certain things and didn't perform. I started checking the licenses and information about the companies that are investors. I check the personal references as well as professional ones. I even check the city and state if possible. Kiyosaki mentions that each dollar is an employee so is each investment manager. I take time to interview them. Remember to take time to hire and quick to fire!

3. KNOW WHAT YOU ARE INVESTING IN. Of course if you don't know, ask for information. With the bigger companies it is called a prospectus. With smaller companies ask for brocehures or talk to the principal of the company to understand what they are doing.

4. INVEST ACCORDING TO YOUR PLAN (Note: If you don't have a plan - MAKE ONE!). When I invested with a "friend", I understood what they were doing and trusted that they knew also. I put in only several thousand dollars to see if they would be able to produce. They were not. My plan was not to invest over a flat amount. I stayed with it and took a small loss. I am able to handle it and move on. Others were not as fortunate and are proceeding with ligitation.

5. MEASURE THE RISK AND REWARD (KNOW YOUR #'s). In the above scenario, I calculated 100% return on investment as the reward and a risk of 0% if it failed. I was able to handle the #s as concided with my philosophy of investing and also my risk tolerance. Playing the cashflow board game has been invaluable in simplying the #s and also the strategies.

6. WHAT IS YOUR EXIT STRATEGY? Every investment has an exit strategy. If you don't have one then you will find it a mess. Find out when you can take out money and when you can't. Put a time cost on it and then move on. This is another major reason why newbies investors fail. They don't know their exit.

7. SCREW THEM OVER. One of my friends came up to me and asked me for my opinion. He was telling me he was doing a new construction from his single home to two homes in Staten Island. After some discussion, he found out that the contractor forged his signature and took a draw from the bank without him noticing. Immediately I said, "how much?" He told me, "oh about $150K, what do you think I should do?". I said, "GO AFTER HIM RIGHT NOW! Don't waste your time. Anyone stealing from me is a crook. GO!". My friend said he wanted to wait for the contractor to finish some stuff that is left before reporting him. Basically give him some chances.
I looked at him and was baffled and shared my experience. It is not only a trust issue but business wise every time I wait I am losing money. In addition, if someone steals once they will steal again.
Now I believe in trust, love, patience, etc... I truly have generous spirit and faith in people. Yet, working in the real estate field there are quite a few they don't play that way. They are instead selfish and consider only their desires without regards to others. I know in life we do break the rules in order to fulfill a deeper need like breaking the speed limit on the highway to drive a spouse to the hospital for labor, etc... Yet in these cases, there are people who only care about themselves. In this way I say, "SCREW THEM". Is it an eye for an eye? Yeap but sometimes God uses people to effect a lesson. God works in mysterious ways. Sometimes God uses us.

Ok these should be some guidelines. If you have any feel free to post and let me know.

Enjoy your day!