Oct272016
How the real estate guru scam works
Real estate gurus scam people with high-pressure sales, leaving their customers with little to show for the money wasted.
When I set out to raise money to buy properties in Las Vegas in 2010, many long-time readers weren’t thrilled about the idea. One of them created the graphic above to lampoon my sales pitch. I display it as a badge of honor. Some people didn’t believe in the opportunity in Las Vegas, but most were more concerned that I might head down the path of becoming a cheesy real estate guru.
Real estate gurus serve as front men for high-pressure sales organizations. These groups generally care little about the product they deliver, focusing instead on how much money they extract out of each sale. The sales process often contains many levels or steps, each promising more but delivering very little.
The process begins with a free or low-cost seminar, usually marketed with ridiculous claims about making a fortune in real estate with no experience and no money. Gurus put on elaborate spectacles merely to fill a room for a much longer sales presentation — and to pre-qualify their clients marks for deeper financial extractions. One telltale sign of a real estate scam is that the guru instructs attendees to contact their credit card companies for an increase in their credit lines, ostensibly to provide working capital — capital the attendee will need to purchase a high-priced follow-up program.
The remainder of the seminar is an extended sales pitch where the guru hypes the high-priced follow-up program. Very little, if any, useful information is actually presented at these initial meetings. Despite this fact, many people believe the bullshit and sign up for a follow-up program.
The real scammers set up multiple levels to their programs. Most people who attend a free seminar won’t buy a $25,000 deluxe package, so gurus offer a lower priced program, usually in the $2,000 to $5,000 range. People sign up believing they will get good information, but generally what they receive is a useless overview they could have downloaded for nothing off the internet — that and another high-pressure sales pitch for the $25,000 deluxe package.
Rather than catching on to the scam, many people rationalize spending the $25,000 because they believe the guru will finally share his secret recipe. When they attend the $25,000 event or private lessons, the guru spends most of the time convincing the buyer their $25,000 was a great investment, assuming the guru participates at all.
It’s human nature not to admit a mistake, and after sinking $25,000 to $30,000 into a program that provided little or no real value, most people won’t call out the scammer. Some don’t recognize the rip off because the guru convinced them their money was wisely invested, but since almost nobody who attends these events actually follows through and invests in real estate, the lack of results is hard to deny.
‘Flip or Flop’ stars Tarek, Christina El Moussa under fire after complaints about their flipping classes
By JOSEPH PISANI, Oct. 26, 2016
For Doug Stephens, the free event seemed like a good way to learn how to flip homes. An online ad for the December gathering sported pictures of Tarek and Christina El Moussa, the Orange County stars of HGTV’s “Flip or Flop” who buy rundown homes, renovate them and try to sell them for a profit. Stephens watched “Flip or Flop” regularly, along with 2.8 million other Americans, so he went.
The El Moussas, Yorba Linda residents, did not show up.
In a prerecorded video, the couple told attendees that they were busy working and filming their show.
I fell for this once. I went to a Millionaire Mind weekend seminar expecting to see the author of the book. He wasn’t there.
Fortunately, they strike a decent balance between providing valuable information and upselling their more expensive programs. I paid very little to attend, and I felt I obtained value from the time I invested.
The sales scam of upselling more expensive programs is not black and white. The Millionaire Mind exists in a shade of gray where the perceived value outweighs the investment in time or money. I learned things at that seminar that changed my behavior. Most real estate gurus don’t deliver that.
Undeterred, Stephens paid $1,997 for three days of classes and $1,000 for real estate software. But the classes turned into a sales pitch to buy additional courses that cost thousands more, said Stephens, a pastor and teacher from Havana, Florida.
“They weren’t really teaching at all,” he said.
They never do.
The El Moussas, like many reality TV stars before them, are capitalizing on their fame by offering pricy classes.
I hope articles like this one prompt them to rethink whether or not the money was worth it. They are abusing the trust their viewers place in them by steering these people to scam artists.
At free events in hotel ballrooms, instructors tell attendees that if they pay to enroll in three-day courses, they’ll learn how the couple flips homes and also gain access to investors who will give them cash to buy properties, even if they have low credit scores or a weak job history. They’ll earn back their money quickly, the instructors say, and will get refunds if they don’t flip a home within a certain amount of time.
But about a dozen people interviewed by The Associated Press said those promises did not pan out. Although class leaders offered some instruction, a lot of time was spent pushing them to buy more classes, they said; some complained that getting refunds for the sessions was difficult.
Rule number one of the Ferengi Rules of Acquisition states, “Once you have their money, you never give it back.”
Stephens said his instructor avoided answering questions, told attendees not to speak to each other and spent a lot of time hyping the program. The homework on the first day was for attendees to call their credit card companies and increase their credit limits, he said. On the last day, Stephens said, the instructor pushed them to buy training sessions, some of which cost around $26,000. …
This should send people immediately to the exit door.
Gloria Pettis, a budget analyst from San Diego, paid $1,500 for a three-day small business class that featured Daymond John, a star of ABC’s “Shark Tank.” She said she paid for Daymond John’s Launch Academy because speakers at a free event in January said they could help her create a prototype for a wearable tracking device for children that she wanted to make and sell.
During the entire three days, Pettis said no instructor ever asked her about the product she wanted to make. But employees suddenly became interested, she said, after she told them she opened a new credit card with a $30,000 limit, an assignment the class was given on the first day. Workers pulled her out of class six times, she said, pushing her to buy more training in Las Vegas for $27,000. She did not.
Zurixx said it asks students to increase their credit limits and open new cards to have access to funds for unexpected business costs, but Pettis said it was made clear to her that the new card was to be used to pay for the Las Vegas classes.
A classic ripoff.
Martin, a retired bookkeeper from Chico, California, received a refund after she wrote a negative review on the Better Business Bureau website.
Two months later, she received an invite to another free event that featured a picture of the El Moussas on the front, under the sentence: “Do you have the courage to retire rich?”
“These people are so stupid that they actually invited me again after I complained,” Martin said. “Or they thought I was dumb enough to fall for it again.”
LOL! People aren’t good about scrubbing their email marketing databases. I used to get emails from the realtor I sued in Las Vegas. I stayed on their list for another two years because each time I got an email from them, their stupidity made me laugh.
If you want real information and advice from two people who aren’t going to upsell you on a $25,000 scam, come out to our presentation next Thursday.
SIGTARP moves to hold top brass accountable for bad bank behavior
Former Wells Fargo CEO John Stumpf and other Wells Fargo executives could still face criminal charges over how much the bank’s management knew about the more than 2 million fake accounts that 5,000 of the bank’s former employees opened in order to get sales bonuses.
If Stumpf and other Wells Fargo execs end up facing charges for the bank’s actions, it would be a rarity, as most of the punishment handed down on banks for their conduct before, during, and after the financial crisis focused on the banks themselves, rather than the executives who led the banks.
For example, when called to task, Stumpf blamed the bank’s transgression on those aforementioned low-level staffers.
Now, in order to end exactly that kind of reaction, change is supposedly afoot in that department as the Department of Justice announced last year that it planned to begin targeting individual employees for corporate misconduct in addition to the companies themselves.
Even if Stumpf and the others don’t end up facing criminal charges, the Wells Fargo situation could still prove to be a tipping point as one financial regulator is proposing big changes that would hold executives personally responsible for the actions of their companies.
The financial crisis was a lot different because most of the executives drank the housing Kool-aid themselves. The Fed conducted a study showing that mortgage execs bought houses at a rate similar to the public at large, showing that virtually nobody expected a housing crash. The subprime mortgages themselves weren’t illegal, and none of the 13 Federal regulators, nor 51 state regulators (including DC) raised a stink. In fact, Alan Greenspan was openly touting ARM loans as a great move. (ARM loans can in fact be a great move, but Option ARM’s rarely are.) There was fraud occurring at the individual loan officer / broker level, but it was never in a systematic way that would implicate anybody at the top. Getting settlements from companies was much easier than getting executives sent to jail would have been, which is why the Justice Department settled instead. There just wasn’t enough evidence to convict anybody of wrongdoing.
It’s very frustrating to people (me included) when they see behavior that was obviously reckless and unethical can’t be punished.
This Wells Fargo scandal may be a tipping point because the systemic rot spawned behavior that crossed the line between unethical and illegal — although it isn’t crystal clear what law was broken. I like the approach Kamala Harris’s office is taking by investigating this as identity theft. At least there’s a specific statute they can point to. Although it isn’t as satisfying as prosecuting them for fraud, identity theft is something people can relate to and get upset about. Unfortunately, connecting the behavior of the little people to the program instituted by management will be difficult, so they will settle for prosecutions of the little people and let the big fish go free.
The other difference here is they have about 5,300 disgruntled employees willing to cooperate and testify against the execs in exchange for immunity. Time to get out the popcorn!
New home sales increase nearly 30% in September
New single-family home sales increased annually and monthly in September, according to the latest release from the U.S. Census Bureau and the Department of Housing and Urban Development.
The report recorded that new single-family home sales came in at 593,000 in September. This is a 3.1% from 575,000 in August and 29.8% from 457,000 in September of last year.
The new single-family home sales report comes after August’s drop in new home sales and July’s biggest gain since the housing bust.
However, economists expected the increase.
“New home sales came in as expected,” Tian Liu, Genworth Mortgage Insurance chief economist. “We see tremendous growth potential in new home sales as housing demand continues to grow and a continued shortage of newer-vintage homes.”
“The limiting factor to that growth will be the limited supply of land and labor, and homebuilders focus on higher price segments,” Liu said.
A former chief economist of Fannie Mae agreed.
“Today’s release showed an increase in new home sales, which was in line with the improved sales and homebuyer traffic readings from the NAHB/Wells Fargo Housing Market Index,” Nationwide Chief Economist David Berson said. “Demand for new homes remains strong in response to employment growth, wage gains, positive demographics and mortgage rates near all-time lows.
Not everyone, however, is so optimistic.
“It might be tempting to see some strength in the September new home sales data, given the decent growth from August,” Zillow Chief Economist Svenja Gudell said. “But in reality, August data was revised sharply downward, and September’s numbers – 593,000 sales – are pretty mediocre and well below the 800,000-to-1 million sales needed to really move the needle and help re-balance the housing market between buyers and sellers.”
More Wells Fargo fallout: Feds to look into sales practices at other Wall Street banks
Federal regulators are preparing to conduct reviews of the nation’s biggest banks, aiming to root out any of the aggressive cross-selling practices that led to Wells Fargo being fined $185 million for more than 5,000 of the bank’s former employees opening more than 2 million fake accounts to get sales bonuses.
The news comes courtesy of Bloomberg, which reports that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, both of which were involved in the fine against Wells Fargo, are working with the Federal Reserve and the Federal Deposit Insurance Corp. to pursue “on-site” reviews.
From Bloomberg:
Wells Fargo’s largest competitors have received regulators’ formal requests for information and have been preparing for their practices to be scrutinized by examiners in the coming days, said the person, who requested anonymity because the process isn’t public.
CFPB Director Richard Cordray said his agency will “follow up aggressively” with the rest of the industry, but indicated at the Senate hearing that he doesn’t expect to find the same level of problems as at Wells Fargo, where employees were pushed to open multiple accounts for customers.
“Wells Fargo bank no doubt was the industry leader in aggressively cross-selling products, which led in part to the extreme circumstances we find here,” he said to lawmakers.
But that isn’t stopping the federal agencies from looking into the big banks’ practices. Buckle up.
Why would he “follow up aggressively” with other institutions when there’s no evidence of wrong doing? This sounds like a fishing expedition.
They have plenty of evidence of wrong doing at Wells Fargo, and most of the banks had similar incentive systems in place because it was what Wall Street wanted to see. It would be quite surprising if Wells Fargo were the only bank that had problems with this behavior. It’s prudent to investigate the others whether they have any evidence against them or not.
Zell not bullish on economy, real estate market
If you want an optimistic take on the U.S. and world economies, don’t look to Sam Zell.
Speaking at an investment conference today, the billionaire Chicago investor suggested a recession may be on the horizon, decried the demographics of aging Europe and made it clear he thinks there’s not much upside left in commercial real estate. Yet Zell is high on Latin America, where he’s had more hits than misses investing in real estate.
Zell, the 75-year-old chairman of Equity Group Investments, covered those topics and many more in a conversation with Debra Cafaro, chairman and CEO of Ventas, that kicked off the annual Invest for Kids event. The conference, which raises money for kid’s charities, drew about 1,100 people to the Harris Theater in downtown Chicago to hear investment ideas from top money managers.
Cafaro pointed out that two of Zell’s real estate companies, Equity Residential and Equity Commonwealth, have been selling properties while funds led by two other high-profile investors, Jonathan Gray, Blackstone Group’s head of real estate, and Barry Sterlicht, of Starwood Capital Group, have been buying. “I don’t think I am as optimistic as Jon and Barry are, but then again I use my own money,” Zell quipped, forgetting for a moment that Equity Residential and Equity Commonwealth are public companies with many shareholders.
Amid soaring apartment prices, Chicago-based Equity Residential pulled off its biggest divestiture in January, selling more than 23,000 apartments for $5.4 billion to Starwood. Many people took the sale as a signal that the apartment market is peaking. “I am happy to sell to both of them,” Zell said of Gray and Sternlicht.
As I recall, Zell’s exit timing leading up to the last RE bust was spot-on.
Speaking of the RE guru’s @ Blackstone L.P….
last May, their stock (BX) was sitting @ ~$43. Today, sits @ ~$25.
BX stock price as RE was topping-out in mid/late Oct 2007: ~$25.
OUCH!
I loved his comment that he was happy to be selling to the other Titans in real estate. In a few years, if those investments go south, he will look like a genius at their expense.
53 months of rising home prices helps Anaheim couple buy dream home
Ulises and Haidee Sandoval took a leap of faith in 2010 and bought a rambling, five-bedroom ranch house in west Anaheim.
The housing market was in the depths of recession at the time. But the gamble paid off.
Thanks to a four-year recovery that has yet to run out of steam, the couple sold that starter house last month for a $232,000 profit and reinvested the proceeds in their dream home in a gated community.
“We were a little bit nervous because the economy wasn’t the best at the time,” said Ulises, 35, an asphalt consultant and salesman. But, he said, “we saved as much as we could. We just built up equity and got this home.”
[Wait a minute. Didn’t the home they just bought also increase in price during that time, probably by more than $232,000? If they traded up, didn’t they probably also increase their debt significantly? If they had purchased the more expensive home in 2010, wouldn’t they be in an even better position today?]
Now, now… Can’t you just congratulate them on being savvy enough to buy in 2010? 😎
Yes, they did make a good decision and enjoy fortunate timing, but the implication of the article is that this timing is what enabled them to buy the nicer house, and it doesn’t work that way. It gave them a 20% down payment, which probably helped them with their financing, but unless they made more money, the quality of the house they bought shouldn’t be much better than the one they sold because both properties went up in value significantly since 2010.
BTW, your timing would have been better if you had purchased in 2011, just sayin… 😛
it was the leveraging that allowed them to move up.
say they put down their entire savings for 20% of a 300k house in west anaheim, which they just sold for $535k, net $235k.
now they can put $200k down on a $1M house (which in 2010 was selling for $600k, and they didn’t have $150k to put down on it).
Exactly. The extra appreciation that padded their down payment wasn’t the key ingredient — it was the bigger loan that made the difference.
LOL
Only the house they sold appreciated!
All these classes operate the exact same way and my guess is they are the same company. They just look for whoever the new get rich media personality of the day is and buy the rights to use their name. Then they take advantage of desperate people bilking them out of every cent. It’s completely abhorrent and immoral.
Yes. It’s a win-win for the famous real estate guru and the sales company. The guru does nothing and gets to cash in on name recognition, and the sales company obtains a steady flow of sheep to be sheared. Of course, the losers are the people who waste $25,000 and lots of time on information they could have obtained for far less from reputable sources.
Not only for far less but in many cases for completely free.
Besides books and investment clubs that are a minimal cost, you can read a site like Bigger Pockets with a wealth of investing knowledge all for free.
Yes. They could have found $25,000 worth of value from reading the information on Bigger Pockets for free. Most of their guides are very good, and the community provides good feedback in their forums.
I’ve gotten the Tarek & Christina seminar postcard in the mail before and it was kind of surreal because a group of us actually chatted with Tarek on Talk Irvine when their rise to fame was just starting. He seemed like an upstanding guy, but I knew that the seminar company had simply licensed their name for the purpose of bilking the masses. I wondered if there would be any consequences for that, so it’s nice to see the OC Register reporting on it and tarnishing their name a bit. The Register story, along with this blog post, could literally save the financial lives of thousands of people.
John T. Reed’s views of various real-estate-investment gurus Part 1
Here is an alphabetical list of famous real estate investment gurus and seminar organizations along with information about them which investors may find of interest. Where I have a relevant product, it is mentioned and linked to the appropriate page. The Federal Trade Commission has a similar page although they are reluctant to name names, but they do identify red flags to watch for at FTC.gov.
By clicking on the guru in question, you can move quickly to the entry in question. When I got into real estate in 1967, there would only have been about ten gurus, all book authors, and all recommended. The all-recommended status continued until Nothing Down author Robert Allen came on the scene in 1979. Ever since, there has been an endless parade of B.S. artists coming into the real-estate-investment-advice field. Fake stories on infomercials. It is an embarrassment to the good people in the business.
https://www.youtube.com/watch?v=wx2KMUvqRIM
John T. Reed is awesome. I have several of his books on my “to read” list.
I’ve bought and read several of his books. His no-nonsense style is very refreshing.
Though it’s not directly related to real estate, his book Succeeding is excellent.