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HANNA MUSIDI:
Hi, my name is Hanna and today we have our US tax expert, Derren. We also have our US real estate and legal expert, Jay. We will be discussing Us real estate forensic.
VOICE-OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
HANNA MUSIDI:
Hi, we’re live. Hi, my name is Hanna and I’m based in Indonesia and I’m working in an international tax consultant team. And today we will talk about your US real estate forensic. And this episode is about a real estate scam. So right now I’m here with two of our experts. So first of all, Derren, would you mind introducing yourself?
DERREN JOSEPH:
Hi, thanks, Hannah. Hello everybody. So we continuing this series. My name is Derren Joseph, and I’m an international tax consultant with a team called Moores Rowland and my specialty is an international tax in general, but US international in particular. Good to be here.
HANNA MUSIDI:
Jay, would you mind introducing yourself?
JAY KNIGHT:
Yeah, sure. My name is Jay Knight. Thanks very much for having me again. I am an international real estate investor and I also am a real estate broker from California, so great to be here. Thank you.
HANNA MUSIDI:
Okay. So, you know in Indonesia itself, the every month payments for them, but if you take it, take a house or take an apartment, for example, want to buy them by installment. For example, you can pay every month as small as 200 until 500, a US dollar that’s cheap, but then again, you need to pay a down payment of 35% from the whole house, or at least 45% from the whole house, which is very expensive, right? So number eight is an emphasis on not down or low down technique. So do you have anything to say about that Jay?
JAY KNIGHT:
Okay. So I mean, first of all, I think Asia, it is a lot different in the United States because in Indonesia, the banking and banking requirements are very, very strict and it’s very hard for people to get loans. So what the, what the developers will do is they will try to give sell financing, right? So they’ll say, okay, Hey, you know, you just pay 20% down or whatever it is. And then you can make installments for five years with no interest, which is actually not, not a bad deal depending on the property, right? Because it allows certain people who may have income that is not maybe as I want to say, not legitimate, but maybe it’s just not as transparent to be able to still be able to, to buy a house. So, because they can’t get traditional financing, but, and so that’s not a bad thing. And I think that in Indonesia, it’s actually, it can work, but in America, they do have a lot of loan programs that people could be eligible for, which offers them low interest, or low down payments or certain types of special creative financing that will help them into get themselves into a house. But the reality of it, this is especially after the financial crisis and the housing crash in 2008 and 2011, a lot of those programs have dried up because what happened was, was that that was a straight correlation into why the financial crisis happened because so many people got into these houses that they couldn’t afford. And maybe, they got into a program where it was zero and down or 25% down, whatever it was, whatever the program was, they just weren’t able to afford the payments because of it. So I wanted to say on its face that a low down payment or 0% down, or whatever is necessarily a scam per se, but it is something that you want to have a very, very keen eye towards because anybody that tries to tell you about a 0% down payment or low down payment, normally you have to understand that they’re targeting the, like a certain demographics they’re targeting low-income individuals. And trying to make it as a doorstep for them to get into the market to begin with. Okay. And that’s not necessarily a bad thing like I said, but we have to be careful because the reality of it is, is that these types of programs, most likely lead people to foreclose on their house eventually because they just can’t make the payments. And so, again, I wouldn’t say it’s necessarily a red flag, but it’s something that I would be cautious of because they’re usually these programs are usually not very successful. And that’s just the reality. And I, and I know from firsthand experience, I’ve seen it, I’ve gone through it. And that’s just the reality of the, of the game. So we have to watch what their target market is. And if they’re really pushing this kind of a low down payment, zero interest, you have to be careful. And especially if they, especially if they’re talking about what’s called an arm where you have a certain, you have a certain interest rate that is, that is going to be frozen for a certain period of time.But then after that period of time, it’ll adjust and it could adjust in a really, really high, and that will make your loan payment. Let’s just say you are paying, you know, just use easy numbers, $500 a month. It could jump up to a 1200 or something outrageous. And so these types of programs, most people don’t really understand how they work. They just get lured into this trap because it means that it’s affordable for them to get in and they’re selling them the American dream. But the reality of it is, is that not only are they not able to make the payments, but the other thing is you have to be careful too, is if it’s a rental property, that if you have this type of program, it’s very unlikely that, that the rental income that you receive is going to be able to cover whatever the mortgage is. Because if you put a low down payment on your mortgage, that means your mortgage is going to be quite high. So, you know, that’s the other issue. So again, it’s not necessarily a red flag. It’s not necessarily something that’s illegal, but it is something to be very, very cautious about.
HANNA MUSIDI:
I see. So, Derren do you have anything to add to that?
DERREN JOSEPH:
Just to support with, Jay’s already said that one, you come with a low down payment, it’s done specifically to target lower income. And when someone is putting together a pitch for lower-income earners, surely they do it based on the understanding that these are people with, who are living hand to mouth already, or they may already be in debt and you inviting them to dig themselves into a deeper hole, potentially.you know that again, there’s nothing wrong with that, but it just seems more ambiguous that they’ll be staring someone in that direction. We all know that one size fits all. So most businesses fail and chances are, most people would fail with this. Yet you are still pitching to them knowing that most of them will not be successful. And again, doing it in a way that plays down the risks associated with the project as if it was risk-free. And when you look at it and from that perspective, it just seems, it just seems really unethical. It seems unethical, but again, there’s nothing wrong with it. I know there are some lobbying groups in the US that have been calling for regulation, just like with payday lending. That was another morally ambiguous area of business, where, you know, people who are already having a hard time, you’re basically enticing them to get into more data. And to me, this seems analogous for this would that, that business model, these are people who have been having a hard time. They’re already, you know, doing month to month. And I’ve seen situations where people have committed suicide because they’re already on thin ice. Things are already not going well for them and their families. And they went into debt to make this short thing work, and it didn’t work. And they felt a sense of hopelessness. Unfortunately, that took their lives. I watched a video last week on it. So again, nothing wrong with that, but all especially, if you a lower income earner just proceed with caution. And if something, as you said earlier, Hannah, if they keep saying that something is too good to be true, and there’s no way you could lose, it’s a guarantee. The short thing, when we all know there’s no such thing as a short thing, you know, just don’t walk, just run away.
HANNA MUSIDI:
So, like you always say, it’s a red flag, don’t walk, run.
JAY KNIGHT:
And, you know, there’s that old saying about a fool and his money will surely part. And it’s very true and the problem is, is that going back to, when you say Derren, is that, whether there’s an ethical or not, it’s definitely, at least at the very least is disingenuous. And they’ve targeted these people because they know they don’t know much. And they’re trying to sell them the American dream and who doesn’t want to live the American dream right. And so they get into things that are over their head and they just can’t swim anymore. But suicide is not that, it’s not uncommon. I mean we saw it a lot during the housing crash.
HANNA MUSIDI:
Yeah, that’s what they think. And be like, if I cannot do anything anymore why not just be dead?
JAY KNIGHT:
I mean, who knows what they’re thinking is they have a family and maybe they feel, they failed their family, or it is unfortunate because they go into these, you know, they target these demographics. They don’t know, you know, much about real estate and they sell them this pipe dream and they make it, they make, you know, the first objection is always, well, I don’t have enough money to get involved. And so what they do is, Hey, don’t worry about it. We got all kinds of special programs, or you don’t even have to put any money just come to my seminar, you’ll learn how to do it. It’ll be a snap and a year from now, you’ll be sitting back in a nice brand, but no, they just sell this. And I don’t, unfortunately, as I said, at least it’s disingenuous. And oftentimes it probably is very unethical. And that is something that we definitely want to awake people to seem to be able to see through and not get caught in that trap.
HANNA MUSIDI:
It’s really sad but it’s there.
VOICE-OVER:
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