|Here is an email I got from David Folster on 9/16/00.
Thank you for providing a wonderful and informative web site. I have found it extremely interesting reading.
More than a decade ago now, I took an exorbitantly priced one day seminar from Tom Vu (more than $1000 as I recall). This was what he taught:
Vu's main strategy was to "control," rather than own, real estate. So you would go out looking for distressed properties, (foreclosures and such) and offer to buy these houses at incredible discounts. He claimed to never offer more than 50% of market value, but said it would depend on whether it was a buyer's or a seller's market how much your discounted offer would be.
The desperate owner would be happy to just get out of the property without ruining his credit, so he takes your offer happily. In your offer, you write that the agreement is between the seller and you "or assigns". Then you offer ten bucks as a down payment to make the contract legal ("exchange of consideration"). Your closing date is a couple of months hence. In addition, you tack on a whole pile of whim-and-fancy clauses, such as "this deal is subject to the final inspection and approval of the buyer before closing."
During the time before closing, you find a buyer to assign your interest in the contract to. Selling the place will be easy, since after all, you got it at a huge discount in the first place. You walk away at closing with a hefty profit.
Unlike the vast majority of seminar attendees, I actually tried for a long time to do this in my neck of the woods, British Columbia, Canada. I failed miserably. I encountered the following realities:
1. Even with distressed properties, offering to buy a property that far below market value was a joke (I was trying 80%). I was laughed out of most negotiations. Never once did I encounter someone so desperate to get out of a property that they would bend over to accept that kind of deal. However I have no idea if this kind of thing works in very depressed real estate markets, as I am an ignoramus when it comes to real estate. All I know is that it didn't work for me in my area.
2. Many of these properties were over financed, and even if they weren't, there was no desperate bank mandate to unload these non performing assets at all costs. Generally, even in foreclosure sales, the owner or later, the bank, wanted fair market value.
3. Whim-and-fancy clauses were not acceptable to anyone I dealt with. I now have come to see how unethical they are as well. They amount to not keeping a promise if you can't find a buyer, and leaving the seller high and dry. Plus I bet you could be sued for breach of contract for backing out of a deal in this manner.
4. In the real world, no one (at least no one smart) accepts a $10 down payment. It has "I am not serious about this deal and intend to screw you at the drop of a hat" written all over it.
I also bet that finding a buyer that fast would not be very easy, unless you got the property at a really gigantic discount. But I never got that far.
I would be interested in hearing your take on this technique. I'm sure you can find much more wrong with it than I did. Over all, it was a sorry experience, and one I wish I was never stupid enough to have fallen for.