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The real estate B.S. artist detection checklist 3 26. Advocating the use of independent, percentage-of-the-gross property managers. Good property-management companies are virtually nonexistent. Experienced real-estate investors know this. But inexperienced investors do not and are often turned off by the idea of fixing toilets and other property-management chores. So B.S. artist gurus falsely tell these novices that they can eliminate these unpleasant chores by simply hiring a good property-management company. In short, the problem with property-management companies is that they neglect your property and use high-cost suppliers and subcontractors often in order to get kickbacks from them. Property management is too entrepreneurial to farm out. You can hire a custodian to perform some mundane, routine chores, like depositing rent checks in the bank. But you cannot hire an entrepreneur. You must manage property yourself or hire a salaried, in-house person to do it. 27. Novel phraseology. B.S. artists invent new words and phrases for marketing or obfuscating purposes. Creating new words and phrases can be legitimate as a teaching device when the new word or phrase helps the student understand the idea in question. But B.S. artists use novel phraseology to make what they are telling you sound new, unique, and exotic. If you hear an old concept, you feel as though you are not learning anything new. But if a guru disguises his old concept in a new name, he can usually B.S. a novice into thinking he has learned something new. One key test is whether the word or phrase in question is actually used by professionals in the industry, or just by the guru. For example, the phrase "equity kicker" is cute and really used in the industry. It refers to a loan provision which gives the lender equity in the property or a share of its net operating income in some cases. But no one uses the phrase "second mortgage crank," which Robert Allen created in his book Nothing Down to describe a new first mortgage combined with a seller second mortgage. B.S. artists also give old words new meanings in another effort to dress up old material as new. Robert Kiyosaki' twisted definitions of "asset" and "liability" are examples of this technique. Creating useless new words is misleading, but relatively harmless. However giving old words new meanings can hurt people by increasing misunderstanding. 28. Talking like a politician. Politicians use a lot of euphemisms and dysphemisms (the opposite of a euphemism) like "invest" when they mean spend taxpayer money or "loophole" when they are talking about lawful behavior they do not like. They like meaningless slogans. They are fond of dividing the world up into stereotyped groups like "the rich" and "the poor." They engage in intellectually-dishonest debate tactics like name calling and changing the subject. B.S. gurus do this as well. Robert Kiyosaki speaks of "the rich" as a monolithic group where everyone behaves the same and have many "secrets" that only a few, like Kiyosaki, are willing to share. He also does a lot of sloganeering like, "Don"t work for money. Make money work for you." That' a politician' grandiose way of saying you should save and invest. Like a divisive politician, he stereotypes and puts down entire groups like "the poor," "the middle class," "bean counters," and those who have a university education. 29. Inaccurate book titles. The right book title can sell a lot of books. Nothing Down is one example. Another is Real Men Don"t Eat Quiche. Both books were lousy contentwise, but they sold well. All gurus, myself including, try to use a title which will maximize sales. But the B.S. artists feel no compunction against using a title that does not reflect the content of the book. Using an inaccurate title is dishonest. If the author will not even level with you on the title, how can you trust him about anything else? 30. Focus on the beginner market. In theory, there is nothing wrong with some gurus focusing on the experienced investor market, as I do, and others focusing on the beginner market. The two markets have somewhat different needs. However, it must also be noted that beginners are really ignorant about real estate and it is human nature for unethical, knowledgeable people to take advantage of ignorant people. In fact, the bad gurus do sell only to the beginner market because they would starve to death trying to sell their garbage programs to people who are knowledgeable enough to recognize garbage when they see it. Gurus who sell to beginners claim they do it to help the little guy. There' that talking-like-a-politician habit again. In fact, they sell to beginners because they are predators and predators go after the weakest prey. I just looked at the list of gurus I recommend and found that none of them focus on beginner investors. I recommend that beginning investors get their information only from the gurus who focus on experienced investors as a way of insuring that the material is good. The bogus material sold to beginners generally overstates the rewards; understates the effort, risk, and time required; and gives advice which is incorrect, inadequate, or even dangerous. 31. Denounce those who disagree with them as "negative thinkers" or "dream stealers." Virtually all Communist governments came to power through revolution. Whenever any citizen of a Communist country criticizes the government, they are denounced and prosecuted for being "counterrevolutionary." The phrase "negative thinker" is to real-estate investment what "counterrevolutionary" is to Communism: a meaningless accusation that can be leveled at anyone who disagrees with the accuser. Pyramid sales scheme pushers prefer the phrase "dream stealer" to put down anyone who tries to talk sense to their "cult members." It is one

 form of an intellectually-dishonest debate tactic known as "name calling." Intellectually-honest debate tactics involve identifying errors or omissions in facts or logic. The B.S. artists who condemn negative thinking cannot define it. It you ask for an example, they will be forced to choose some statement of fact. For example, the statement, "It looks like rain," might be denounced as negative thinking. But if it really does look like rain, and the group is deciding whether to set up a graduation ceremony in the stadium or the gym, what is the person supposed to say? The Sunday, 523/04 Dilbert comic strip showed a good illustration of this. Dilbert was denounced by the pointy-haired boss for being too negative. He asked when and was reminded that he criticized ideas like "the perpetual motion clothes dryer." When he protested they were lousy ideas, he was again accused of being "negative." Overemphasis on the negative aspects of many different things is a bad habit. But the trick is in defining "overemphasis." In fact, the typical user of the negative-thinking accusation has a hair trigger and uses it against any critic, not just against the chronically depressed. Underemphasis or ignoring adverse facts or logic is probably a worse bad habit because such persons are more likely to get themselves in trouble. The correct posture is to seek the truth, whether welcome or unwelcome, and to accept that, sometimes, the truth hurts. 32. Real-estate dictionaries that are not in alphabetical order. Many so-called "how-to-invest" books are, in fact, merely investment dictionaries that are not in alphabetical order. All they do is define the terms unique to that investment. They are not in alphabetical order because the author is trying to conceal the fact that he has written nothing but a dictionary. If you watch Wall Street Week on TV you will notice that the panelists are uncomfortable talking about which stocks to buy and what the Dow will be in six months, but they get very comfortable when the viewer Q&A period arrives and they can sit back and just define investment terms or procedures. You do not need more than one real-estate dictionary, and there are several free ones online. 33. Use of handles or screen names on the Internet. Celebrity gurus do not do this, but they are not the only B.S. artists in real estate. The Internet is full of them. One way to spot them is to see if they give their real name or use a handle or screen name instead. At the slashdot.org Web site, you are required to give your real name or describe yourself as an "anonymous coward." Well put. Obviously, you should not be paying any attention to anonymous cowards. If you are curious about a particular person who is hiding behind a handle, do a number of searches for his email address on various search engines like Ask Jeeves. I did that for one guy who sent me an antagonistic email and found out his life story, including contradictory postings on various different sites at different times. For example, at one, he said he was "very, very well compensated." At another, he admitted he made $750 a week as a truck driver. 34. Citing meaningless or near meaningless "accomplishments" as evidence of good-guy status. At least one guru Web site says "Registered with the State Secretary of State as a company in good standing." All corporations and similar entities are required to register with the state, just as all licensed drivers and vehicle owners are. It means nothing. Getting a trademark is no accomplishment. Owning a trademark on an approach to real estate is the equivalent of having a vanity license plate. All you have to do is be the first to request it. It means almost nothing. 35. Citing professed religiousness as a selling point. "Trust me because I say I"m religious," is an age-old con man' ploy. Whether a real-estate guru adheres to the teachings of any religion is irrelevant, not to mention unverifiable. Use of professed religiousness as a selling point is improper. There is an old saying something to the effect that, "When a man starts telling me how religious he is, I check to see if I still have my wallet." That' good advice. In 1819, William Hazlitt said, "The garb of religion is the best cloak for power." In the current era, it is also a good cloak for persuading people to give you money. I do not object to a man making occasional religious references after you have become his customer. For example, Forbes magazine has a biblical quote in every issue. But Forbes does not say subscribe to Forbes because it is a Christian magazine. Nor do I object to someone teaching a Christian or other religion' approach to investing. For example, in Leviticus 25 to 37 in the Old Testament, there are a number of admonitions about interest and co-signing on loans and such. The Koran prohibits charging interest. If someone wants to preach an approach to investing that adheres to some religion' teachings on the subject of money, fine. It' even OK to advertise that because, in that context, religion relates to the content of the course, not the content of the character of the teacher. In her book Fraud: Schemes, Scams, and Swindles, Marsha Bertrand has a chapter on "affinity fraud." That' where someone tells you to trust them because they are a member of the same group as you. More often, the con man makes no claim to be in the same group as you. Rather, he is just claiming to be a member of a trustworthy group—namely, religious people. Good-guy gurus who are religious generally either will not mention their religious beliefs at all to customers, or will mention them only in a non-marketing context, perhaps using their guru podium to mix a little preaching in with their real estate message. Check also https://www.crimes-of-persuasion.com/ One reader told me this item reminded him of Ralph Waldo emerson' line, "The louder he proclaimed his honor, the faster we counted the spoons." 36. Excessive quoting of legal citations. My books and articles contain legal citations—unusual for books aimed primarily at laymen. But I think it adds credibility and enables readers either to look up the legal authorities themselves or show the citations to their attorney or accountant. But note the phrase "adds credibility." Some gurus, who are con men, spout legal citations by the ton. This phenomenon has been seen before, among those who do seminars claiming the federal income tax law is unconstitutional. (It was—before the Sixteenth Amendment.) How many citations are excessive? It' hard to draw a fine line. I would suggest that it' too many if you are getting citations when you were not wondering, "Does the law really say that?" You should also note that citation spouting does not prove legality. On the contrary, the more citations one spouts, the more you should be suspicious. Shakespeare' line from Hamlet, "The lady doth protest too much, methinks," should come to mind when a guru tells you over and over about all the legal backup he has for his approach. Of course, the best way to test whether the citation spouter is a BS artist is to check the cited authority to see if it really supports the guru' approach or to consult a lawyer to see what he or she thinks (the cite may support the guru, but he may have omitted a crucial contrary cite). 37. Riff raff in audience. If you go to a live presentation of some sort, you can see, in-person, the other customers of the guru in question. B.S. artist gurus have audiences that look sleazy, unkempt, the bottom of the socio-economic barrel. The better the audience looks, the better the quality of the guru' information as a general rule. Think of it this way. Look around the room and ask yourself, "Are these people who I want to be like when I grow up?" If not, leave. 38. Denunciation of traditional education. Who is most likely to fall for a get-rich-quick pitch? People at the bottom of the socio-economic ladder. Who is that? The least educated. So one theme common to a number of get-rich-quick pitches—like Kiyosaki and Whitney—is that traditional education in elementary, high school, and college, at best, failed to teach you how to get rich, and, at worst, taught you things that actually prevent you from getting rich. In fact, every study I have ever heard of says that the more education you get, the more money you make. As we all know, there are exceptions to the rule—the occasional high-school dropout millionaire and financially struggling Ph.D. But, clearly, you handicap yourself if you stop your education short of a college degree. As late as my late thirties, mortgage lenders were still asking me what college education and other training I had that qualified me to be the owner-manager of an apartment complex. Also, think back to high school and college. Remember who the dropouts were? Generally, they were the laziest, dumbest, most undisciplined kids in your school. No matter what the get-rich-quick gurus tell you, making an extraordinary amount of money takes an extraordinary amount of work. It takes intelligence, diligence, and persistence—precisely the things that the vast majority of dropouts did not have. If a dropout asked me for advice on getting rich, one of the first things I would tell him was that he must abandon the behavior pattern that caused him to drop out. Such folks don"t want to hear that. So the get-rich-quick gurus tell them what they want to hear: that school sucks, that they were right to dropout, and that they can get rich without the hard work that they refused to do in school. This is yet another indication that get-rich-quick gurus have no interest in helping you. They are only interested in helping themselves to what little you have in your bank account. 39. Simple rules covering complex matters. Beginners want simple rules for investing. For many aspects of investing, simple rules can be stated. I have a number of simple rules. For example, one of my Reed' Rules of Real Estate Finance is that "Simple is better than complex." The problem arises when the guru gives you simple rules that govern complex issues. For example, when I was a student at Harvard Business School, we had a project with some older guys who were there for a short executive program. When we were deciding how much of some supply our "company" should order, one of the old guys said, "My boss always told me that running out was one of the worst things you could do." When we heard him say that, we MBA students exchanged glances stifling laughter. In fact, the correct way to analyze such things is the "economic order quantity" formula which takes into account the cost of overage and the cost of underage. Whether it is bad to run out of something is a function of your profit margin. On high-margin products, running out is bad. But on low-margin products, the cost of carrying excess inventory may make it better to occasionally run out rather than to always have enough to meet peak demand. The point here is that bogus gurus love to give simple rules because they know that' what ignorant novices want. The problem arises when they give simple rules to govern complex situations that do not lend themselves to simple rules. 40. Deliberately making a meeting room look crowded. Russ Whitney tells his students to run sales seminars in some cases and explains both how they should and how he does. He says to set fewer chairs than the number of people you expect to make the room appear packed. Furthermore, he says to keep the meeting room doors closed until you see how many people so you can remove chairs if necessary without people suspecting. With guys like him, you are being conned before you even sit down. 41. Constant warnings that prices will be much higher if you do not buy right now. This is the behavior pattern of a high-pressure sales organization selling overpriced material. They know that if you do not sign up while you are in their presence and under their spell, you will likely sober up and realize what you were about to do was a big mistake. Reputable businesses do not constantly threaten you with greatly increased prices if you do not buy today. 42. Physical presence in Florida or Utah. A very large number of BS gurus are located in Florida or Utah or both or are associated with businesses located in those states. Not all gurus in those states are bad. For example, I recommend John Schaub who is in Florida. But I have never recommended any Utah guru. Utah appears to be almost the only place where high-pressure, real estate investment telephone boiler rooms, "consultants," and "mentors" operate. I am not sure why. Utah has a lot of Mormons, but I have known many Mormons and they have been more ethical as a group than any other religious group I have come in contact with. It may be that the people running these operations are non-Mormon or that they are uncharacteristic if they are Mormon. The people of Utah are the ones who need to explain why their state is the real estate phone scam capital of the world. Florida has a long tradition of selling underwater lots and swamp land. They also have a bankruptcy law that allows Floridians to declare bankruptcy yet keep their principal residence regardless of its value! That attracts people who expect they may have to declare bankruptcy in the future. Nothing Down guru Robert Allen went bankrupt in California some years ago. There, a married couple can keep just $75,000 of their home equity. Guess where his principal residence is now? I heard from some readers that it was in the Orlando, FL area. Another reader said they are in Utah. I guess it has to be one of the two. The 4/19/04 Forbes had an article called "Poison Pills" with the cover subtitle "The men and money pushing dangerous diet supplements." I was only half surprised when I read the following sentence in the article: "Light regulation is particularly popular in Utah, where dietary supplements—at $3 billion a year—are the state' third-largest industry." I often refer to Utah as the Nigeria of the U.S. Nigerian Internet scams are among the top ten. You know the ones. "I am the widow of the minister of transportation who was assassinated and I need to get $10 million out of the country and need your help." Believe it or not, that is something like the second biggest industry in Nigeria after oil in terms of revenue. I do not know where telemarketing scams rank as a source of income for Utah, but I would not be surprised if it was in the top five. On 2/22/05, the Federal Trade Commission cracked down on home business scams.Marcos D. Jimenez, the U.S. Attorney (chief federal prosecutor) for the Soutern District of Florida was quoted in the FTC story as saying, "South Florida is one of the consumer-fraud capitals of te country, if not the world." 43. Automatic debiting of your account. Those who would rip you off were greatly aided by the invention of the credit card. But now they are even happier about a more recent invention: automatic debiting of your credit card or bank account. Legitimate businesses are not afraid to have you reconsider whether you want to pay them monthly or annually. For example, to renew your subscription to my newsletter, you have to send me a check or pay by credit using my Internet shopping cart. I neither offer nor want any automatic debit. Illegitimate businesses fear that if you have time to think about the money you are paying them, you will decide against it. That' why they are trying to get you to sign non-cancellable leases and "mentoring" contracts that you cannot get out of after you sign on the dotted line. If someone is trying to get you to agree to let them debit your account, run away. If they don"t want you to think about paying them money, don"t agree to pay them money. 44. Saying they only do it for the love of teaching and sharing their secrets. Amazingly, the salesmen who makes hundreds of thousands of dollars per year selling expensive get-rich-quick seminars and mentoring, tell audiences that they do not do it for the money. They claim they just do it out of the goodness of their hearts to help people. Even more amazingly, some audience members believe this. If it were true, they could speak for free or just for enough to cover their out-of-pocket expenses. Best wishes, John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, www.johntreed.com

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