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Saturday, October 28, 2006

Offbeat Weekend News: Home Rental Scam

Maybe all those reports about the rental market getting tighter and tighter were true. In fact, the market is getting so tight, people are paying thousands to rent places that aren't even available!

Imagine checking on a vacant rental house you own, only to find a family you don't know living there.

It happened this week to a King County man. But the people who were living on his property insist they paid another man they thought was the owner nearly $6,000 to move in.
...
Mike and Lia Lester claim that they and another couple rented the house after seeing an ad on the Craigslist web site.

They met a man they thought was the owner of the house and paid him $5,700 in rent and security deposits and he gave them the keys to the home.

Now, they say they've been scammed.
...
Sean Stewart doesn't know who they paid — but it wasn't him. Stewart owns the house and he's never met the Lester's.

"I feel sorry for anyone who gets screwed like this," he said. "There's no doubt about that."

The problem is Stewart has other renters moving in next week, so he says the Lesters have to go.
Doh. Seriously though, that would really suck. How would you even protect yourself from a scam like this? Demand to see the title to the property before moving in?

Of course, if the Lesters had just gotten on the equity escalator, they wouldn't have put themselves into such a vulerable situation to begin with.

(KOMO Staff, KOMO, 10.28.2006)

21 comments:

disgruntledengineer said...

Well, to me, this story shows the disadvantages from BOTH the renters' and owner's sides. The disadvantage of the situation from the renters' view is obvious. However, we see as an owner, particularly one of an investment property, just how troublesome it is to get good renters. Moreover, the Lesters themselves can actually be the scam artists, trying to scam Stewart. Either way, this situation sucks, whether owner OR renter.

WaitinginMarysville said...

Anyone can find the name of the property owner at the county assessor's site online.

ron said...

hello

ron said...

Im signed in

ron said...

I personally think this sucks.. why the heck do I want another dame account. I have to many already.. wish this would go back to just letting you post. this probably the only time you will see me post.

I do have a interesting story from yesterday.

Grivetti said...

Owning is just awesome, isn't it?

Gimme a break trackbike, ever heard of the word 'anecdote'? I'm surprised your own personal Tyler Durden hasn't paid you a visit yet...

ron said...

Heres the Story..

Yesterday I was out cruising Garage Sales on the eastside.

I was in Bellevue and on the Sammamish lake road saw a Garage estate sale sign went to visit the Garage Sale. Visited the Garage Sale turns out relative died recently, while talking to a person at the house the Discussion came to housing. Because the Person holding the Estate sale had just inherited the house.


Turns out the house had already was sold or was in the process of being sold. The person that was attempting to buy was placing the house on Owner carrying Paper. The House was free and Clear the Person agreeing to purchasing was going to put down 100,000. dollars cash that was probably being secured from there primary residence.

The House Apraised at 600,000. he agreed to 550,000. thousand with no real estate agent.

The First 6 months from talking to the Owner was going to be a Interest Only Period with the agreement being after this period going to flat interest rate not amortized interest with principle and interest.

The person buying was planning on buying and holding supposidly for five years... then there was another guy there who jumped in the conversation. That kept talking about how you cant loose in real estate. We were the Owner and I talking about how overpriced real estate was and the Persona selling was a retired Boeing Engineer this house was apparently his mothers.

This other person Brought to light that he was holding 5 Empty homes all purchased in 2003-04.. He claimed that his 50% appreciation was in the Bag.. I was blown away--- 5 empty houses.. He talked about his monthly Nut of 10,000 dollars in mortgages and how the Appreciation was way more than taking care of those mortgage payments.

It was started to get a little heated in conversation..(Imagine keeping 5 empty housed and not renting because you don't want to deal with renters and believing the renters will destroy the value of the houses- isn't that conventionaly its done people carrying those costs for you?) I looked at him like he was nuts. He stated that he didnt invest in Stocks Bonds or anything other than real estate. He then said.. I place all my money into my houses no savings just real estate--- I was like WHAT~!! Then he was like why would I keep any of my money in the Bank at 1.5% interest.

Meanwhile the Owner was also shaking his head, in Disbelief.. This guy was adament that his strategy was best and he just couldnt loose. That it was Guaranteed. I kept telling him that nothing is guaranteed to trully realize a gain you have to sell and reminded him that like the stock market to trully realize a gain in stock price you must cash out.

The Thing is this isn't the First person Ive talked to that doing this same thing keeping empty houses. The other person I know doing this is carrying 2 extra empty houses.

So how many Empty houses being Carryed by people sceculating only on the Appreciation are there? is this a possibly much bigger part of the housing inventory than the professionals know about?

Further Thoughts on the sale of the house.. Im willing to bet the person purchasing is planning on some renovations and then taking a 2nd. mortgage which will probably place the 100,000.+ dollars plus back in his pocket. He probably right off the start has access to 50,000. places a few thousand into renovations and up the value another 50,000+..
Actually if he rents it he probably will get about 1,900 rent and since the house is flat interest payment again not amortized interest will save him lots of money potentially 100s of thousands of dollars in interest...

Then again if this doesnt work out the Person has the 100,000. cash and can take back the house. The person selling is an engineer and they tend to be very Conservative amd hes really thinking about how this might not work out.

This is all... Take Care.. Ron

wreckingbull said...

trackbike,

You should spend some time in the archives. You will find that most of the assertions in this blog are based on data.

Antectdotes can be a good companion to that data.

As a pilot, I can tell you that 'looking out the window' is just as important as meteorological data in predicting the weather.

The same goes here. Please take your angst elsewhere. You may find better company at a place like the RCG or Susan Ryan's blogs.

just_checking said...

I was looking to see the current pricings at www.nwrealestate.com (MLS website)

For under 300,000 -
There are only 6 SFR properties for sale in all of king county with a
minimum of 4+ bedrooms and 2.5+
bathrooms

Unbelievable !!

jpsfranks said...

Haha - this blog and its comments are a sea of anecdotes

Here's an anecdote for you. The other day I was reading the paper and eating my morning bagel, when I saw an article talking about how nationally the last couple of months had seen the biggest median price drop in 38 years. Is Seattle somehow impervious? We shall see.

The bagel was very good.

WaitinginMarysville said...

Ron,

Thanks for the story. I assume that the empty houses are in the greater Seattle area and that these people are not holding houses in Arizona or someplace like that. I would like to know how many of these empty houses are sitting around, too.

"since the house is flat interest payment again not amortized interest will save him lots of money potentially 100s of thousands of dollars in interest..."

Why would a flat rate instead of amorization save him any money in interest? When a debt is amortized that just means that part of the principle is paid off with each payment along with the interest. If he pays only interest it is a long term interest only loan and he is not planning to build up equity by paying down the debt.

Kaleetan said...

Mike and Lia Lester are part of a growing number of 'Peak Renters'.

I wonder who is the actual Peak Renter. Probably some guy who is 90 and has been renting since the 1940's because prices were always to damn expensive. He should have bought that Craftsman in West Seattle for $25,000 instead of renting the whole time.

It would have been worth at least half a million by now.

Grivetti said...

He should have bought that Craftsman in West Seattle for $25,000 instead of renting the whole time.

It would have been worth at least half a million by now.


Or he could've thrown it into the stock market and had at least 1 million dollars by now...

MisterBubble said...

"He should have bought that Craftsman in West Seattle for $25,000 instead of renting the whole time. It would have been worth at least half a million by now."

Or not.

I don't have data going back to 1944, but if our man Pete Peak had simply dumped his money into the Dow in 1969, it would have been worth over $1.9 million in 2004 (here's a source. You do the math.)

Kaleetan said...

For arguements sake, lets just say Pete Peak doesn't really have 25,000 to throw down on the stockmarket in 1945. How could Pete afford to just buy a house?

Maybe a loan would be a good idea for Pete.

One that over time would allow his payment to be less than his rent and even pay off the house.

MisterBubble said...

"For arguements sake, lets just say Pete Peak doesn't really have 25,000 to throw down on the stockmarket in 1945. How could Pete afford to just buy a house? Maybe a loan would be a good idea for Pete."

Uhm...yeah. So what? The question is not: "how does Pete purchase a home in 1944?"

The question is: "Should Pete have purchased that West Seattle craftsman in 1944?"

The short (but absolutely correct) answer is: not as an investment.

The long answer is still far more complicated than you're letting on. For example, Pete has to consider the differential between the cost (or benefit) of renting versus that of buying in West Seattle in 1944, as well as the profit (or opportunity cost) of investing that differential.

To be fair, in 1944 West Seattle, it probably made sense for Pete to purchase a home. The cost of buying property on margin was likely cheaper than the cost of renting, and Pete could cover his fixed living expenses for less money by taking out a mortgage. But if you're trying to imply that this is a universal truth of the housing market, you're well out of line.

Right now, it's actually cheaper to rent than to buy. In 1944, that probably wasn't true. Historically, it definitely isn't true. The only way that people can rationally justify the additional expense of buying a home in West Seattle in 2006, is by convincing themselves that their homes are "investments" with greater yield than the financial markets. Grivetti and I are merely pointing out that historically speaking, this is a sucker's bet.

The numbers are absolutely clear: over the long term, you do not
"invest" in a house. You live in a house. You invest in the financial market.

dalas said...

Ron,

If he bought houses in the right area such as Bellevue in 03-04, he's right and he won't lose any money. The same 50 years old house on 8500 ft lot that was selling for 350k in 98004, is now worth more than 800k. If he bought houses in other areas, maybe not.

ron said...

"since the house is flat interest payment again not amortized interest will save him lots of money potentially 100s of thousands of dollars in interest..."

Why would a flat rate instead of amorization save him any money in interest? When a debt is amortized that just means that part of the principle is paid off with each payment along with the interest. If he pays only interest it is a long term interest only loan and he is not planning to build up equity by paying down the debt.

**** The thought is and by listening to several Professional Real Estate courses.. By doing a flat interest rate from the best of my understanding the Mortgage companies do there loans amoritized heayily front loaded so that the first 7 years of the loan are almost 100% interest. You get only 5% credit towards the purchase price for the first 7 years.. again who says you don't pay more than the standard payment during this term.

Im under the Impression Amoritized is something highly benificially to the Mortgage industry and that they do these loans based on what the Average Joe does.. which is refinance or sell every 7 years. Many people Refinancing are not exactly coming out in front by resetting this period off they end up in many cases actually spending a great deal more in interest by doing so.

People need to really understand the game before they go up to bat.


Personally, I think- a lot of you here are getting awful hung up on housing or trying to own. What difference does it make? personally myself it really just comes down to what makes more economical sense- we all have to live somewhere, Very True- however at what cost? My first Priority myself is Investing/Saving 60% of income if I'm not doing this I have to go back to the drawing board and rethink my stategies, I'm into freedom, I think of money as buying freedom not things-- Im willing to work harder if I feel that the time im putting in will give me more free time in the future, I don't have to impress anyone- I could go out and buy and exotic sports car impress the ladies, then what?.. dame it tryed that for a short period kept ending up with Expensive handbag Fake Breasted Mercedes Women-- that were here today and gone when my Infospace stock went down..hahhahaaha... Back to the House--- Besides who really Owns? When you have a Mortgage the Bank is in first position then the Government is Guaranteed to always be second- a permanent second postion at that.

Person at work was getting all worked up.. He lived in a double wide 1,800 square foot mobile home and was getting bent out of shape because he wasn't getting Appreciation.

I asked him how much he had to pay every month he stated just over 500. dollars total cost. I then asked about Property Taxes.. which was just below 1000... I then asked him if he enjoyed living where he did-- He apparently does.

I said then whats the problem You have a Very Inexpensive Cost of housing which takes less than 8% of income your property taxes and yearly costs are less than many peoples cost of living in a home over for a full year. I directed him to some homes on the internet on Mercer Island that were roughly the same Square footage as his Double Wide and showed him where these peoples property Taxes were more than his total output for housing costs for a year. I then told that your coming awful late to the party if you think your going to get the Appreciation at this point.

He since stopped looking..

Just like the lady at work that placed her house on the market 3 months ago and hasnt had one single person come to look at it. Since she cant seem to sell her house she now will not be looking anymore to buy in Renton area. She I believe was living out someplace Called Gram? someplace where she had a problem with the elk deer eating her garden.

Anyways Im out of Here.. I have to really monitor my time-- Im getting back to My Yes-- 50 Inch Plasma.. Ohhh yes-- Personally I think it worth every penny, Why Because I use it and enjoy my entertainment center with Double computers. Well over 20 grand however thats one area im willing to spend the money on.. We all have our weaknesses.

seattle long term owner said...

off topic but how's your 50 inch plasma better in picture vs my 65 inch DLP TV?

I have an HK Home theater setup and all of it was less than 5G's... (livingroom)

just like the RE market, more expensive isn't always better...

In 5 years your 20K will be worth 5K and my 5K will be worth 2k...

It's good to know you have your priorities straigth though... drop 20K on an entertainment center but keep going to garage sales... I like the concept...

Seriously, no plasma can ever beat my other entertainment center (Den)... 100 inch front projection... 7.1 THX surround sound... awesome... also less than 5K for this too...

Kaleetan said...

You would not consider a home an investment?

What is an investment then..Here is what the dictionary says.

the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

How would the "appreciation of value" been applicable if Pete had purchased that house in 1944?

MisterBubble said...

"You would not consider a home an investment?"

No. A home is a home. It may have financial benefits, but it is not an investment.

"Here is what the dictionary says: the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value."

If you live your life by the dictionary, then more power to you. The rest of us also consider things like liquidity, rate of return and carrying costs when we choose investments.

To illustrate my point -- five years ago, beanie babies and pokemon cards fit your definition of "investments". For your sake, I hope you didn't go all-in on the pikachu cards in 1998....