This from my Arizona Republic real estate column (permanent link):
Yet another rental property scam operation hit the skids last week. I would tell you the company’s name, but, alas, its name is legion.
This particular scam works like this: The company acquires residential properties that it then promotes to out-of-state investors. Think of the operation as kind of a used car lot for houses. As with used cars, the sales rep works for the seller. The investor is on his own.
Buying real estate without representation is usually a poor idea, but don’t worry: It gets worse.
The sales pitch behind scams like this is “one stop shopping.” Investors get to buy the seller’s property, exclusively from the seller’s limited inventory. They get to take the seller’s word about the resale value of the house or apartment — along with the seller’s projections on rents and vacancy rates.
Even better, investors get to use the seller’s lender. There will be inspections, an appraisal and title and escrow work — and the seller will be taking a kick-back on every fee the investor pays.
Once the home closes, the seller will become the property manager for the rental. There will a lease-up fee, of course, but that won’t be payable until a tenant is procured. But there will be a monthly management fee whether the home is vacant or occupied.
The lure of “one stop shopping” is a ruse, of course. A rental home is a business, and investors must anticipate and provide for reasonable business expenses. But nothing costs as much as it does when someone says, “Don’t worry. We’ll handle everything for you.”
The state has shut down several of these scam operations in recent months, but others are still in business. Your only real protection is caveat emptor: If a seller — of anything — offers to handle everything for you, be on your guard.
There is money to be made in rental homes in the Phoenix area right now, but it’s all cash flow, not price appreciation. If a “one stop shopping” scam operator eats up all your cash flow, you may never profit on your investment.
