A Home Inspector’s Weblog by Frank Schulte-Ladbeck

exploring homes and the lives in them around Houston

Investor as Broker

I have seen quite a few references to a type of investing scheme being mentioned on the internet. The idea is to be involved in real estate, but not by purchasing the property yourself, or so goes the idea.

I have written on this topic before, but not in this forum. Although the scheme is not described as such, the idea is that you as an investor sort of take the place of a Realtor, acting as the broker for a sale. Home sales can take place without a Realtor or lawyer, and with many people considering the FSBO method with the idea that they will save a great deal of money, the belief that an investor would find a way into this market is understandable.

This method of selling is portrayed as being beneficial to all involved, and if you follow the script, you do seem to be helping others and yourself. The investor has to find a home that is on the verge of foreclosure, stepping in to be the guardian angel by assuming the payments for the house while finding a buyer quickly. The longer it takes to sell the house in this method; the more money you loose on the deal. The seller gets out of a house they cannot afford, gaining no additional money from the sale. Basically loosing any equity they may have built up. The buyer will get a house for no money down, and at a cheaper price than the market average for the area. The investor will walk away with the difference between what was left in the original loan and the sale price, as well as possibly a little extra each month if the loan for the buyer goes through them. If everything is handled well, everyone does get what they want, but you might not consider it fair.

The method used for obtaining the house by the broker will conceal liens from the buyer, and in many cases the buyer will find themselves stuck with the seller’s debt in the form of these liens. This has been the main area of abuse associated with this type of sale. Due to the fact that this has happened a little to frequently, states have been dealing with this investment scheme. In Texas, a new law will take effect in January 2008 to prevent the buyers from knowing about the liens, giving them an option to end the sales contract. Investors who knowingly or unwittingly use this method to sell a house with liens will find that they may be left holding the bag.

This method may not be fair to all involved, but it can be a great help to those in trouble. The plan is also open for easy abuse by a dishonest investor, or it is easy to handle badly by a new investor. If you are considering using this method to be involved in real estate without owning property, go over the details and behave honestly in your transactions if you wish to avoid problems for yourself.

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