I'm betting that some of you out there know something about real estate and investing, and I need to bend your ear. I fear that someone I know and love is getting taken.
Someone close to me recently inherited a significant amount of money. I suggested that she see a financial adviser. She was lukewarm to the idea.
She then came across a Youtube channel from a guy named Pace Morby, who runs a "community" of people who use something called "Subto" financing to make money in real estate.
He recently came to Vegas for a "get together hike", along with some of his established "students". He hooked her up with one of these people and told her that this guy would be her "partner".
Fast-forward two months, and this guy already has her signing a contract. They took over the mortgage of a distressed property, and got their names on the deed. They did not refinance or take out a new loan. They assumed the original owner's loan payments without telling his lender.
They plan on bringing in multiple "disadvantaged" families into this single family home, with an organization called Family Promise paying the notes for all tenants. The two of them split the outgoing mortgage payments, utilities, insurance, etc. 50/50. They are then to be paid by Family Promise for all of the tenant's rent. Having multiple families is the only way this could possibly make money for them.
The property currently has equity of $190,000. They estimate that their monthly expenses will be $2300, and that their income from Family Promise will be $4300.
Despite the red flags I see above, this is what really blew my mind...
She put up $55,000 upfront and wired it to the title company. He put up zero. She gets 10% of the monthly positive cash flow, and 10% of the equity. He gets 90% of both.
I tried to tell her that, best case scenario, she is only going to get $200/month back for her $55,000 payment. Equity aside, that will take 22.9 years for her to break even. Factoring in the current equity, it will take 15 years. And this doesn't take inflation into account.
When I told her she got taken, she denied it and got extremely angry with me. She arranged a meeting between the three of us. He constantly evaded my questions as to how she could possibly come out ahead, while he could not possibly lose. When he finally realized I wasn't going to let it go, he answered with the two comments I knew he would ultimately make: "She is getting my expertise and experience" (he's been an agent for two and a half years), and "She agreed to it".
Even now, she still thinks she is going to profit, and that I'm trying to control her by telling her she got taken. Our relationship has now been strained to the breaking point. Am I missing something? Can this possibly work to her advantage and I just can't see it? Am I flat out wrong?
She is continuing to meet with him while he tries to sell her on more of his "deals". I'd truly appreciate feedback from anyone who knows about real estate and/or investing.
Thanks.
