Is potential partner a fraud?

Is potential partner a fraud?

Real Estate Agent · Member since 2019 · 14 posts · 5 votes

I was recently approached by a seemingly experienced real estate investor to partner with him to flip $1M+ ARV homes. We met for the first time at a networking event and after hearing I work in finance, he was overly eager to work with me despite me having no experience in real estate.

After talking a bit and showing me some figures, he invited me to view his properties in a town over 50 min away immediately after the event. It was a bit odd, so to be cautious, I brought someone I trust to accompany me.

We viewed the properties (which were beautiful), then he proposed how we could set up a partnership, where he sources the deals and raises funds from other investors, and I would manage the operations and budgeting of the flip to completion because I have no money to contribute. He would also teach me how to find deals throughout the process. He asked me to complete a credit check to prove I'm qualified to invest.

Further, he said because he would give me ~$1M for the flip, he wants me to quit my job to work for him full time (he gave me 48hrs to decide). As he pools together investor's money for the flip, he would also include the value of my current salary in the pool. Essentially, he wants to buy me out of my job using other people's money which is a red flag that he can't pay me himself. I don't want to quit my job without knowing this investor is the real deal. Further, he was making guarantees that I would become a millionaire within 3-5yrs.

I looked at public records on him and found 11 bankruptcy filings from 10-30 years ago. Nothing else since then. He claims to have been an investor for about 3 years; he's flipped dozens of houses, and currently has 30 properties under contract, so those records could be irrelevant. But these records are telling me that he knows how to work the system and isn't afraid of taking people's money then not paying them back.

I was thinking of asking him to do a credit check as well, but how else should I approach this? Why would he be so overly eager to work with an amateur he just met? Should I bring up the bankruptcies? Any other red flags come to mind?

(Note: For more background, I'm a girl in my mid-20s. He kept saying he wants to have a "nice, pretty face" as a fresh spin on his business. Not sure how to interpret this, but it felt a little inappropriate. The trusted person I brought with me was concerned that he would use me and my clean record, and parade me around as his CFO to help fix his tarnished reputation. This risks me losing my securities licenses.)

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Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
7y

Hi Rio,

Maybe he wants something else (you know what I mean).

And that's all I have to say about this.

See this reply in the discussion

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  • Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    "he gave me 48hrs to decide"

    High pressure sales tactic.

    I'd walk.

  • John CasmonPro Member
    Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    Run. Don’t even bother with all the checks.

    Why you and not someone else? Why the hard pressure to quit? Trust your gut and pass for now. If he’s legit, he’ll still be legit in 6-12 months. If he’s not he’ll be exposed or disappear.

  • Eastern Michigan · Member since 2018 · 81 posts · 144 votes
    7y

    i don't mean to be rude here but how are you even considering this?? It sounds like a harvey Weinstein ish situation.  

  • Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes
    7y

    Just the fact that he brought your looks into it is sexual harassment. A lot of red flags. There are many legit people you can work with especially with your licenses.

  • Property Manager · CT · Member since 2019 · 27 posts · 8 votes
    7y

    @Rio Peterson like my mother would say "if it smells like poop it's poop," be safe

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Account Closed:

    i don't mean to be rude here but how are you even considering this?? It sounds like a harvey Weinstein ish situation.  

    Totally fair! I'm asking myself the same thing. Initially, I was thrilled that someone offered to partner with me and was willing to teach me how to successfully carry out deals. Unfortunately, I was naive enough to not know the red flags, but it started feeling very off when he was making big promises that I know were unrealistic, like becoming a millionaire in 18 months. I don't believe in the "get rich quick" schemes. Also, I know to never partner with someone without doing a background check on them. When I did my due diligence over the weekend, I realized the full extent of how much trouble I could have gotten myself into. 

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Nina Hayden:

    All I kept thinking to myself is a repeat of strawman from the 2006-2007 crazy shenanigans that went down and cost a lot of peoples lives and money. Run. And don’t even entertain this anymore. Block this guy for good.  And keep an eye out. I’m feisty so I would have eaten him alive with questioning him.  The nerve....

    How do those people sleep at night knowing they intentionally hurt someone this way? Horrible.. And agreed, I told him I'm out, and he responded very aggressively. He essentially said it's impossible to invest part-time and his process is simple/foolproof, but I HAVE to qualify myself as an investor with a HML first. Total BS to me. I'm usually feisty too - especially in my area of expertise - but I'm still learning which are the right questions to ask. This experience definitely helped!

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Nina Hayden:

    All I kept thinking to myself is a repeat of strawman from the 2006-2007 crazy shenanigans that went down and cost a lot of peoples lives and money. Run. And don’t even entertain this anymore. Block this guy for good.  And keep an eye out. I’m feisty so I would have eaten him alive with questioning him.  The nerve....

    I was deep into HML in those days 06 07 and I finally bought the Accurint ( Lexus Nexus) mortgage fraud module ( not available to the public) and boy you would be shocked .

    also you would be shocked at whats behind the curtain on so many in the real estate field..  just look at this wholesale thing going on no licenses no nothing.. you talk about financial shenanigans.. you can bet there is a lot goes on when you turn just anyone loss on real estate and financing.   

    That's so unsettling and definitely will make me extra cautious. Considering how strict the securities industry is with its fiduciary responsibilities, I assumed real estate was the same way. But I'm realizing more and more that there are lots of holes in the system, so it's  feeling almost like the Wild West! 

  • Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    7y

    Now you know a lot of us on here have 'got your 6'.....

    good luck in the future !!!

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Rio Peterson:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Nina Hayden:

    All I kept thinking to myself is a repeat of strawman from the 2006-2007 crazy shenanigans that went down and cost a lot of peoples lives and money. Run. And don’t even entertain this anymore. Block this guy for good.  And keep an eye out. I’m feisty so I would have eaten him alive with questioning him.  The nerve....

    I was deep into HML in those days 06 07 and I finally bought the Accurint ( Lexus Nexus) mortgage fraud module ( not available to the public) and boy you would be shocked .

    also you would be shocked at whats behind the curtain on so many in the real estate field..  just look at this wholesale thing going on no licenses no nothing.. you talk about financial shenanigans.. you can bet there is a lot goes on when you turn just anyone loss on real estate and financing.   

    That's so unsettling and definitely will make me extra cautious. Considering how strict the securities industry is with its fiduciary responsibilities, I assumed real estate was the same way. But I'm realizing more and more that there are lots of holes in the system, so it's  feeling almost like the Wild West! 

    for owner developers they need no licensing..  other than the state of Oregon were you do need a developers license I have one.. to get one you need insurance and a bond .. so that does take decent credit to get.

    but other than that.. like you said its wide open.. and usually it somewhat self regulates as lenders these days vette the operators or should be.. but people do slip by I know its happened to me.. and pretty much every HML will have defaults and foreclosures.

    you just don't want to be on the butt end of it.

    Also I am a NMLS registered mortgage banker.. now to get a state RMLO which you need to register on NMLS you do need an FBI background and finger prints.. does not mean you will get denied but you can.

    On the real estate broker side you usually just have to fill out a form and you know how many fib on forms.. LOL  no background at least in the 3 states I have had or have a RE brokers license in. 

    and from my perspective I get whats happening because its what I do in my day Job.. I bring capital to real estate investors that are looking to scale.. so at some point in time when I bring on a new vendor we are just meeting.. and I have met some on BP that we just did the deal over the internet.. But usually I go check them out in person before we move a million bucks to their operation.. But even at that we get bummers..  

  • Rental Property Investor · Dallas, Austin · Member since 2018 · 246 posts · 213 votes
    7y
    Jay - I can believe it!  I’m no longer shocked after those years.  I saw too many situations back then.  And I agree with you about the wholesalers. I’m not a fan of them at all. I went to one REI networking meeting and I was completely put off by it.  It was nothing but hard money lenders and wholesalers trying to make a quick buck.  What bothers me the most is that there are people ok dealing with this still. They think they are hitting the jackpot.  True real estate investment isn’t overnight for most part.  



    Originally posted by @Jay Hinrichs:
    Originally posted by @Nina Hayden:

    All I kept thinking to myself is a repeat of strawman from the 2006-2007 crazy shenanigans that went down and cost a lot of peoples lives and money. Run. And don’t even entertain this anymore. Block this guy for good.  And keep an eye out. I’m feisty so I would have eaten him alive with questioning him.  The nerve....

    I was deep into HML in those days 06 07 and I finally bought the Accurint ( Lexus Nexus) mortgage fraud module ( not available to the public) and boy you would be shocked .

    also you would be shocked at whats behind the curtain on so many in the real estate field..  just look at this wholesale thing going on no licenses no nothing.. you talk about financial shenanigans.. you can bet there is a lot goes on when you turn just anyone loss on real estate and financing.   

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Nate Marshall:

    Just the fact that he brought your looks into it is sexual harassment. A lot of red flags. There are many legit people you can work with especially with your licenses.

    Agreed. If he mentioned it once, I could have brushed it off. But he brought it up at least 4 more times throughout the day. Very inappropriate. And absolutely. I don't expect everyone to know the restrictions of the securities licenses since that's my responsibility anyway, but whoever I end up partnering with should respect what I legally can and cannot do. He had no regard for it whatsoever

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Ruben Anthony:

    As everyone else has mentioned in this post I would agree with them and walk away. Remember if something sounds to good to be true it usually is. This sounds fishy on so many levels. I'm more concerned with that fact that hes trying to string you in and give you a 48 hour timeline to decide. I mean let's be honest that's a huge decision to make in such a short period of time. At the end of the day I feel as if your gut instinct is already telling you to walk away. Listen to your gut. As a community we whole hardly support you. When declining his offer be polite but firm.

    Agreed. I politely declined his offer, saying this is a huge decision that I can't make in 48 hours and I want to do real estate part-time to get a feel for the industry. He came back quite aggressively saying it can't be done part-time, which I know isn't true. I've talked to plenty of other investors at local networking events who did it part time for a while before diving in. Also, very grateful for the BP community! Good to know there are great people out there!

  • Rental Property Investor · Marietta, GA · Member since 2016 · 23 posts · 10 votes
    7y
    @Rio Peterson I am glad you reconsidered not working with this gentleman and had the smarts to ask questions before entering into this partnership. However, there are legit partnership opprotunities out there. I have a situation whereby I do not have the money to complete a reno and would love to have a partner. I am sure our audience can think of many scenarios where a partnership woumd be beneficial. Good luck!
  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Constancia R.:

    I'm going to quote you: "it felt a little inappropriate".

    It felt a little creepy to me, and I'm not even over there with you...and he is pressing you, too? If it's a great deal, the one with the goods does not need to push because he or she will know that a taker is coming soon.

    Yuck. And he was the one who approached *you*? And he has a perfect track record of fiscal irresponsibility? Personally, I'd sit on the sidelines and watch him from far off.

    Unfortunately, I've met many individuals from my various workplaces who made inappropriate comments like that - usually in passing so  I brushed it off. But he was using it as a reason to bring me on board which crossed a line. 

    Well, I approached him at the networking event and after hearing about some deals he had lined up (note that it was a closing table event), I asked if there was anything I can do to help (this was before anything sketchy started happening). Then, it quickly escalated throughout the day as he became overly eager and offered me the world, BUT was forcing me to make the quick decision. Totally not okay..

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Melonie McCallum:
    @Rio Peterson I am glad you reconsidered not working with this gentleman and had the smarts to ask questions before entering into this partnership. However, there are legit partnership opprotunities out there. I have a situation whereby I do not have the money to complete a reno and would love to have a partner. I am sure our audience can think of many scenarios where a partnership woumd be beneficial. Good luck!

     Absolutely! I'm still very open to partnerships, so this experience made me a little smarter on how to approach them. 

  • Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
    7y

    @Rio Peterson

    Just thought I would chime in and I assume you know this but if you are looking to leave your job you would not have a securities license. You can only hold a license if you are employed with a regulated BD as far as I know (by license I assume you mean registered person). Something that happened in your past like a bankrupcy or other issues would need to be disclosed if you wanted a license again but with a certain timeframe of not working you will not have a license. 

    Also, I would point out that, at least in my opinion, it could just be like cold calling brokers. They always tell you that you will be a millionaire bla bla bla. One in X number actully are and the rest flame out. Its worth it for the guy speaking to you because you are going to make money for them. Its not like he offered you 50/50 split for doing nothing. You are doing the work as I understand it and getting rewards and not even in cash but in deal credit right? In almost all deals the money gets paid back first, so you only get paid if the deal does really well. Yes you can make a ton of money, you can also make 0. Its very risky. Like commission sales poeple its just high risk high reward. Least that is how I look at it. I think the assumption that many have that all RE makes money and lots of it so everyone gets rich is nuts. That is the real issue and why not everyone, in fact very few, would probably jump at the offer as I read it. 

    He could also just be a predator hard to know without being there. 

  • Middletown, DE · Member since 2017 · 28 posts · 4 votes
    7y

    @Rio Peterson

    I think the fact that you are uneasy about it, you have identified a bunch of red flags, and it seems that your gut it telling you to steer clear is enough for you to STEER CLEAR!

    My opinion...

  • Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    7y

    I may never partner with anyone because of this...

    ...but if I'm going to partner with someone, every card available better be on that table. We are going to take our time to walk through an agreement. A partnership needs to be beneficial to both parties. And document(s) need to be drawn up alluding to that fact.

    Oh, and I better know you like the back of my hand, or else I'm not going to do it.

    If this guy wants to take the time to "lay out the framework" and you get your answers from it, then great. I work in operations for a living and my gut would say slow down, talk through this, don't put a timeline on it. We need to vet this out so its mutually beneficial. If he tries to talk to you into moving quickly and doing whatever he wants, then it tells me one of two things -- either he doesn't have his stuff together and I don't want to partner with someone like that, and/or he's playing me, and I don't want to partner with someone like that.

    I may have unrealistic expectations for a partnership, I don't know. The only partnership I've ever been in is what I have with my wife, and I trust that woman more than myself.

  • Las Vegas, NV · Member since 2018 · 100 posts · 140 votes
    7y

    @Rio Peterson

    If you feel you have to ask the question, you already know the answer......

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Charles Worth:

    @Rio Peterson

    Just thought I would chime in and I assume you know this but if you are looking to leave your job you would not have a securities license. You can only hold a license if you are employed with a regulated BD as far as I know (by license I assume you mean registered person). Something that happened in your past like a bankrupcy or other issues would need to be disclosed if you wanted a license again but with a certain timeframe of not working you will not have a license. 

    Also, I would point out that, at least in my opinion, it could just be like cold calling brokers. They always tell you that you will be a millionaire bla bla bla. One in X number actully are and the rest flame out. Its worth it for the guy speaking to you because you are going to make money for them. Its not like he offered you 50/50 split for doing nothing. You are doing the work as I understand it and getting rewards and not even in cash but in deal credit right? In almost all deals the money gets paid back first, so you only get paid if the deal does really well. Yes you can make a ton of money, you can also make 0. Its very risky. Like commission sales poeple its just high risk high reward. Least that is how I look at it. I think the assumption that many have that all RE makes money and lots of it so everyone gets rich is nuts. That is the real issue and why not everyone, in fact very few, would probably jump at the offer as I read it. 

    He could also just be a predator hard to know without being there. 

     Yes, if I leave my BD, the licenses will be inactive and I have 2 years to find another BD before I would have to re-test for all of the licenses. I just got all my licenses, so I'm not willing to give those up that easily. 

    The profit part is what I thought was a little strange, but I could be wrong. I know that all who invested gets paid if the deal does well, but it got complicated because I don't have money to contribute. Rather, I would be used to manage the flip. The setup this guy did was that as he was pooling together from other investors, he would include in the total pool an amount equal to my current salary/benefits/bonus/etc to pay me (as a way to convince me to leave my job). In addition to this guaranteed profit, I would get a % of whatever profit is left over. 

    I don't know too much about partnership payment structures, but when I imagined being on the receiving end as the contributing investor, it didn't sit right with me that we're guaranteeing a set profit to one person whereas everyone else isn't. Doesn't seem fair. I understand if everyone will get a set % of the profit (and the person managing the flip would get a higher %), but he wanted to give me a set $ AND a set %. Is this a normal practice? 

  • Real Estate Agent · Member since 2019 · 14 posts · 5 votes
    7y
    Originally posted by @Joe P.:

    I may never partner with anyone because of this...

    ...but if I'm going to partner with someone, every card available better be on that table. We are going to take our time to walk through an agreement. A partnership needs to be beneficial to both parties. And document(s) need to be drawn up alluding to that fact.

    Oh, and I better know you like the back of my hand, or else I'm not going to do it.

    If this guy wants to take the time to "lay out the framework" and you get your answers from it, then great. I work in operations for a living and my gut would say slow down, talk through this, don't put a timeline on it. We need to vet this out so its mutually beneficial. If he tries to talk to you into moving quickly and doing whatever he wants, then it tells me one of two things -- either he doesn't have his stuff together and I don't want to partner with someone like that, and/or he's playing me, and I don't want to partner with someone like that.

    I may have unrealistic expectations for a partnership, I don't know. The only partnership I've ever been in is what I have with my wife, and I trust that woman more than myself.

    I was given 48hrs to decide, so his intentions could even have been a mix of not having his stuff together and wanting to play me. He needed funds for his next deal, which was expiring the day we met (supposedly). I tried to postpone viewing his properties to the following week, but he said either we see the houses now, or the deal falls through. He needed to give them some kind of confirmation that he was buying the property that day. As for being played, his 11 bankruptcy filings told me that he is capable of taking the funds and running away. 

  • Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
    7y

    @Rio Peterson "just say no."  

  • Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    7y

    @Rio Peterson sorry to hear that this happened, but a good learning experience for all of us.


    I'd be open to partnering with someone, of course, but a good partnership like any others in your life (friends, family, a significant other) all take time, knowledge, and trust to cultivate. Some people don't want to wait for those to materialize, but I'm of the opinion that those things are the basis of a good partnership. Every aspect needs to be identified and identified in good faith to the satisfaction of both parties. This may destroy most of the potential partnerships out there, but the work now prevents the headaches later, I think.

    Hopefully something good, meaningful, and satisfactory comes across your desk soon. In lieu of that, continue getting your own house in order -- reduce debt, save money, cultivate your plan, and start working on your own. Nobody will have your back better than yourself! :)

  • Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
    7y
    I hear you and there are ton of red flags here beyond just the payout but I was mostly just addressing the payout because its not as crazy as it seems.

    A dollar based fee for managing the development process is not abnormal. I would look at how much he is taking. Maybe he gets a fee higher than what he is paying you. So he just outsourced it for pure profit. There are probably other fees he gets as well. 

    For the % he is paying you but I assume his payout is much higher. 

    So basically you do the actual work and all he does is have investors (which he probably already has) and maybe the deal though he could be paying out someone else out there for that. End of the day you do the ongoing work he gets paid. he can now do another deal somewhere else. Further, by hiring you he could also be trying to protect himself. if you do a bad job he just blames you and maybe takes away your economics. You do a good, job he didn't have to do the work and he can use you again for another job. 

    He can keep doing this until he has to declare bankruptcy or he hits some good deals but if he has a good asset protection plan and can do a ton of deals he will have money to play with it. If people like you do the actual project work he can just keep doing deals. 


    Originally posted by @Rio Peterson:
    Originally posted by @Charles Worth:

    @Rio Peterson

    Just thought I would chime in and I assume you know this but if you are looking to leave your job you would not have a securities license. You can only hold a license if you are employed with a regulated BD as far as I know (by license I assume you mean registered person). Something that happened in your past like a bankrupcy or other issues would need to be disclosed if you wanted a license again but with a certain timeframe of not working you will not have a license. 

    Also, I would point out that, at least in my opinion, it could just be like cold calling brokers. They always tell you that you will be a millionaire bla bla bla. One in X number actully are and the rest flame out. Its worth it for the guy speaking to you because you are going to make money for them. Its not like he offered you 50/50 split for doing nothing. You are doing the work as I understand it and getting rewards and not even in cash but in deal credit right? In almost all deals the money gets paid back first, so you only get paid if the deal does really well. Yes you can make a ton of money, you can also make 0. Its very risky. Like commission sales poeple its just high risk high reward. Least that is how I look at it. I think the assumption that many have that all RE makes money and lots of it so everyone gets rich is nuts. That is the real issue and why not everyone, in fact very few, would probably jump at the offer as I read it. 

    He could also just be a predator hard to know without being there. 

     Yes, if I leave my BD, the licenses will be inactive and I have 2 years to find another BD before I would have to re-test for all of the licenses. I just got all my licenses, so I'm not willing to give those up that easily. 

    The profit part is what I thought was a little strange, but I could be wrong. I know that all who invested gets paid if the deal does well, but it got complicated because I don't have money to contribute. Rather, I would be used to manage the flip. The setup this guy did was that as he was pooling together from other investors, he would include in the total pool an amount equal to my current salary/benefits/bonus/etc to pay me (as a way to convince me to leave my job). In addition to this guaranteed profit, I would get a % of whatever profit is left over. 

    I don't know too much about partnership payment structures, but when I imagined being on the receiving end as the contributing investor, it didn't sit right with me that we're guaranteeing a set profit to one person whereas everyone else isn't. Doesn't seem fair. I understand if everyone will get a set % of the profit (and the person managing the flip would get a higher %), but he wanted to give me a set $ AND a set %. Is this a normal practice? 

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