Returnonrentals.com buyer BEWARE
A couple of years ago I purchased two 'Turn Key' properties from a company called Return on Rentals. I purchased the properties at the Investor Summit in Las Vegas (red flag alert I know). For those of you that are not familiar with this event, it's put on by Advanced Real Estate Education who is affiliated with other companies like Success Path (Tarek and Christina endorsed) and Flipping Formula (Dave and Pete of Flipping Boston). See my other posts for more information on these outfits.
Anyway, Return on Rentals is a company that buys houses all over the country that are in disrepair, says they fix them up so they are rent-able and sells them to investors. They hook investors up with property managers local to the property and refer insurance companies to insure the property. If someone doesn't have the cash to buy a property they show you how you can use funds in your retirement account with zero tax penalties. They have a close relationship with another company, Horizon Trust, that does self directed IRAs. They make it very easy for you to roll any existing IRA over to a Horizon Trust self directed IRA and Return on Rentals will work directly with Horizon Trust to close on a purchased property. The rent will go directly into the IRA and it's a great retirement account. This all works as promised and it's a fairly simply process for the investor, they do all the work for you.
What they sell you on is that you are getting 10%-12% ROI with the rent you'll collect from these properties. Their numbers are accurate and you will get a good return over a long period of time it's a good investment.
Sounds good right? Well not so fast. Of course there is a catch. The property they sell you is likely in another part of the country and you are completely unfamiliar with the local market. They tell you that they have purchased the property, made improvements and are now selling it to you at a discounted price...$10k off! They show you pictures of the upgrades and give you a list of comps that show that you are getting a fair (even good) deal. Here is where the catch comes in. The comps they provide you don't have cities listed and are not comps at all. When I recently looked up the 'comps' for one my properties I found out they were in different cities and ranged from 5-10 miles away from my property. I then looked at country records to find the purchase history. It turns out they purchased the property SEVEN days before I signed the contract to buy at their 'discounted' price. The price I paid was twice what they paid for it just SEVEN days prior giving them an instant $30k profit. They sold at least 100 properties at that seminar. Do the math...
So now a couple of years later I need to sell these properties and I find that I'm going to lose almost $60k because they weren't worth what I paid. Both were inflated by $30k.
Yes this is my fault for not doing my homework and double checking the information they showed me. I have learned so many lessons over the last couple of years that this would not happen today but yes I was naive a couple of years ago.
Some would say that my purchase was a good one because I did get 11% ROI with the 2 properties just as they said I would. And if I held onto them until I was retired I would likely have a great return just on the value of the property. This is all true, but I unknowingly took an instant $60k hit to my IRA because I was provided with false information and mislead on the value of what I was buying. They pocketed the $60k I lost. Not cool
The moral of the story is check all the facts before you purchase anything from Return on Rentals.