NOVEMBER 21, 2002
Posted by Eric C on November 21, 2002 at 08:23:34:
Years ago a reporter asked University of Texas football coach, Darrell Royal, why his teams didn't pass more and continued to rely on an outdated running game.
Coach Royal replied that he didn't like the odds. "When you pass", he explained, "there are only three things that can happen and two of them are bad."
That's kind of the way I see some of those "foreclosure rescue specials" we all hear about daily. What do think the real odds are of a "good" thing happening for you here? (hint -- it's probably a good deal less than one out of three)
If you're honest with yourself, I'll bet you already have reservations about this type of deal -- so what's up?
Nothing Down? Heck, 10K won't be nearly enough if things go wrong on a deal like this. And you will be right in the line of fire -- kind of an "innocent bystander" kind of thing, right? Far from rescuing the home owner, you'll be the one in need of rescue.
Yes, I know you've been told that deals like this are done all the time, but the ones we get to read about in the newspapers don't turn out so well. Trust me: seeing your name in print under these circumstances will not be a pleasant experience.
But it can get even worse and I don't mean TV news crews either. Newspaper stories are (usually)bad, but court documents are far worse.
This type of deal isn't structured for your benefit or protection. It's (usually) the promoter's deal; you are just the means to an end. You put up the credit - and some money - and everyone walks away happy.
In your dreams.
On the other hand, if you like the idea but not the structure, then re-write it to protect yourself. Stay in the deal but realize you could be in it for a very long time. That is what you want, right?
One more thing -- partnerships rarely work out on small deals -- too little money, too much work. People seem to have a way of taking advantage, you know?
So before you jump in here, why not take the time to check this guy out. You know, bank references, suppliers, contractors, credit report, etc. The bank or mortgage company may think he's wonderful, but I would want far more information.
How long has he been in this business?
How many projects is he working now?
How does he plan to get you off that note if lending requirements continue to tighten up?
What would I find in the public records if I took the time to look? Lawsuits? Evictions?
You're beginning to get the idea, right?
Here's my point: you may find a great guy with a pretty good track record and who just doesn't know how to structure a deal like this to properly protect his investors.
Or, this could be a situation where he's done well up until now because the overall market has done well --no real skill needed.
Last, he could just be a bad guy who will run away at the first sign of trouble. Period.
In my experience, bad people are fairly rare. Poorly structured deals are not. You can be just as dead either way. - Eric Chunn