We’ve all heard the sales pitches from gurus for worthless real estate investing programs and scams. Sometimes, it’s easy to identify the crooks and con artists; other times, not so much.
How can you separate those who are offering solid, substantive information from those gurus who are only interested in your cash?
It’s not always easy to spot gurus interested only in lining their own pockets, even for seasoned investors who want to learn new approaches or up their portfolio with land or commercial real estate.
7 signs you may be dealing with real estate gurus
These 7 signs serve as a starting point for spotting the gurus. In the end, you’ll have to rely on your own due diligence such as Internet research on the gurus, trust your intuition and rely on fellow investors online who can help you sort out the good from the bad.
Sites such as BiggerPockets.com have discussion boards in their forums area on this topic and all you have to do is put in the search term “gurus” to find comments, information and help.
No. 1 – Gurus focus on lifestyle riches
Some real estate investing program pushers tap into your dreams to market their product.
Want a California mansion overlooking the ocean? You can have it, and more, they will tell you, if you use their program to invest in real estate. That message should be a big red flag.
But not all so-called experts with a program deliver such an obvious message; some are more subtle. Instead of promising you a “Lifestyles of the Rich and Famous” existence, these promoters wear expensive clothes, arrive in a new sports car or limousine, or mention their recent Caribbean vacation.
They project an image of the success you imagine achieving. Don’t get seduced by the houses, cars, toys and vacations.
A legitimate mentor, whether he is selling a program or just offering advice, will not mention the extravagant lifestyle you will enjoy if you purchase his program. He will instead talk about investing as a business, one with ups and downs. That’s not to say that a legitimate mentor won’t close big deals or be incredibly wealthy; he just won’t dangle a lifestyle, like a carrot, in front of you.
No. 2 – You have to pay to play
You know the scenario — you’re invited to a seminar to learn about a new method of real estate investing, and the presenter or guru teases you with tidbits but offers nothing substantial. To learn his methods, you have to open your wallet.
This can go one of two ways. You might be asked to pay an extraordinary sum, maybe $5,000, for the program materials or to attend additional seminars and boot camps.
Or, you might be tempted by a program that doesn’t cost much only to find out later it is bait to get you to purchase even more expensive products. Either way, you’re suckered into spending a lot of money for nothing. Be especially careful of the gurus who ask you to increase the credit line on your credit card to pay for their “educational” program – this is an absolute red flag that they are not acting in your best interests.
Before you pay for any program or even attend the seminar in the first place, use the Internet to research the gurus. Research the person offering his expertise. Is he currently investing, using the methods he espouses, or just hawking a program? What is the total cost of that program? Have complaints been filed against him with the Better Business Bureau? What are former students saying about him online? Don’t forget to check BiggerPockets.com and the discussions there where you can also ask questions.
If you really want to learn about real estate investing, skip the late-night TV infomercials. Carefully research who is providing real estate education and what others have to say about them. There are good books – read the reviews and vet them. Some local estate investing clubs can be helpful, but some also bring in gurus to speak and sell their programs in exchange for sponsorships. So be aware of what is being sold if you are looking for real estate education, coaching or mentoring.
No. 3 – You do not have to have money to invest in real estate
Real estate gurus promoting an affluent lifestyle attract a fair number of people who have some money to buy the
program but not enough to invest in real estate. Rather than let these cash-poor customers slip away, gurus have found a way to work around their objection: the “no money down” approach.
There are many variations — creative financing, lease-option acquisitions, bird dogging, partnerships, loans from the gurus, partnerships with the gurus, and other schemes — but the message is the same: you can invest in real estate without actually putting your own money into the deal. What they don’t tell you is that some of these methods are not only questionable but may be illegal.
If someone says you don’t need money to invest in real estate, it’s definitely a red flag, says Adam Von Romer of Commercial Capital Advisors and the Fitzgerald Group in Florida. No-money deals are a thing of the past.
“The chances of that happening today are the same as being struck by lightning while being handed the winning lottery ticket by Michelle Pfeiffer,” he says. “It just isn’t going to happen.”
No. 4 – There’s an “exclusive” club offered by only this guru
Sometimes, the so-called gurus aren’t selling a program; they are peddling an opportunity.
Join the guru’s team of investors for a small sum, and they will guide you through the process, helping you set up your business, locate properties, renovate and find tenants.
Don’t rush in without a little digging. Does the guru, or “mentor” get a finder’s fee or percentage of each deal? Are you expected to use his property management company or maintenance crew (and who operates them)? The real “opportunity” may be the opportunity to line his pockets.
A different spin on this model gives you the opportunity to pool your money with other investors for a deal that promises incredible returns. Before you write the check, ask and verify with the organizer whether he has money in the deal himself, Von Romer suggests.
“If someone is promoting a deal that he hasn’t put money into, run,” he says.
No. 5 – No downside to real estate
Like any investment, real estate can go up or down. You can earn a big payday when you research and make a sound investment, but you can just as easily lose big if you don’t know what you’re doing. That’s not to mention unforeseeable factors that can sour a deal.
Anyone who says you have nothing to lose with real estate is misleading you.
“There is nothing worse than owing a bank thousands a month on an asset that isn’t producing income,” says Michael Tempel, president of Nexus Real Estate Services in Minnesota.
Since he began investing in real estate in 1998, he’s watched the market cycle up and down — there’s always the potential to lose big or get caught paying for a bad investment. For example, locally, the multifamily industry has exploded, and investors are enjoying increased rents and the opportunity for new development. At some point, though, Tempel anticipates the growth will slow or even decline once demand is met. Investors who don’t realize this, especially those who have been mentored that its value will only increase, could stand to lose money.
“Real estate is a great investment,” he says. “Just be aware that investments can go in either direction. Don’t work with anyone who tells you it’s a sure bet.”
No. 6 – “One size fits all” approach
Disingenuous real estate gurus are often one-trick ponies — they have one method or technique, and they tout it as the key to success in real estate investing.
But just as you wouldn’t use a wrench to pound a nail into the wall, you can’t use one method for every opportunity in real estate. There’s a right tool, or method, for the job.
Von Romer, who has written two books on real estate investing, says that when he started out in 1998, he purchased a few programs and was able to successfully apply some of the techniques.
But, he says, each technique only worked in specific circumstances, and what worked then wouldn’t necessarily work now because of new regulations and how the market has evolved.
He believes you need to continually educate yourself on how to find good deals and on the techniques that work in the current market.
He also cautions investors to do their research on “new” programs. Some gurus like to trot out old techniques and present them as something new, even though the techniques really don’t work in the current market.
No. 7 – It’s too good to be true
There’s a lot to be said for the tried-and-true adage that if something seems too good to be true, it probably is, especially in real estate investing and especially in the current market.
Be skeptical of gurus who promise unusually high returns on your investment. You may even want to ask for a guarantee before you commit. If you don’t see the promised results within a certain time frame, will the guru offer you a refund?
No matter how legitimate a program looks or how earnest the expert appears, in the end, you have to trust your gut and your research on the Internet. If something doesn’t seem right, look elsewhere.
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