Real Estate Investing Basics

The Top 3 People Most Likely to Rip You Off in Real Estate Investing

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
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Today we're talking about the top three people who might rip you off the most when you invest in real estate.

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The Top 3 People Most Likely to Rip You Off in Real Estate Investing

1. Contractors

In my opinion, the biggest ripoff is contractors. I mean, these guys can be absolutely ridiculous sometimes, and I’m sure that most you investors out there will agree with me. They will sometimes lie, cheat, and steal. I’ve literally lost over $300,000 over the last five years to contractors. It is ridiculous. And a lot of you out there probably won’t be willing to admit that you’ve lost money to contractors. Well, whatever. I’m here today telling you that I do 10 deals per month, and to this day I lose money to shady contractors.

Related: 4 Massive Financial Scams Sold to Americans on an Everyday Basis

Now, how I’ve minimized my losses is I’ve hired project managers and I’ve incentivized those project managers to make sure that they come in on budget. I ensure they get the flip or the rehab done as quickly soon as possible. Then they make a certain percentage from every sale that we make. And as you can imagine, this pretty much keeps costs low, keeps timeframes short, and makes sure they are incentivized to make money on every property we flip. So, that is how I go about minimizing my losses and dealing with contractors directly on a one-on-one basis where I’ve got those project managers dealing with the contractors.

2. Accountants and Attorneys

The second one is accountants and attorneys. Honestly, I can’t tell you how much ridiculous money I have spent on legal fees and accounting fees to folks who pretty much check their watch every single time I send them an email. The only thing I can tell you is thisL Try and build a very strong relationship with a trustworthy accountant and attorney.

Still, when you are just starting your business, meaning you don’t have that much money available or you don’t have that much net wealth, it’s my opinion that you really don’t have anything to lose. So why would you spend tens of thousands of dollars on legal and accounting fees? You should spend that money on doing deals, on buying and rehabbing a house, on investing in marketing, on investing in branding yourself, whatever it may be. There is no need at that point to spend money on legal and accounting expenses.

3. Appraisers and Building Inspectors

And the last, but not least is appraisers and building inspectors. Why? Because appraisers these days are more worried about job security than they are about giving fair value on a property. The undervalue every property by $10-$15,000 because they don't want Fannie Mae knocking on their door if that homeowner goes into foreclosure. What happens if that homeowner goes into foreclosure ,then whoever appraised the property their profile gets looked into? So many of these guys are more worried about that happening, and they undervalue the price of every property instead of giving fair value.

Related: 4 Types of All-Too-Common Real Estate Scams Making Headlines

As for building inspectors, these guys are paid to find faults. Even if you build a house from scratch, they’re still going to find some faults and there is nothing you can do about it. So guys, I’ve got no tips for you there except to sell on your terms. If you can’t beat it, you have to eliminate it. This is something that I’ve done with my company. If you don’t trust me, don’t invest with me. If you don’t trust the price that I’m presenting the property to you for, don’t buy it. Someone else will or I’ll keep it. If you don’t trust the quality of workmanship that I’ve done on a property, don’t buy the property. There is nothing I can do about that. Because I know what’s going to happen—the appraisals won’t come in and the building inspectors will find faults, even though those faults have nothing to do with the sustainability and how self-sufficient this property is going to be for the long term.

What do you think of this list?

Feel free to agree or disagree in the comments section below!

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
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    David Blattner
    Replied over 3 years ago
    As an attorney, I take exception to your including attorneys in this list. We are not all bad. Most of us are honest and work hard to protect our clients. However, you have omitted one key player from your list – hard money lenders. In my experience, they are the biggest rip-off artists in the business.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 3 years ago
    Thanks for your comment David, I have 2 amazing attorneys on board now that sure are worth their weight in gold. It just took me 4 years to find them lol Much success
    Replied over 3 years ago
    David, I defended attorneys in an earlier comment on this topic. Good ones can save you a lot of expense and headache. I do not use hard money lenders, but I understand why they exist. I believe they are pretty upfront about what they charge, what their fees are, the prepayment penalty, the points, etc. If investors truly have a monster deal with no other way to fund it, then hard money lenders could be an invaluable resource. If you can make $50 thousand, and a hard money lender charges you $12 thousand, you are still ahead by 38M. I don’t think many newbie investors realize that hard money lending is really only for a quick rehab or a flip. It cannot be a source for a long term rental or financing your buyer with a rent to own or land contract. In short, hard money lending really limits your exit options drastically.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 3 years ago
    Agreed Gary, Hard money should be for a quick “in and out” type deal and doing deals in such a way takes time to master. Thanks
    Greg Parker Contractor from Montgomery, AL
    Replied about 3 years ago
    1- realtors. 2- Contractors. I am both, so I know how the majority of them operate. You have to be careful. The best thing to do is ask them for a couple of recent clients you can call for a referral. That is what weeds out the crooks. A satisfied customer loves to tell how wonderful their agent or contractor was. The guys that can’t give you a recent satisfied client, is because they don’t have any.
    Engelo Rumora Specialist from Toledo, OH
    Replied about 3 years ago
    Agreed Greg, Referrals from previous clients are very powerful tool Much success
    Rogelio M. from San Antonio, Texas
    Replied 12 months ago
    The thread is a bit old, but now have come across it .... in performing due diligence, to filter out unscrupulous contractors, search for a criminal background record on the contractor, personally. Criminal charges filed with the district attorney are public record, and recorded in your local clerk's office. Pay special attention to the type of charges showing; especially those involving DECEPTION. Charges involving deception would involve things such as forgery, theft by check, theft of service, perjury, execution of document by deception, misappropriation of property as a fiduciary, etc. Charges filed against a contractor would pierce any corporate veil, and would thus be generally filed against a contractor personally. Note that poor quality work by a contractor would NOT be considered by a prosecutor as a criminal matter, however, issues involving poor quality work would show up in public record (again, through the clerk's office) as lawsuits. Check for lawsuits filed against the contractor. The absence of a criminal charge or a lawsuit does NOT guarantee the honesty of a contractor, but the PRESENCE of any of these two items would be quite telling. Best luck.