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Russ Whitney’s first fortune by John T. Reed 2

Address
335-337 Hulett Street, Schenectady, NY
Purchase date
11/15/79
Type
two 3-unit buildings
Co-owners
favorite Realtor®
Type title
deed
Puchase price and terms
$15,300, $2,000 down, $13,300 seller mortgage plus HUD Title I improvement second mortgage for $14,100.
Sold to
favorite Realtor®
Sale date
12/15/80
Sale price and terms
$1,000 for Whitney’s equity
Net profit or loss
Zero (Whitney says he and the Realtor® each pocketed $5,000 of the improvement loan money. That is arguably illegal. See my article on Whitney’s improvement loan “overfinancing” techniques.)
Comments
Whitney says the $4,100 he and the Realtor® spent on the improvements added a unit to 335 Hulett. That is not the minor cosmetic rehab Whitney advocates. It is the sort of structural rehab that I say is generally the only profitable rehab.

Address
813 & 819 Lincoln Avenue, Schenectady, NY
Purchase date
6/8/81
Type
2-family each
Co-owners
wife
Type title
deed
Puchase price and terms
$15,000, $1,000 down, $14,000 mortgage to seller
Sold to
two construction workers who are named on page 75 of Whitney’s book Building Wealth—they were his partners in owning Mumford Avenue and Schenectady Street
Sale date
6/8/81 (same day as purchase)
Sale price and terms
On p.24 of Overcoming… Whitney claims he made $5,000. I cannot see evidence of that in the clerk’s records. They show $16.50 of transfer tax paid on the deed to Whitney and $1.10 paid on the deed from Whitney.
Net profit or loss
$5,000 cash
Comments
We’re taking Whitney’s word for this.
Whitney was involved with four Schenectady area properties years after he left New York for Florida.
Address
Lot 187 Mumford Street, Schenectady, NY
Lot 79 Schenectady Street, Schenectady, NY
Lot 77 Schenectady Street, Schenectady, NY
Purchase date
5/13/85
Type
unknown
unknown
Unknown
Co-owners
two construction workers who are named on page 75 of Whitney’s book Building Wealth, his favorite Realtor®, and the guy who moved to FL with him
Type title
deed
Puchase price and terms
Unknown, $33,000 seller mortgage
Sold to
Unknown
Sale date
Unknown
Sale price and terms
Unknown
Net profit or loss
Unknown
Comments
A $13,514 mortgage from the construction workers to Whitney and his move-to-FL friend was recorded on 2/4/87. Mortgage discharges of that mortgage and the $33,000 seller mortgage were recorded 4/30/87. Also on 2/4/87, the two construction workers gave a mortgage to Whitney’s favorite Realtor® for $6,757, which is precisely half the amount given to Whitney and his FL friend.
I do not know what this deal is about and I do not recall Whitney talking about it in any of his books. It seems to be the only Schenectady deal that he does not mention.

Address
904 Lincoln Avenue, Schenectady, NY
Purchase date
3/27/85
Type
1-family house
Co-owners
two construction workers who are named on page 75 of Whitney’s book Building Wealth, his favorite Realtor®, and the guy who moved to FL with him
Type title
deed
Puchase price and terms
Unknown, 7/10/85 $5,900 mortgage to Dime Savings Bank
Sold to
man from Albany
Sale date
12/10/86
Sale price and terms
unknown
Net profit or loss
unknown
Comments
I could not find any mention of this property or deal is Whitney’s books. He sold it to a stranger, but he bought it from three of the guys who co-owned it with him. In orther words, before Whitney and his Florida friend, this was owned by the two construction workers who are named on page 75 of Whitney’s book Building Wealth and his favorite Realtor®. Those three simply added the names of Whitney and his FL friend to the deed.
Net improvement in cash after five years: MINUS $126.42
The total cash gain on the above deals is -$4,728 - $1,252.41 + $7,353.99 + $5,500 + $5,000 = $11,873.58. He also left with wraparound land contracts of $36,500 + $4,950 = $41,450.
This was from buying, renovating, managing, and selling property over a five-year period. Had he continued working at the “slaughterhouse,” he would have made $15,600 x 5 = $78,000 over the same period.
Whitney claims to have had some positive cash flow from these properties. That is hard to verify and unlikely. His high leverage would require extraordinarily high mortgage payments. Various documents in the County Clerk’s office indicate trouble with creditors, non-payment of property taxes, and housing code violations. In addition, Whitney’s own books tell of severe fire damage at one property, embezzlement by a property manager, and inability to rent his house because of a nonfunctioning well. If he had negative cash flow, his net for the five years in Schenectady would be lower than the $11,874.58 in cash and $41,450 in wrap contracts (IOUs) above.
Whitney also invested in the Confederation of Organized Purchasers at the time and says he lost $12,000 cash in the process, so his net cash improvement in five years of investing in upstate New York was $11,873.58 - $12,000 = -$126.42.
Whitney said he made his “first fortune” in upstate New York. In fact, he appears to have made less than he would have had he remained in his union job at Tobin Packing Co. I cannot imagine anyone agreeing that -$126.42 in cash and $41,450 in land contract installment notes was “a fortune.” If he had resold the $41,450 in land contracts for cash, he would have gotten much less than $41,450 for them. That is the real test of what they are worth, not their face value of $41,450.
Additionally, Whitney hit a pedestrian with his pickup truck and lost a million dollar suit to that pedestrian. He got out of paying most of it by threatening to file bankruptcy in 1988. The pedestrian’s attorney said he believed Whitney gave his client a couple of mortgages and some cash. That sounds like the two wraparound land contracts totaling $41,450—the only assets Whitney still had in the state where the judgment had been awarded by the jury. (The $13,514 mortgage on the Mumford and Schenectady Street properties had been discharged or paid off on 4/30/87.)
Timing could not have been worse
Whitney’s timing could not have been worse. He started investing in the late seventies. Real estate prices were higher than ever then because of the unprcedented inflation during the Carter Administration.
Year
Inflation rate
Mortgage interest rates
1977
6.5%
9%
1978
7.7%
9.7%
1979
11.3%
11.16%
1980
13.5%
13.95%
1981
10.4%
16.55%
1982
6.1%
15.82%
Whitney bought in 1977, 1978, and 1979, tried to sell in 1981, and sold in 1982. When he was trying to sell, interest rates were higher than ever, which makes it very hard to sell because it lowers how much mortgage home buyers can qualify for and reduces the cash flow of rental properties.
No arms-length deals
Oddly, every sale Whitney made was to an associate of some sort except for one, and that one was bought from associates. Arms-length sales between strangers are generally considered to be at fair market value. But when a property is bought from or sold to an associate, friend, or relative, the question should arise as to whether there is additional consideration going in one direction that is not evident in the paperwork. For example, Whitney says the buyer of 812 Grant above did work for him for free on other properties in return for getting this property. It may be that all of the other above sales are at market value, but the lack of any arms-length deals, which is highly unusual for so many sales, must be noted.
It looks like Whitney claimed to have made a “fortune” in upstate New York because he assumed no one would ever check. Until he sued me for libel, that assumption was correct.
Copyright 2002, 2003 by John T. Reed
Last update 4/29/03
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CONSUMER WARNING NOTICE: I recently saw Russ Whitney on a late night TV infomercial and then attended one of his "free" seminars. Unfortunately I believed all of their LIES and FRAUDULENT CLAIMS and I paid thousands of dollars to go to his "training camps". Needless to say I was clearly ripped off, cheated and lied to by Russ Whitney and his employees (band of thieves). My mistake was not searching the Internet to find out more about Russ Whitney and his company's HORRIBLE reputation for fraud, deception and illegal activities. Had I searched online I would have found out about THOUSANDS of customers being cheated, HUNDREDS of investigations by the Attorney General into the fraud of Russ Whitney and his company's, and that Russ Whitney himself is a CONVICTED VIOLENT FELON and spent years in PRISON. I saved the cached pages from the major search engines of the John Reed lawsuit with Russell Whitney and the TRUTH and FACTS that Reed discovered during his investigation of Whitney. I am posting this information on real estate discussion boards so other people do NOT get cheated and ripped off like I did.