If you have heard the term “Zombie” in real estate investing it is usually associated with mortgages that lenders come back years later to foreclose when the homeowner least expects it. Actually it is a major problem in certain parts of the country and with some lenders. However, a Zombie Investor is a different animal and one I am seeing more and more.
I guess this came to a head last night as I answered a call from a wannabe investor. She asked if a specific property was a deal since the Realtor® said she could “steal” it from the homeowner for $5,000 below the listing price. The Fair Market Value of the property was $125,000 and the listing price was $165,000.
The seller had paid $80,000 a few years ago and completed a very nice rehab of the property which may have cost as much as $30,000. If she sold it for FMV, she would have essentially only broken even with holding costs. The seller is certainly entitled to make a profit but the wannabe investor was being seduced by the agent to take the deal. Again, nothing wrong with salesmanship, but my question to the investor was, “How will you pay for it and what is your end-goal with it?”
She answered she thought she would rent if for $1,500 a month which was reasonable. The next answer was she didn’t have the money to buy it so she would use hard money. At 12% a month the cost of the money would be $1,550/month in just interest payments or $50 more than her rental income. This doesn’t take into account taxes, insurance and repair costs. This actually is a strategy that national gurus teach so that after losing money for years, the investor may be able to sell at a higher price after rehabbing the property damage from the tenants but you would have to feed a money pit for a long time.
As I expressed my concern about her strategy and the high price, she went into the “Zombie Rising Mode” of how she has been trying to get a deal for a year and been unable to do so. She has had a couple of “mentors” including one who, after she paid her, told her to do nothing yet as the market wasn’t right – yet. That’s a new twist on getting help from your real estate guru!
She had become a Zombie Real Estate investor staggering around trying to make anything work, constantly failing with no possibility of success on the horizon and being killed off over and over again by BSO’s!
She went on and on about the courses she had taken and ones she was considering. I call these the newest “Bright Shinny Object” (BSO) or the slow bleeding of new investors because these courses are well advertised and marketed but provide no support to the purchaser. What you have to ask yourself on any course is, “How’s that working for you?”, if the answer isn’t “great” find out what the problem is – the course, lack of support or simply you.
In summary, it may be best getting the fundamentals of wholesaling under your belt rather than starting with exotic methods that may not yield enough results before you go broke. With wholesaling you should be able to make a steady cash flow and be able to pick and choose the best possible deals to keep for rentals or for rehab projects. Otherwise the wholesalers in your area will be the ones making money from you.
To your limitless success.