In the life of every investor some rain must fall

The first rehab project I took on was a long-distance Go-Zone property. I was introduced to a man named RB by a fellow investor in the community, LK, who claimed she was a very senior/advanced investor. We got on a conference call one fine day and RB was telling us about properties he had put under contract in the Gulf of Mexico area -- in New Orleans and Pass Chrisitian, a presigeous town about an hour east on N.O. that he would 'assign' to us.

The deal was that he would charge investors $25K-50K (depending on the house) up front as an assignment fee. With this came a contract that he would supervise the construction of the storm damaged property. My assignment fee was $25K, and the house was being sold to me at $250,000, with an After Repair Value (ARV) of $395-425K (according to appraisal). The repairs were to cost $30K and the profit to the investor was to be $75-100K.

RB said that he had a "turn key" investment for long distance investors. He would take our money, find the contractor, supervise the construction, and then sell the property using his "auction" techniques once completed. He promised, in writing, that construction would be finished in 3-4 weeks (on my particular property) since there wasn't much damage. Being a novice investor unfamiliar with construction, I trusted him. I figured he knew what he was doing -- afterall he was a national speaker and was slated to speak the Learning Annex soon. It didn't occur to me that someone could just be saying this to make a quick buck off my assignment fee.

I wired RB $25,000 in early July '06, exactly a year ago now. I was told that he would be getting the financing and that the house would close Aug. 15, 06. And that it would be 100% financing, so no further money would be required. He also said the type of loan he was getting would have no monthly payments during construction.

Aug. 15th came and went, and no close. In fact, hardly any calls from RB. I was starting to get worried. Then Sept 15th rolled around (which meant he had already had my money for 2.5 months at this point) the loan finally came through. HOWEVER, it was under completely different terms. The loan required me to come up with a 20% downpayment (roughly 66K), and required me to make payments during the construction period. I was shocked! However, I was still very much caught up in the fantasy that RB had painted. Also, if I didn't close, I would lose my $25K that I had already given to RB.

After some financial acrobatics, I was able to find the money required to close. RB begged me to close and told me to use my 401K or retirement money if necessary, even to borrow from my mother. He said the money would be in and out of my account in 60 days, since the house would be sold by then. I didn't want to risk the 10% penalty for early withdrawl, so instead I chose to liquidated my stock portfolio and use credit cards.

In addition to the loan terms being totally different, the amount the bank would accept for "repair draws" was totally different. Instead of $30K, the bank required $94K! However, RB said he had a "Latin Express" crew who would be doing the repairs and that the bank's estimate was highly overblown. Again, I believed him.

I went to visit the property just after it closed. To meet the contractor and see everything for myself. (Yes, another ameteur mistake, brought on by being excessively trusting).

TO BE CONTINUED...