Beware Of Cash Back

Real Estate Articles: Beware of Cash BackI love the real estate investment industry. Everyday, I learn new and interesting ways to structure deals that are fair to all parties and allow all parties to make the money they need to make. Attending meetings offered through your REIA are great ways to learn what others are doing and how those deals can be structured to work for you.

Unfortunately, as in every industry there are a few bad apples that can throw a kink in all that is good. Some people just want to “get rich quick” and may bend the rules a little or even a lot to make sure that happens. Greed is a dangerous thing.

I have been blessed with a wonderful following of customers who have referred me to others that in turn have referred me to even more customers. I am thankful to have each and every one. Lately, though, it seems I have been getting many calls from builders and investors working with builders and other investors who are getting cash back after the closing. Some call it a rebate, some call it a home warranty buyout clause and I have heard one call it a decorator allowance. Folks, any money given to the buyer after the closing that is not disclosed on the HUD or in the purchase contract is FRAUD! Sometimes even the builders are unaware that it is fraud, the buyers are unaware that it is fraud, but the mortgage broker should be aware that it is fraud if they know or suspect that cash is being received. Many lenders have a good idea of what is happening and will wink, wink, nod their head and look the other way until the following happens: The builder sold out to many investors who paid top dollar for several houses in a neighborhood. The investors got $15-20K cash back at closing, their prospective lease option tenants could not pay enough to cover the mortgage and now there are several foreclosures in the neighborhood. Maybe a builder has an appraiser squeezing a little more than he should out of a condo complex. He sells the condos to an investor who then sells them to other investors who can’t get them sold or rented as they had hoped according to the appraiser’s numbers. Now 40 of the 350 plus units are in foreclosure. HOA cash reserves are in- adequate. Not even the honest folks can get loans to close on any of the units. Someone is going to jail. Let’s make sure it is not you. Don’t get caught up in the get rich quick schemes. Sometimes, they are difficult to spot, but if you are offered money outside of the closing, something is not right.

There are many honest, ethical people in this business. Do your best to associate with them. Talk to other investors about your values and make sure theirs are similar to yours. Do what you can to make sure that we as investors leave a clean mark on the world. Deals should be fair to all involved, not just one person. Investors have an opportunity to truly change lives for the better. I want to be a part of that! If you should have any questions about possible fraud, call and I will do my best to guide you to the right solution. If you have any questions or if I can help you with anything, feel free to contact me at 803-831.2856 or Wendy@CarolinaHardMoney.com.