Stone Equity Group and The Investor's paradigm

[hlee]

 Being contacted by Stone Equity Group (www.stoneeg.com) and The Investor's Paradigm (http://www.theinvestorsparadigm.com/).

They both promote a model, which they purchase the foreclosures at whole sale price and then sell to investors as the units. Once the investors have the units, they help you to find an end buyer with a seller's finance term at a higher price, which help to generate 18%-30% ROI.

In Stone Equity Group's case, they claim, once you pay $5000 membership fee, you can purchase the units at $17,900 each and they would find a end buyer for $50,000 with a ten year's seller finance term, which generates $500 monthly income for 10 years. They claim that they can do so because for the end buyer, the $500 is less than what they would pay for rental. They charge 10% as management fee, so you end up with $450 monthly income.

It almost sounds too good to be true but very attempting. Does anyone has experience in working with them or being involved in something similar to this? Asked to talk to Stone Equity Group's existing clients, but being refused. I am new to real estate investing and like to learn your opinion.

Thanks.

[jmd_forest]

Run run run, run run run ... aaawaaay. (credits to the Talking Heads)

If it sounds too good to be true, it almost always is. If they fail to perform, and lets give them the benefit of the doubt, through no fault of their own, they've got your $5000 and you can kiss it goodbye.

jmd_forest

[propertymanager]

hlee,

Let me ask you a question, if a company could find properties at $17,900 and find an end buyer to sell them to at $50,000, why in the world would they cut you in on the profit for only $5,000???

In addition, you should know that the vast majority of people who "buy" property with owner financing, via lease-option, or via land contract NEVER buy the property.  These are obviously sub-prime buyers who have poor credit, or they would just get a normal loan for the property which would be MUCH cheaper.

Also, when they say that they are taking a management fee every month, that makes me think that they are talking about "selling" the property via a lease-option.  In other words, this is just a rental.

I agree with jmd - I would RUN far and fast.  If you want to be in the rental business, start your own and keep the money for yourself.

Good Luck,

Mike

[Equity]

A 20 to 30% ROI for the risk of taking title and owning the property is hardly “too good to be true.”  Most passive real estate investments (i.e. less risky group investments) are paying at least 20% lately and they are not hard to find.

You say you're new, but for $5000 what is it these companies do that you cannot learn on your own?

Most importantly, do you think a company is sending you a clue when they refuse to provide references?  On this alone, I wouldn’t touch Stone Equity Group with a ten foot pole.

[Mr Investor]

If anyone has learned from the Pinnacle debacle it's that never trust another company to do your real estate investing.

[hlee]

Thanks for all valuable advices.  I decided to stay away from them even though they told me the $5000 membership fee can be waived as long as I buy their units at $17,900.

Suffered terrible loss in stocks and trying to find other safer and passive investment.  Since I can't quit my full-time job, Stone Equity's model sounds attractive because they claim they do all the hard-work for me.

Equity, you mentioned it isn't hard to find 20% safe and passive investment, would you mind to share more details?  I mainly invest in stocks, where 10% return would be considered as success if you do manage to achieve a positive return at all.

 

[jmd_forest]

"they claim they do all the hard-work for me"

Generally, you earn money, or get high investment returns, by doing the hard work yourself.

jmd_forest

[REProtege]

hlee,

Take a look at RedDoor Group in AZ and TX.

 http://www.reddoorgroupinc.com/


I haven't dealt with them personally but a reputable friend of mine used them to offset some negative cash flow on one of his properties. They have been in business since 1991 and host a radio show.

 

[propertymanager]

CHOP Land Contract: $500 a month

So for this example at $500 a month on a land contract which is triple net meaning the buyer is responsible for taxes insurance and maintenance. The net monthly cash flow would be $450 after management expense of 10% (which is optional, you can manage yourself if you like). This would equate to $5400 a year or a 30% ROI. The return is higher than average but because of the low purchase price it allows this cap rate.

Whoa!  Back up the bus.  First, there is an opportunity cost to the $19,900 that the investors are using to buy the property.   So, while saying that there is not debt service may be true if the investor pays cash, it certainly isn't true if the investor borrows the money to buy the property.  If they do use cash to buy the property, they lose the opportunity cost of investing that money elsewhere.

Second, everyone that is experienced in this business knows that the vast majority of people who are "buying" on land contract don't end up buying the property.  At some point, they will default and the property will need to be foreclosed upon and/or the tenant evicted (depending on the state); the deferred maintenance will need to be done; the property may need a rehab; the "buyer" will stop paying taxes and insurance during this default period; etc, etc, etc. 

In other words, you are giving the most optimistic scenario possible and not the one that the average investor will experience.

I also renew my previous question  -  if you can buy the properties at 10 cents on the dollar and have management already in place, why don't you just sell them to the end "buyer" yourself and keep the profits for yourself? 

Mike   

[joshuahost]

Hello Mike,
I appreciate skepticism as it is a sign of intelligence but there are a couple points of info that would help your understanding.

1. The opportunity cost is the investment which was taken into consideration as the $19,900 and was used in the example when a investor enrolls in the Community Home Ownership Program.

2. We only allow cash buyers because loans under $50k are pretty much non existent and at these prices we need to move property quickly to make a margin. So because we only allow cash buyers no debt service was used in my example.
 
3. The question "If its so good why don't you do it yourself" is a fairly silly question but I will answer anyway. Our company has the resources to buy only so many properties a month. On a land contract or even rent only a portion of the investment is recouped so our ability to repurchase is limited. Our program allows investors to capitalize on our relationships and makes our portfolio purchases sustainable so we can keep buying. Additionally the premise of this question makes no sense because if everyone kept good deals to themselves why did Google go public?

***Altered due to rules violation.

~ Joshua Host

[riggio]

Hi guys,

I just wanted to respond to to a couple of the posts regarding the legitimacy of Stone Equity Group (SEG). (and yes, the company asked me to give my feedback, however I will be candid.)

I paid the $5000 fee and purchased one home through them. The process initially began in October of 2008 and finally closed in February of 2009. (Due to various reasons for delay on both sides) By the time the transaction did close SEG had found a buyer/tenant for the property and by March 1st I was receiving payments.

The main issue I see prevalent in the posts is that this is some kind of scam. From my experience, I suppose it all depends on what the objectives are of the investor. If the investor is looking for a quick flip and to make money overnight then I would caution against proceeding, however, the returns are real and I can vouch that my personal experience has been close to what I have seen on the thread (being an initial purchase price of approx $17000 with a consequent sale of approx $40000 and payments of $500/mo)

SEG did give me a choice between a land contract and a lease with option to buy. Doing it again (and I intend to) I would most likely opt for a lease with option to buy, however this time I was unavailable at the time SEG found the buyers and had told them to do what they felt was right.

The land contract is strongly favored toward the investor so I feel very comfortable with it (I have seen a few being a licensed CA Broker)

As far as the loan servicing goes, the agreement is fairly common although it does favor the servicing company strongly and I would probably have wanted to see that before agreeing to have them service the loan, although again, SEG did give me the option of using my own company.

All in all I have been very satisfied with SEG, and as indicated above, intend to invest with them in the future. SEG is a company providing a service. Being in the industry myself, I think sometimes people underestimate what the true cost is of a good service. While $5000 may seem excessive to some, the time saved and potential future opportunities are what I consider the true value.

If there are any questions or issues that I missed, please feel free to contact me and I will go into further detail.

[motivatedceo]

Boy, I detect shills, shills and more shills. There are people responding to "how good Stone Equity is" with only 1 or 2 total posts!

In reality, Mike / Propertymanager is dead on. $5000 is a RIPOFF! Any legit company would take a % of any deal as profit and not charge an upfront fee, or simply do the deal themselves.

[Brian06]

Number of posts have nothing to do with knowledge.

A product or a service can be sold for a predetermined price or a percentage of a future sale.

Try to have an open mind when reading these posts.  It is sometimes hard to explain a strategy with text on a forum. 

I used RealSource for my first property and paid $2000 for their service and they took a percentage of the sale from the realtor.  It worked great.  http://www.realsource.net/

[tgage49]

Hello Everyone,

I would like to share my experience with SEG.  I have to say I was skeptical as were some of you who posted as well.  I mean come one 20-30% yield on properties where they find someone to purchase/rent from you, too good to be true right?  Well I am glad I decided to purchase from them.  I didn't have to put up 5,000 for the program; I paid them what was the going rate they were posting at that time which was 23,900.  Maybe they dropped the initiation fee and added it to the home price I am not sure.  But What I am sure of was the seamless transaction, I agreed to purchase in February, I closed in early march, and my house is occupied and "sold" for 500 per Month less a 10% management fee.  The going price per house is now 25,900.

I have title in possession and if the tenant on the land contract defaults I am able to consult with the management team on a course of action.  I still own the home.  Because the buyer views it as a purchase they will likely maintain the property better than a rental would.  The buyer is responsible for taxes, insurance and any home improvements they desire.  If home values rise further and credit markets open up they can choose to pay me off and the present value of all the payments gets paid to me much sooner.

There were some issues; one was a leak in the roof that occurred after I purchased but before it was sold and SEG handled the entire cost of the repair (as well they should have).  I got what I expected from them, they didn't back track one bit.

In addition their support staff is wonderful and very bright.  Alex helped me with my first purchase and the first one worked so easy I decided to open a self directed IRA and bought two more units which are being delivered within the next month.  Julie Moran helped me set up the accounts and worked with a local office in Pennsylvania to fund and execute my accounts and transactions.

This isn't a scam; here is the story from the KC news affiliate that ran the clip on the house I purchased from SEG. 

http://stoneeg.com/foxnews/index.html

First rule of investing is if it's too good to be true and the return is too high for the expected risk profile then stay away.  Except when you reach extremes and people are afraid to take risk; then outsized returns can be gotten by weighing the risk and reward.  I believe this situation can be had because you are the bank, you pay in cash, and you can provide this service to a family that otherwise would be renting and wasting their money.  If anyone would like to speak with me regarding my experience I would welcome them to contact SEG and ask to speak with the guy who purchased the KC home, they can put you in touch with me.

Regards,

Tim Gage

[propertymanager]

I agreed to purchase in February, I closed in early march, and my house is occupied and "sold" for 500 per Month less a 10% management fee.

If the house is sold, why is there a management fee?  What is there to manage?  If you sold your personal residence to someone, would you pay the realtor a management fee every month for the next 30 years?  Also, it sounds like you're a brand new newbie (being in this business for only 3 months).  That's hardly enough experience to tell us about this deal's profitability.  You haven't been in business long enough to know anything about this business.  You're just here shilling for the company.

Because the buyer views it as a purchase they will likely maintain the property better than a rental would.

That sounds good in theory, but that's not the way it works in the real world.  If you had any experience, you would know that.
 

First rule of investing is if it's too good to be true and the return is too high for the expected risk profile then stay away.  Except when you reach extremes and people are afraid to take risk; then outsized returns can be gotten by weighing the risk and reward.

So, let me see if I understand this.  If a deal sounds too good to be true, then stay away from it.  If a deal sounds completely (extremely) unbelievable, then it's really a good deal because you can 'weigh the risk and reward'.  RIDICULOUS!

This isn't a scam; here is the story from the KC news affiliate that ran the clip on the house I purchased from SEG.

I didn't say it was a scam.  Selling turnkey properties to newbies is a legal and valid business model.  What I object to is shilling that is going on and the misinformation that is being presented by the shills.  I also question why there is a managment fee for a house that is sold.  What is there to "manage" - collecting the checks?  Instead of paying someone to manage a house that is sold, it might be cheaper to give the buyer a stamp every month so they can send you the check directly!  LOL!

Mike