Complex Plexes

I had a delightful chat with Ginny the other day. She is a referral from someone I know. That particular person once wanted to rent a home with such wild and unrealistic expectations we didn't work together. Come to think of it, that person actually knows Mrs. Worrier, another specimen with wild and unrealistic expectations...

I am seeing a pattern.

Anyway, Ginny called. She and two friends have been reading investment books and want to buy either a duplex or a four-plex (not sure why a tri-plex isn't part of the formula) in Mesa. But, it has to be a bargain and it has to be in a safe neighborhood.

Of course it does! All investors want to give their properties away. And of course, all apartments have to be in safe neighborhoods. That's where they are all located! Just ask Marty, who when moving to Phoenix in his 20s lived in an apartment where a human leg was discovered. Safe.

Ginny was so sweet. She was so eager. She was so well-read on the matter of buying investment properties. However, it was obvious the books she was reading were written in 2001 and were written to sell books, not income properties. For example, one of her books--and the the one she glommed on to for the majority of her wisdom--talked about how one could buy one of these plexes with little money down. According to the author, there are two fabulous ways to do this. The first being seller financing, which is a great method if you have a foolish seller and a soft real estate market. It is also somewhat questionable since 2009 when the Dodd Frank Act came into existence.

The second way was with an FHA loan, which allows the borrower to put as little as 3.5 percent down on a home they will be living in. When I pointed out the significant flaw using FHA, she said she would just tell the loan officer she was living in the fourth unit. Yea, because loan fraud is no big deal. And no loan officer would see right through that. Plus, I guess, I am supposed to turn the other way once I know this, right? I did explain to her people (such as real estate agents and loan officers) go to prison for loan fraud. She found that to be a shocking notion--prison that is, not loan fraud.

The way we left it was with me giving her the name of a couple of loan officers who might be able to help her with hard money lending (think Guido's loan service, with nicer terms and who believe kneecaps are a God-given requirement in life). I also contacted the loan officers to alert them to her "Hey we can call this our primary residence scheme and nobody will mind," philosophy. One loan officer told me they have programs for investors that might work and keep everything legal. Glad to hear it.

I also called my commercial real estate friend Bill. I have sold plex properties before, but it has been 10 years since I touched one. (I also tried to buy a couple in my investing hey-day, but the numbers didn't work out). Bill said he would help if I needed it, which is good, because if Ginny actually gets this plan off the ground, I will need it.