Greed Got the Best of Me in a Real Estate Deal: Don't Let it Happen to You

So, you are going to buy a home, - or a property somewhere - and you think it's a straight-forward deal. You must understand something as our society becomes more corrupt, apathetic and downright materialistic and greedy: BUYER, BEWARE! BUYER, GET YOURSELF EDUCATED!

I could tell you stories by the truckload, but I'll just tell you one; Mine. It took me losing everything and acting as my own attorney "in propria persona" in court against a fellow I thought was my friend. Here's what happened.

First, I got greedy; I wanted to get my hands on the money to develop my properties (I didn't know beans about money then). So I went to someone whom I had known for 30 years. He had a loan brokerage company, where they loaned what's called (in the business), "hard money." They call it "hard money" because they loan on raw land and any other project that suits them. They treated me well, and since I knew them well - at least I thought I did - the papers I signed were just a formality. In the end, I learned that they were fighting the largest legal action ever brought against a broker at that point, but they didn't reveal it to me. And when I went to them for rectification, they again told me - and I believed them - not to worry, that the foreclosure papers were just a formality and they would refinance the deal. Of course, this was all untrue. Thirty borrowers lost everything. I was the only one who sued, but had to act as my own attorney. Eventually they settled for a pittance. But by that time I was so worn down and distraught, I was glad to take their pittance and start over just to be rid of them. But the education I received from this was worth far more than it cost me, and the courage I found in myself to go against them was the best part of the deal; now I am afraid of nothing.

Now, here's what you have to do (with a few stories thrown in) when you are going to buy a property, a new home, an old home, or anything else.

My uncle became acquainted with Bill Harrah, former owner of Harrah's in Tahoe. One day they were sitting by the pool in Stanley, Idaho, and my uncle asked Mr. Harrah if he had a rule that helped him become so wealthy. He replied, "It's my money, I spend it the way I want to, or I don't spend it." The money that is in your control is "your money." Always follow this rule; it means you are in charge of spending it, not the person who is selling you something. Always abide by this rule; always.

I have added something to this rule that has helped me immensely: if the purchasing process begins to have some sort of difficulty, like I can't make up my mind on something, or someone is a little pushy, or the product is not exactly what I want (and I mean exactly), then I follow this rule: I wait for three days before I buy. Now here's the logic: if the deal is good it will be there at the end of three days, nothing is gone forever, I don't care what it is. If it's not there at the end of three days, it will surely become available again; and by that time you may have re-thought your purchase and decided you really didn't need it anyway. Always follow the "three day rule." If someone tells you, you will lose the sales price if you don't buy now, well, if they want to sell it to you they have to give you the price or else you won't buy. To heck with them! You would be surprised how little I have paid for things by just waiting for the deal; there's always one out there; always.

Stay away from credit. Yes, I know for some that is not possible. But credit properly used can be a good thing; in this country however, credit has become the slaver of society. Here's some good advice: pay off your home and never borrow against it, unless you are entering into a business deal - best is real estate generating cash - and then only if you have to. Borrow on anything else but your home. Keep that and as much positive cash flow real estate intact. This advice was given to me by a very successful gentleman who also told me this: people need only three things; food, shelter, and clothing - remember, I said "need." You also have to have money for that, so it makes good sense to fulfill your "needs" first.

Here's what an other rich friend told me: "You know, it's a strange phenomenon if you have allot of cash in your pocket. You go in to purchase a car, for example, and the sales person will dun you with the absolutely lowest price to make you buy; whereas, a person who needs to finance the deal, well he dickers over the highest price." Always remember, cash is king.

So when you go to buy your property, save and gather together as much cash as you can; I recommend carrying a big wad in your pocket and flashing it just so the seller won't want to lose the deal - believe me it works. I know another millionaire fencing contractor who has had in his pocket as much as thirty thousand dollars at one time. He laughs and tells me how easy it is to buy something when the seller gets his eye on that cash. Why cash, because it shows you don't need financing, although you are going to use it for the deal; but the more cash you have, the less your payments will be, and the more powerful buyer you become - you'd be surprised how easy it is to walk away with a load of cash in your pocket, instead of sitting there and hoping your credit will clear - come one, you know we all worry about that. But not me, I use cash only.

The next thing you must ask yourself (that's why I always wait three days before buying anything that is more than five hundred bucks) is; do I really need this thing I want to buy; why do I want to buy it - you really had better give some serious thought to these questions and be really truthful with yourself. You must know ahead of time if this is going to be a winner for you. Never buy anything, I mean anything, especially property, "on the come." Too many people purchase properties thinking that tomorrow things will change to their benefit, they will make it happen, and they will succeed in the deal (well this does happen sometimes, but very seldom - and I can almost guarantee you, it won't happen to you). Buying "on the come" is a sort of sickness called "greed." It gets hold of us and no reason, no matter how sensible, makes us change our course. There are two things that destroy our financial matters more than anything else; "greed and avarice." Know what these are.

Now let's get down to the buying process.

You have found a home or property you want to buy (we will deal with a new home). You go to the subdivision, or lot, and you are impressed from the outside with everything you see. You really like the place. You feel great about it. It seems to have everything you want. So you contact the seller (in the case of a new subdivision you go by the seller's office). You find that the price is right, so you ask to take a look. Wow, you really like what they have done, the nice carpet, the staircase, the location, the landscaping, the fencing; and you especially like the kitchen and the master bath; and all of the other things you see. The price is in your buying range, say $350, 000. You feel comfortable and secure, because there are already buyers in their new homes, and everything seems to be terrific. But what do you really know about the place? Almost nothing. Now you might think this is getting too strict, but I have seen contractors paint over problems before they could be seen by the inspector; and I have seen door frames put in with a total lack of craftsmanship, and many other hidden faults - some structural.

So what do you do? If I was buying a new home, believe me, I would pay for a home inspector to inspect the premises and tell me exactly what I am buying. I would want ot know the type of tile - ceramic or porcelan - I want to know the exact model of any fiberglass tub - they even make contractor grade whirlpool tubs - and for darned sure, I would want elongated bowl toilets in every bathroom. There's a whole bunch of stuff I would want to know because if I finance the whole amount, or whatever amount I do finance - if I keep the house for the term of the loan I am going to pay about 2.5 times the amount of the loan. So the place is not going to cost me $350,000, but about $875,000. Now I bet you never even thought about that, because when you finance it's the payments one thinks of first.

You have to have the home inspected- for example, your new cedar fence looks terrific; but one to two years down the road, if it's not the right type of cedar, it will harden and crack, and the posts will start rotting. And you will have to maintain it: remember, you are not living in an apartment, you are buying your home.

These are some of the things you will need to know - and get it in writing without fail, insit upon it - remember it's your money.

1. Ask to see if there are any "CC&R's." This document tells you if there are any restrictions to your buying in the subdivision - they are supposed to give you a coopy of this document - read it thorughly. It's called Conditions, Covenants and Restrictions.

2. Ask if there are any bonds that you will have to pay - now or at a future date.

3. Ask for a copy of the inspection cards or paperwork on the home - you must have this in your files; they can get it for you. Insit upon it. Also ask in this regard, if there are any inspection failure letters from the bulding official; you will want a copy of those also for your records.

4. Ask them to give you all the information you request in writing before you put any money into the deal or sign anything.

5. If they say they are going to do something for you at a later date, such as install a new granite counter top, make the sale contingent upon their performance (have an attorney write this contingency). That way you can back out if they don't perform on time.

6. Contingencies are a great way to cover yourself: for example, let's say you are told you can obtain a loan at a certain price and you like the deal; make the sale contingent upon obtaining that loan. For whatever you don't have in your hand that you are going to want, make a contingency for it. Believe me, if they are not going to perform, you will run into a brick wall; that's the time to leave; i.e., if the contingency is that important - you must be the judge.

7. Get documentation as to the quality of every important thing in the home; roofing, appliances, cabinets, windows, doors, locksets, carpeting, and all warranties - I want to tell you something here about locksets. I used to inspect HUD homes in foreclosure. Almost every home I could enter by the front door with a battery driven drill and a pair of channel-lock pliers, and I could do this in less than 3 minutes without destroying anything but the lockset. But the hardened locksets ran my batteries down. You need to know the grade of your front and rear door locksets and get the paperwork on them. One more thing - almost every builder keeps a copy of your key for future warranty work. If you don't want that floating around, change the locks. I have had copper wire stolen, and doors taken right off the hinges from new homes.

8. Before you sign anything, especially the loan documents, READ THEM THOROUGHLY AND UNDERSTAND THEM. Don't sign anything until you have completely read it at home, uninterrupted by the sales office staff. Make notes about your questions, find someone who can give you straight and conservative answers. I can only tell you, after the documents are signed and the deal made, if something turns out bad, that document is what the court is going to look at.

9. Know as much about the deal as you can know. Even after you move in you will find things that go wrong; water leaks, a garbage disposal where the dish washer plug has not been removed; badly painted areas of your ceiling; door frames not attached properly, especially at the bottom; even short wall runs by the doors will sometimes not be anchored.

I have one last bit of information I bet you don't know: when a banker loans you the money for your home, or gives you a credit card, or finances anything else for you, ask yourself this question: Is the banker giving me any cash? The answer is no, generally "no." When you buy a house, and the reason you sign a "trust deed," (which you must thoroughly read) what happens is this. The lender hands over a check that is tied to a checking acount that contains digits on a book and no cash. Because of the bookkeeping system used by business, this enables the banker to use your debt as an assett for which the banker can obtain cash that is used in many other transactions. That is why obtaining cash on a credit card has a fee attached. Bankers make 46% (more or less) on credit cards. In fact, using cash, one of my old friends, a CEO at a large banking institution told me, he could make $140,000 per month from a good ATM location. Now how's that done? All people do is take money out from there, right? But consider, that money is used over and over again- and its numbered, tied to an account, because it is a note. So if you lose your home, or property, the banker gets a pretty good asset for almost nothing - at least that's the way I see it.

Buying a home is serious business. You are going to work hard, sacrifice, go without, just to make those payments. If things do go wrong - go right away to the lender and lay out the situation; have a plan in mind and whatever yo may promise, be sure you can live up to the promise - stay in touch; but don't just give up your home and walk away. Find out what your rights are, do your best to preseve what you have paid for - oh, you see most people lose thier home in the very first years, that's when the payments are almost entirely interest (or profits) to the banks. You don't pay on the principle until later - maybe you are able to make double payments. Look at all your options before making this very big decision. In the end, you will not be sorry, you will be the one who calls the shots.