Monday, June 23, 2008 Scam

One of my hobbies (if you can call it that) is real estate investment. It's worked out a lot better for me than playing the stock market. And with millions of homes predictably going into foreclosure, my wife and I are looking into picking up some property on auction. It's my understanding that its possible to buy foreclosers at around 80% of the appraised value or even less if you get lucky -- but you have to have cash.

Anyway, on Friday I told my wife to find an auction for us to go to so that we could see the process work. I want to go to about three of these auctions so I can understand the bidding process, the psychology behind it, and get some realistic expectations about the return on investment. We ended up going to an auction held by at the Seattle Convention Center. Since the auction was on Sunday morning and we were busy all day Saterday building a fence we didn't have time to checkout properties before the auction. Also I didn't know that my wife had signed us up for a land auction. I wouldn't buy just land because I don't know enough about land to make a good investment decision.

About two minutes into the event I became suspicious that it was a scam. I once befriended a con artist that moved nextdoor to me and it took my trusting soul about 6 months to figure him out. Now I can sniff out con artists in minutes. I am not even sure exactly how it is I recognize them, but I just do. As the auction progressed it became more and more apparent that it was a scam and my wife and I watched people plunk down tens of thousands of dollars to buy land sight unseen, most of it out of state. I could hardly believe it. My wife wasn't totally convinced that it was a scam and she was busy writing down the prices that the properties were selling for. After the auction we drove to two of the properties that were nearby and this is what we found:

Property1: Sold for $53,000. It was located about 15 minutes north of Seattle. It had a creek running through the middle of the lot, and since you have to leave a buffer of 25 to 100 feet on either side of a creek the land wasn't buildable. I wonder how long it will take the buyers to figure this out.

Property 2: Sold for $22,000. The area was very rural and when I got there I couldn't quite tell where the property boundaries were. The neighbour was out mowing his lawn so I asked him about the supposed property. The lot was indeed there right next to his. It was a small lot, part of it was being used as an easement to the lot behind it and about 1/2 of what was left was wetland. What was left over was too small to build on.

Anyway, the con artists were legally selling property that was worthless. The sales commission was 10% of the purchase price and that is probably where they make part of their money. Once the people find out that they have bought a piece of crap and figure out that they can't sell it, they probably hookup with to sell the property and pay a sales commision again.



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