On this blog, I try to avoid clickbait-y headlines. In this case, I can’t think of another way to explain what I’m going to discuss today: real estate gurus are sociopaths.
My parents enjoy watching the flipping and real estate shows on cable, and my mom asked me about one of the markets where one of these gurus films their show. I got sidetracked into a discussion about how the gurus themselves are terrible human beings, and realized that it would make a worthwhile blog post.
You’ve seen their commercials on TV, or maybe you’ve heard a polished radio ad: <Famous Reality TV Flipper> is coming to your area, and they have a limited number of slots available at a free workshop. They’re looking to teach people their proven, sure-fire method of buying and flipping houses. Maybe someone appears with a big five- or six-figure check, explaining that this check represents the proceeds of a single real estate transaction. Perhaps you’ll see someone driving off in their brand new sports car or boat, or surrounded by gorgeous model types.
The most important thing I can teach you about real estate gurus is this: They don’t make their riches from real estate. They make their riches from convincing the vulnerable to buy free information for tens of thousands of dollars.
The big problem is that real estate gurus are trying to sell the fantasy of quick and easy wealth to a group of people who are financially troubled, and desperate for a way to change their circumstances. It makes me intensely angry to see good, broke people bilked out of tens of thousands of dollars for information that is readily available for free.
Every last one of these gurus works in the exact same way: You are invited to an “exclusive” event that is “sure to fill up” (so you’d better call fast). From the very beginning, the pitch suggests a false scarcity. In reality, these events are often sparsely attended, and it’s unheard of for anyone who calls to RSVP being turned away.
When you arrive at the free initial seminar, the guru is generally not even present. Instead, whether you know it or not, you have arrived at an extremely aggressive sales pitch. You will be treated to a seminar devoid of any usable real estate knowledge, and a “system” will be outlined to you.
This is the first thing you need to know: There is nothing special or unique to any guru’s “system.” I’ll explain the basic elements of a real estate transaction later, but here’s what to expect at this initial seminar: the “guru” (his salespeople, actually) will be attempting to sell you a series of increasingly expensive seminars, classes, and programs.
At the conclusion of the initial meeting, or perhaps at some point during, you will be offered the first level of training. More often than not, the guru’s company will quote a “regular” price two or three times higher than it will be offered to you. They’ll tell you that for a very limited time, they will offer you training at a deeply discounted rate. Again, the guru is trying to build the illusion of scarcity. The reality is that this price is offered to everyone, and were you to attend the same seminar the next weekend, you would have the exact same “opportunity” to purchase the next level of classes.
As an aside, it’s important to remember that many of the people at the seminar who are performing sales duties were once in your seat. They are tens of thousands of dollars in the hole after having succumbed to this very same sales pitch. At some point, they were invited to join the sales team. Though the pitch is highly unethical, remember that many of the salespeople are victims themselves, and they may honestly still think there is a major payoff for them somewhere down the road.
One of two things is likely to happen next. You will be given an “assignment” to call all of your credit card companies and “negotiate” to increase your credit limits, or the guru staff may offer to help you make the call. As you probably already guessed, this is not for your benefit. The goal is to free up enough credit to place the training on your credit cards. If this tactic fails, you will usually be asked if there is a family member or friend you can borrow from to afford the program. You’ll be aggressively pushed to get on the phone and arrange to get the money, somehow, so that you don’t miss out on this very special, limited, offer.
Let’s assume for a moment that you paid for the next level of classes. If you thought that you had seen how bad these gurus behave, you’re mistaken– we’re just getting started. At the next level of classes, which may cover some very basic real estate theory, you will be deluged with sales pitches for the “advanced” classes (which may go by another name, such as “mentoring,” or “Pro level,” or whatever). In fact, most of the gurus have no less than three levels of training, and the highest levels can cost over $50,000!
In the interest of full disclosure, most of these programs do cover at least basic real estate concepts. Given how widely available this information is, these gurus have no business charging such scandalous amounts of money for what can be gleaned on the internet, or in a few evenings at your local library.
Most of the gurus offer a “money-back guarantee” to make it seem like there is no risk involved. In fact, the gurus have specific language in their contract (or only make promises about refunds verbally) to make getting your money back a near impossibility.
Trying to Sell You Something That’s Already Free
Real estate investment is a straightforward transaction, and if you are interested in “flipping” houses, the only goal is this: You must purchase and renovate property for less than retail value, then sell it at or near retail value. It’s really that simple.
Just like financial advising, the real estate industry, especially the grimy corner that gurus occupy, has a vested interest in making the process seem complicated. My experience has been all of the information being sold by these gurus is not only freely available online at sites like Bigger Pockets, but it’s available in a more digestible, self-serve format there as well. The Bigger Pockets forums are full of people who are willing and able to mentor inexperienced Real Estate Investors for nothing.
Very, very briefly, here is an outline of a real estate transaction:
Find a Property Worth Purchasing – Flippers are seeking properties below retail value, where the acquisition cost plus the cost of rehab is less than the price they will sell it for. Flippers sometimes employ tactics like the “knock and talk” (which is just want it sounds like – you knock on the door and offer to purchase the house at a deeply discounted price) and “yellow letters” (handwritten letters to homeowners whose properties are reported as being in default).
Make an Offer, Negotiate, and Sign a Contract – You can make an offer on a property without real estate agents. You simply agree on a price and sign a contract. Most areas have Real Estate Investor clubs with freely-available sales contract templates.
If Necessary, Secure Financing – If you aren’t purchasing the property for cash, you’ll need to go to a lender. For most of us, that’s a conventional mortage company. This is another place where gurus advise bad behavior. They might suggest you pursue some alternative financing with horrible interest rates, or even that you try to use financing that is meant for owner-occupied properties.
Use a Title Company to Close the Deal – If you are purchasing the property for cash, you can take the completed contract to a title company of your choice and they will guide you through the closing process. If you are using a mortgage company, then you the mortgage company will also be involved with the closing, and it is likely to take slightly longer since you will have to get an appraisal and any other documentation required by the lender.
If Necessary, Perform Renovations – If you are flipping the home, once you take possession of the property, you would perform all necessary improvements and repairs.
If Necessary, Sell The Home – Once the property is in marketable condition, a flipper would sell it at retail price. Ideally this will result in some profit.
OK, obviously I’m leaving a lot of nuance out here. We didn’t cover insurance, inspections, details of financing, or any of the other knowledge you’ll want to obtain before going forward with a deal. This is just a quick high-level overview of the basic steps that nearly every real estate transaction goes through.
Must-Read: Ways Real Estate Gurus Are Sociopaths
Check out the below, which is just a tiny representative group of reviews and cautions about these scams.
So How Should I Learn About Real Estate?
Great question! I’ve tried to give you a good guide to evaluating rental properties here. I purchase properties for their monthly income, or “cash flow.” I don’t “flip” because my interest is in building up income for early retirement.
What I would advise is that you go on over to Bigger Pockets and start listening to their podcasts, and reading everything you see in their forums. After a few months, stuff will start to make a lot of sense. Just be patient and absorb. Ask questions whenever you don’t understand, and you’ll get a lot of patient and detailed responses.
The other advice I’d like to give you is that you will never feel completely “ready” to take on your first deal. It’s always a leap of faith, but there is no better educational experience than going through the process, making some mistakes, and getting that first deal under your belt. When you feel like you’re starting to read the same things over and over again, make a deal. Be picky. Don’t be a motivated buyer. Don’t be afraid to go outside of your area if the numbers don’t make sense where you live.
As you’ve probably guessed, I’d really like to see these sorts of scam artists hit right where it hurts– in the wallet. Please consider sharing this article wherever it might do some good.
Have you ever attended one of these scam seminars, or do you know someone who has? Any anecdotes you’d like to share? Let me know in the comments!