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Money Trap: Too Good to Be True

Margie Pensak

Why not buy older houses, renovate them, and flip them for a quick windfall — especially with online webinar estimates of $200,000 profit on each house?

Tuesday, August 15, 2017

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SOUTHERN DISCOMFORT To some, passing a law to haul off a statue of Robert E. Lee and changing the name of the space it occupies from Lee Park to Emancipation Park is a capitulation to the politically correct and, worse, an assault on time-honored Southern values

T

HE PLAYERS

Name: Shloimy and Ruchy Weiss Age: Mid-to-late 30s Number of Children: 4 Location: Not far from Lakewood

THE BAIT

A get-rich-quick scheme that, although it has already been proven to make money for other people, nevertheless involves substantial risk.

THE BACKGROUND

Shloimy and Ruchy found themselves in a situation facing many young Orthodox families. Shloimy was a couple years out of kollel, and his income from his kiruv position was covering their costs — but just. There was no wiggle room in their monthly budget. With a growing family and no savings, Shloimy began to cast about for ways of earning some extra cash and building a nest egg.

The national media has devoted hours of coverage and gallons of ink over the past two years to the “house-flipping” rage. With plenty of foreclosed homes still for sale after the 2008 Great Recession, a market opened for the purchase and rehab of these houses by investors hoping to recoup their money by selling the refurbished properties when real-estate values rebound.

There’s no doubt about it — house flipping is hot right now. Real-estate analysts report that the practice reached a ten-year high in 2016, with the 193,000 flipped homes accounting for nearly six percent of all residential sales for the year. The trend shows no immediate signs of slowing: In the first quarter of this year, the average gross profit on a flipped house was $58,520.

House flipping is not the only scheme out there promising robust and rapid returns on investment. Established manufacturing concerns in China eager to draw foreign funds — especially dollars — put out lavish promotional materials extolling their financial health and confidently assuring eager but naive Americans that now is the time to climb aboard the bandwagon.

The problem with these schemes, of course, is that they inherently carry substantial risks. Experienced investors know how to weigh these risks — but perhaps more importantly, their balance sheets show the wherewithal to absorb losses as well. Someone lacking the smarts and the pocket change is likely to be overwhelmed by little unforeseen glitches — like a foreclosed house concealing a major structural flaw, or a company located in a faraway jurisdiction with a poorly regulated financial sector.

These problems can lay the perfect trap for an earnest young father looking to strike it rich and provide for his family in style. The siren of these enticements drowns out the little voice inside that cautions: If it sounds too good to be true… it probably is.

Ruchy’s Story

My husband was learning in kollel back when we purchased our home for $220,000. We renovated it and ended up with a really nice home for a great price. A couple of years later, as it became more of a struggle to support our growing family, my husband decided to flip houses as a way to supplement his income. After all, he already had the experience of successfully renovating our own home. An online webinar sweetened the pot by touting potential profits of $200,000. Why not buy older houses and renovate them and then turn them around for a quick windfall? We could even demolish a run-down house and build two new homes on that lot and earn twice the money.

The problem was that we didn’t have any savings at all, or any way to do this. That didn’t stop my husband, though — he was as excited as a kid to get underway. His job didn’t follow a nine-to-five work schedule so he could devote plenty of time to searching out the right opportunities.

I was very, very skeptical about all this, and was not shy about saying so. But my objections that we didn’t have this kind of money just lying around to play with fell on deaf ears. He can be a very impulsive person. I have no clue exactly how he did it, but he somehow borrowed the money for a down payment on a property. (Excerpted from Mishpacha, Issue 673)

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