First Rental Property

Hi Everybody,

I have an interesting story to share with you today.  Before I begin telling the story, I want you to pay attention to the following points as you read this article.  As a real estate investor you must:

• Always protect your money
• Never blindly trust anyone
• Always get second opinions
• Make sure you have detailed and valid joint venture documentation
• Always be careful with regards to all aspects of real estate investing

The story that I am about to share is currently a very controversial topic that many real estate investors in Ontario and Alberta Canada are learning about.  I have noticed that no one yet has talked about this on real estate blogs for whatever reason, even those who know what is going on.  I wanted to explain what is going on because I think that this story can serve as an example and help to educate aspiring real estate investors.  If I can help some of you reading this to learn from this example, then I am doing a good thing.

Here is the story…

There is a well know real estate investor based out of Ontario, Canada that is in deep trouble right now.  This investor managed to purchase approximately 50 properties. 30 of these properties being located in Ontario and 20 of the properties being located in Alberta.

These properties were primarily purchased using joint venture money.

This means that the real estate investor arranged a first mortgage on the property, and the joint venture money served as the down payment during the purchase.

This investor re-created this 50 times.  During this time, this investor became very well know and was considered a ‘big player’ in the real estate investment circles in Ontario and Alberta.

The you know what is hitting the fan right now as this real estate investor’s portfolio is collapsing, and all of the investor’s wrong doing are being exposed.

Here is what is happening:

All of the real estate investor’s joint venture partners were never registered on the title of the property.  It is not clear at this point how this detail was missed.  Some observers are speculating that it was wrong doing on the part of the real estate lawyer involved with the closings.  Again,it is not clear at this point how this detail was missed.  However, this detail was missed on the majority of this portfolio.  Which means that on paper, the Joint Venture Partners who supplied the money to the real estate investor has NO ownership in the property.  When I say ‘missed’, this was no accident on the part of the real estate investor.  Rather this detail was missed on purpose.

Observers who are following this situation, such as some real estate lawyers, are commenting that the real estate investor in question then put 2nd mortgages onto the properties.  The investor was able to do this without getting the permission of the joint venture partners because on paper the joint venture partners have no ownership interest in the properties.  Some are saying that the real estate investor then pocketed this money from the 2nd mortgages.

If this was not enough, the real estate investor then went onto put a 3rd mortgage over the entire portfolio of properties (a blanket mortgage).  Observers are also commenting that this real estate investor pocketed the money from the 3rd mortgage.

Since this real estate investor was so highly leveraged now, a few vacancies and non payment of rent by tenants caused their house of cards to come tumbling down.

What has the impact been of this fraudulent activity:

• Some observers, such as real estate lawyers believe that if this entire portfolio collapses, it will result in the Canadian Government stepping in and beginning to regulate joint venture agreements in Canada.

• The joint venture partners who invested with this real estate investor have more than likely lost all of their money.  Their equity was deleted the moment the real estate investor put a 2nd mortgage on their respective property without the permission of the JV partner.

• Observers of this situation, and some real estate lawyers anticipate that this real estate investor will serve jail time for this.

What lesson can we learn from this:

When something like this happens there are always so many lessons that we can learn from this.  The one thing I would like to stress to those people looking to get started with investing in real estate is to:

• Always be careful in all aspects of real estate investment
• Always protect your money
• Never blindly trust anyone
• Always get second opinions
• Make sure you have detailed and valid joint venture documentation

Again, there is much more information that is going to be coming out with respect to this story.  Some of the information that I have presented may not be 100% accurate.

I would rather share with you the information that I have thus far so that you might benefit in some way by reading this.

What are some of your thoughts with respect to this real estate investor and the fraudulent activity? What sort of punishment do you think this act deserves?  You can place your comments below.

As an aspiring real estate investor, it is so important that you educate yourself and learn from experienced and trustworthy people.  I know a lot of real estate educators and bloggers.  However, two of the most sincere and straight forward real estate investors and educators that I have met thus far are Julie and Dave from Rev N You.

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