John T. Reed' analysis of Russ Whitney' TV infomercial 3 Whole Christmas list Whitney' narrator says you will learn how easy it is to buy, sell, and finance properties for big profits and be your own boss and achieve financial independence. Whoa! The whole Christmas list of the wannabe real estate investor. Can you achieve all those things in real estate investment? Absolutely. Is it easy? Absolutely not. Whitney' first book was called Overcoming the Hurdles and Pitfalls of Real Estate Investing. His recent book is Building Wealth. Note the different tone of the titles. "Hurdles and pitfalls" is truth when it comes to real estate investing. But Whitney figured out that talking about hurdles and pitfalls"”telling the truth"”is bad for selling get-rich-quick seminars. "Seating is limited" Read what I said about this in my article on what happens at Whitney' free training. The short version is that he always says seating is limited. In fact, if he has too many seats, he sneaks some out the back to make the room look crowded. He admits it in the back of his Mortgage Payment Acceleration Program manual. Dick Howard, Charlotte, NC In another testimonial in the infomercial, Dick Howard of Charlotte, NC claims he "netted" $25,872.62 on a house "last march." Since then, he said, he had acquired 21 homes worth $1.3 million and that he bought them for 60'¢ on the dollar, that is, he paid 60% of market value for the properties. He said he bought a second property on a lease option, was going to close "in July" and make a $20,000 profit. First, I am extremely suspicious of infomercial testimonials in general. Secondly, these claims are preposterous when compared to my real estate experience and that of the thousands of real estate investors I have interviewed. John Beck is probably the biggest expert who ever lived on the subject of bargain purchases. He
defines a property that can be bought for 20% less than market value as a bargain. If the property can be bought for 33% less than market value, he calls it a "superbargain." Superbargains are generally only possible in extreme distress sales like sheriff' execution sales which are poorly advertised compared to foreclosures. 21 superbargains Howard makes no mention of any sheriff sales or any other extraordinary circumstances, yet he claims to have purchased 21 superbargains! Howard says he "netted" $25,872.62 on a home. One would assume that means he paid that much less than his net sale price after paying costs of the transaction. Let' check out Mr. Howard' investments in the Charlotte area. I would appreciate it if readers in that area would check the public records of the local tax assessor and recorder to see what Howard owns now and what he has owned there in the past. Delbert Kinchelow, Lee' Summit, MO This testimonial giver says he put $25,000 cash in his pocket five days after he took Whitney' training. It is extremely difficult to do that without being naughty in some way. I would appreciate it if readers in the Lee' Summit, MO area would check the local recorder' office to find this deal and send me the documents. Bill Johnson, Sonoma County, CA This man says he made $34,000 on his first deal as a result of selling a house. "I did nothing," he says. I note that this man has the most common last name in America and that Whitney only lists his county, not his city. Like Whitney' saying vaguely that his early investments were in "upstate New York," this "Johnson of Sonoma County" strange vagueness makes me suspicious. The good news is that Sonoma County is across the Bay from the county that I live in. Gina and Russ Bowles of Ohio Now we"re getting more vague. We don"t even get a county. Just a state. Why? They claim to get $2,000 a month positive cash flow on their first two deals. Not likely unless they made a down payment in the $25,000 and paid about 67% of market value"”a superbargain. They also claim they own over $1,000,000 worth of real estate. First, we need to find out what county these folks did this in, then we need to find the deals in the recorders office. The Bowles do mention having bought a triplex in Salem, OH. They say they put nothing down and have $300 a month positive cash flow. That would require a superbargain in the 50% to 60% of value range"”an extremely rare hyper bargain. They also mention buying two six-plex apartment buildings, perhaps also in Salem. Again, they claim nothing down and about $2,000 a month positive cash flow. They further claim $40,000 of cash-out refinance proceeds. Coming on top of nothing-down purchases, this is near miraculous. I would appreciate it if someone in that area would check these claims out in the Salem area recorder' office and send me the results of the search. They claim a net worth of $250,000 with "nothing down, helping people and solving problems and the money comes." "Helping people" One of the recurring themes in the pre-foreclosure seminar business is that the investor is getting paid for "helping people." Let' examine that notion. The source of profit in pre-foreclosures is the equity of the homeowner being foreclosed. If the homeowner being foreclosed has no equity, pre-foreclosure investors all walk away. (In some cases, equity can be created in these situations by obtaining discount lien releases from the creditors, but that' getting too complicated for this article. For details on investments like pre-foreclosures and discount lien releases, see my book How to Buy Real Estate for at Least 20% Below Market Value.) The key question from an ethical and moral standpoint, is whether the homeowner who is being foreclosed is overpaying for the "service" of being "helped." "Saving their credit" Another phrase you hear from pre-foreclosure gurus and their followers is "saving their credit." If you are being foreclosed, your credit is already messed up. You are behind in your mortgage payments by several months. This is recorded in your credit record and there is nothing Russ Whitney or one of his students can do about it. What a pre-foreclosure investor can do is prevent you from having a foreclosure per se on your record. Is that "saving your credit?" I think not. Deed in lieu I deeded two Texas apartment complexes to the lenders in lieu of foreclosure in 1988 and 1992. One dropped in value from the $835,000 I paid for it to about $300,000 value"”and had a mortgage of $585,000. The lender is the only one who will buy it under those circumstances. It was also losing $35,000 a year cash flow, so made no sense to wait for the value to go back up. The other dropped in value from the $600,000 I paid to about $200,000 and it also was losing $35,000 a year. Deeding a property in lieu of foreclosure is almost equivalent to a foreclosure. Mortgage applications generally ask have you ever been foreclosed or given a deed in lieu of foreclosure, illustrating their equivalence in the eyes of the lenders. I wrote an article about it called, "Won"t that affect your credit?" To our surprise, deeding two properties in lieu of foreclosure had almost no effect on our credit. Specifically, several lenders said they could not loan to us until two years had passed since the last deed in lieu. Because interest rates had fallen, we refinanced our home. Although several lenders said they could not, by policy, lend to us until after two years, other lenders said they could lend to us now. The only problem was that among the lenders who could not lend to us were one or two whose rate was 7% for loans like ours. The lowest rate among those who would lend to us was 7.25%. So the answer to the question, "Won"t that affect your credit?" was, "Yes. It will cause you to pay 1/4% more in interest for two years." How much should you pay to "save your credit?" So how much should you pay to someone who is going to "save" you from having to pay 1/4% more interest for two years? About 1/8% for two years I would say"”split the savings with the "savior." On, say, a $50,000 mortgage, 1/8% for two years would be about $125. Is that how much the pre-foreclosure guru testimonial givers are getting paid? No. They typically claim profits of $20,000 or more for "saving the credit" of the person being foreclosed. Charging a person who is down on their financial luck $20,000 for a service that' worth $125 is a bit excessive, don"t you think? With friends like that, who needs enemies? California' Home Equity Sales Contract Statute The State of California thinks so. They passed a law called the Home Equity Sales Contract Statute (California Civil Code '§1695). It begins with a purpose statement. "During the time between commencement of foreclosure proceedings and the scheduled foreclosure sale date, homeowners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to the importunities of equity purchasers, who induce homeowners to sell their homes for a fraction of their fair market values through the use of schemes which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices." As you might expect, after reading that, California' law places numerous restrictions on investors who buy from someone who is in the process of being foreclosed. I understand some other states have similar laws. If Whitney is advocating pre-foreclosure investing, in my opinion, he has a moral and ethical obligation to apprise students of the existence of laws like California'. Excess sale proceeds There is also the issue of excess sale proceeds. If the homeowner being foreclosed has equity, which is the only situation a pre-foreclosure investor would accept, it is likely that the foreclosure sale would be for more than the loan balance of the loan being foreclosed. That means the sale would generate excess proceeds"”the difference between the foreclosure sale price and the amount owed to the lender who caused the foreclosure. Guess who gets that? The homeowner who got foreclosed. But if their "credit is saved," there is no foreclosure auction and consequently no excess proceeds. Who gets what would have been excess proceeds then? The "savior." So are we helping people"”or helping ourselves to financially-distressed people' life savings? California' law prohibits pre-foreclosure investors from misleading the person being foreclosed regarding the possibility of excess foreclosure auction proceeds. "Pastor Archie Nevins" Another testimonial giver in the infomercial is "Pastor Archie Nevins." With "Pastor Archie Nevins," the details on who he is reach a new low in the infomercial: no city and no state. Since he' a "pastor," a denomination would be helpful, too. No denomination either. This is very "upstate New York-like." Why is Whitney not giving us the city and state on this guy? There' probably a reason. After all, he did give that information on the others. Nevins doesn"t say much other than what "great teachers" the Whitney instructors are. So why is he even in the infomercial if he never did a deal to brag about? My guess is that his title of "pastor" gives him credibility with many who trust clergymen. Questions about Archie: "¢ Did he actually take any of Whitney' paid seminars? "¢ Where is Archie? "¢ Who awarded him the title of "pastor?" "¢ What is he "pastor" of? "¢ What are the names of the teachers he is talking about and what subject did they teach? Within hours of posting this, I get an email saying Nevins did take all or almost all of Whitney' seminars. Whether Nevins made any money in real estate I do not know. The guy who wrote me said he lives in Tracy, CA, which is near me. He did not know who made Nevins a "pastor" and thought he no longer was one. I am also told that Whitney has called Nevins his biggest star student, but that Nevins net worth is mainly the result of a multi-million-dollar lawsuit settlement he received around the time he took Whitney' seminars.