Real Estate Investments or Scams?

January of 2006 saw an influx of investors in to the Edmonton real estate market.  Numerous investment groups who shall get no credence here gave all kinds of recommendations to buy in the market with formulas that were not successful for obtaining properties.  One particular investor followed her formula religiously (12 times) – she would not pay more than list price – and the formula failed all 12 times.  In the months that followed the value of these properties increased by $20,000, and had she paid a little over list price a few months earlier she’d be $15,000 in the plus column on each property. We unfortunately had to tell her to locate another agent to work with – this wasn’t what I wanted to point out though. 

What I wanted to talk about are Real Estate investment seminars.  I’ll be the target of every real estate guru’s ire after this. I’m not suggesting they are not legitimate, but what I am suggesting is that you should be aware you are being primed when you attend many of these seminars. Some are legitimate, but in my opinion the ones that offer the carrot to join in their success and buy one of the few "prime properties" that they have available for select investors are not.  LOL…  You as the consumer have to be discerning.

Back in the late 80′s there was an investor’s craze coming out of Ontario to Alberta, buying condos and foreclosures.  At this time CMHC and AMHC had considerable inventory available (Canada Mortgage and Housing and Alberta Mortgage and Housing) and with interest rates declining Ontario investors were led west by these investment "guru’s."  Some people took the information and did some independent investing on their own.  Others bought into properties and projects that the guru’s had personally selected (properties these gurus had bought for a dime and sold for a dollar to their followers).  Now things were a little funkier back then because of the cash flow guarantees, and vendor take backs for second and third Mortgages (some of them interest only to maximize their appeal to investors who wanted the interest deductibility).  How some of these properties were able to get the appraisals they did are a complete mystery to me.  In one such case investors were able to successfully sue one of the gurus and received an apartment building as compensation, and in another investors got wind of some funk and were able to wrestle 64 units from one complex as compensation, which they then hired yours truly to sell for them.

Now the point of this is that it’s worth getting an independent perspective on any significant investment whether it be real estate, stocks or partnership.  Truth be told I’ve got some great investment opportunities for different types of investors, but at least I’m not holding a seminar and getting buyers hyped up to buy them – in a way the market has taken care of that hype.  Remember, with investment real estate there shouldn’t be any emotion in your decision making, unlike a home purchase which can be very emotional.

So cool it. Make your plan and stick to it. Then find some good people to make your plan a reality.  The biggest mistake you could make in my opinion is to come out of a seminar owning a property.  The second biggest mistake you could make is going it alone.  Most seasoned successful investors have a good team working with them.  The third biggest mistake is not doing the research and learning all the facets that could negatively affect the value of your ownership, because there is more to investment real estate than location, location, location.

Some of the heavy hitters in real estate such as Realtors with the C.C.I.M designation (Certified Commercial Investment Member) have extensively trained in property and investment analysis.  These individuals look at the IRR’s and FMRR’s of investments like most buyers look at lino (Internal Rates of Return and Financial Management Rates of Return).  So play it cool and avoid the scam.  There are great opportunities out there but not every opportunity is a great one.