The real estate B.S. artist detection checklist 1 This is from two articles which were published in the January 1990 and July 1998 issues of John T. Reed' Real Estate Investor' Monthly newsletter. I have also added additional points since 1998. Copyright 1990, 1999, 2000, 2001, 2002 by John T. Reed. All rights reserved. Seminar and home-study course ratings Last update 5/23/04 "The power of accurate observation is commonly called cynicism by those who have not got it." George Bernard Shaw Readers often ask me what I think of a particular guru' seminar or home-study course. In many cases, I don"t know the work of the guru in question. But I can make general observations about the B.S. artists which you can use to spot them. 1. Emphasis on luxurious lifestyle. Gurus I respect, like Bill Tappan (author of Real Estate Exchange and Acquisition Techniques) and Bob Bruss (nationally syndicated real estate columnist) rarely mention the life-style you will enjoy if you buy their products or follow their advice. Although they are successful real-estate people, they see no need to write about being rich or to wear their affluence on their sleeve (or around their neck or pinky). On the other hand, the B.S. artists feature the imagined lifestyle of the rich in their TV ads, come-on speeches, and "how-to" materials. They also accessorize themselves with flash like ostentatious jewelry and rented limousines or rented private jets. 2. Subjective self description. The "about-the-authors" of the gurus I respect are generally written in Jack Webb style: "Just the facts, Ma"am." Leigh Robinson, for example, describes himself in one sentence: "Leigh Robinson is landlord to 360 tenants and lectures in Landlording for University of California Extension." Bill Tappan' bio contains not a single laudatory adjective. Just a handful of relevant facts about his exchanging experience and the first edition of his book. In contrast, the B.S. artists tend to have book jacket or ad copy which describes them as the "leading real estate expert in the United States today" or the "Number One, most-sought-after..." Their bios are full of baseless, subjective adjectives and nouns, like "innovative...... famous, spectacularly successful," "authority," etc. B.S. artists often use photographs or videotape of themselves hanging around executive jets, limos, yachts, mansions, five-star hotels, exotic resorts, or expensive cars to imply that they have achieved great financial success. 3. No pitfalls or corrections. There are dangers in everything. But you rarely read about danger in a book by a real estate B.S. artist... or hear about it in one of his cassettes or TV infomercials. Everybody makes mistakes. But you rarely read about a guru' mistake or see a correction in a B.S. artist' newsletter. The B.S. artists are self-proclaimedly big on being "positive." And one of the things they"re positive about is that
the dream world they depict will not be marred by unpleasant reality. On the other hand, worthwhile gurus like John Beck (Distress Sales Report), are as likely to write about mistakes made (often by the guru himself/herself) and dangers overlooked as about spectacular profits achieved. And all ethical periodicals writers run corrections when they make a mistake. 4. No bad news. In addition to teaching techniques, real-estate investment gurus have to respond to news like court decisions, legislation, economic trends, and so forth. Of course, some of the news is bad. But the B.S. artists invariably respond to bad news in Pollyanna fashion. They always see "opportunity." The closest they come to acknowledging the unhappy truth is to describe a situation as a "challenge." The Tax Reform Act of 1986 was a good litmus test. Any investor whose IQ exceeds his body temperature knows that was the worst tax law for real-estate investors since the income tax was invented. But when it passed, the B.S. artists called it "the best thing that ever happened to real estate"...or words to that effect. Why do they do that? For one thing, they fear bad news will depress sales. With good reason apparently. A bunch of real estate newsletters have gone out of business since the late "80s real estate depressions hit many markets and the Tax Reform Act of "86 passed. Another reason B.S. artists don"t acknowledge bad news is that they simply cannot shut off their slinging mechanism. They are B.S. kinda guys. There' nothing wrong with looking for opportunity in ostensibly bad situations. Many of my articles have done just that. You only become a B.S. artist when you look for it, can"t find it, but claim it' there anyway. 5. Universally-applicable techniques. The various techniques one can use in real estate investment are like mechanic' tools. The one you use depends on the situation and your goal. Just as no tool is appropriate for every mechanical job, neither is any real-estate-investment technique appropriate for every situation. Each has advantages and disadvantages and most are only useful in a narrow range of circumstances. The B.S. artists trot out one obscure technique after another in an effort to impress the customer with all the "new" material they are getting. But rarely is a word spoken about when the technique is appropriate. The reader or listener is left with the impression that the technique is appropriate for any and all acquisitions. 6. Emphasis on motivational material. Every successful person I know has benefited from motivational books like The Power of Positive Thinking. Many of us have had life experiences like emotional high-school football pep talks which gave dramatic evidence of the power of focused motivation. I would not diminish the role of motivation in success in real estate or any other field. However, motivational material ought to be packaged as such. When books or tapes are described as containing how-to information on real-estate investment, they ought to contain little or no motivational material. The protest that the customer "needs" to be motivated is beside the point. It is dishonest to promise how-to information, then deliver a bunch of "You-can-do-it" platitudes instead. The motivational business, like patriotism in Samuel Johnson' memorable phrase, is one of the last refuges of scoundrels. Although there are many who approach the field of motivation with rigorous scientific discipline, there are more for whom the motivation business is merely a con "”a chance to sell yet another cure-all "elixir" without having to get FDA approval. 7. Claim to do lots of deals. Virtually all the B.S. artists say, "I don"t just teach these techniques. I use them every day in my own investment program." Baloney. There aren"t enough hours in the day. Gurus get the same 24-hour days as you. Being an expert takes time. We have to read many trade journals, loose-leaf services, and books to keep up to date. We have to spend hours on the phone interviewing sources for articles and books "”and hours in the library researching legal cases and other relevant facts. As experts, gurus get interviewed by the media on the phone and in radio and TV studios and they make speeches to investors. Finally, we have to manage the guru business itself. That means designing brochures, responding to customer-service problems, checking proofs from the printer, indexing books, negotiating with printers and recording studios, going over the income and expenses of the guru business, and so forth. Real estate investment gurus are loathe to admit that they are not extremely active current investors. Sometimes they are forced to. On page 3 of a proxy statement for Russ Whitney' Whitney Information Network, Inc., it says, "Mr. Whitney in an executive officer of a number of privately held Florida-based companies which are engaged in real estate development, publishing, marketing, software development and mortgage services. Mr. Whitney nevertheless devotes substantially all of his time to the Company' [Whitney Information Network, Inc.] affairs." For more information on Whitney and his lawsuit against me, click here. Obviously, we do not, after all that, have as much time as non-gurus do for investing. But in the financial guru business, the question, "Are you using these techniques yourself or just teaching them?" is ubiquitous. And any answer but, "Oh, yes," seems devastating to the credibility of the guru. In fact, real-estate gurus (other than those who just dabble in guruing) who do a deal a month or more are extremely rare. Or they are buying garbage properties by the dozen"”with little or no analysis or due diligence"”mainly so that they can claim they do lots of deals and be technically accurate. You can smoke out such gurus by simply asking them for the addresses of some of the properties they have owned. I put the addresses of all the properties I ever owned at my Web site. I have asked a number of other real estate gurus to give me one or more of the addresses of properties they have owned. I got zero response. Either they are lying or their deals are illegal and they cannot stand any scrutiny. 8. Offer to invest in your deals. The bad real-estate gurus are really just salesmen. As such, one of their main problems is how to overcome the objections of prospective customers. They target the less affluent and they are selling investment advice, so one of the most common objections they get is, "I don"t want to buy your course because I have no money to invest." To overcome that objection, some dishonest real-estate gurus have been saying that they will invest in deals that you bring them. It' a lie. They may have invested in one or two just so they could say they did, but no more. Paying such finders fees violates brokerage laws in some states like New Jersey. Securities and brokerage laws may be triggered in other states. The quality of the deals submitted by their armies of novices must be fall-down-laughing abysmal. Joe Kaiser told me he invested in some of his student' deals, but refused to give me any of the addresses of the deals in question so I or my readers could confirm them. The real-estate world is full of investors and developers who provide the addresses of their properties in brochures, annual reports, directories, on the walls of their offices, in magazine ads, and in news releases. I put the addresses of every property I ever owned at my Web site. But no other guru will provide a single address. Ya gotta wonder why. This is a variation on the classic advance-fee-loan scam. One of the classic frauds that con men perpetrate is called the "advance-fee-loan" scam. In it, a con man finds a person who is having trouble getting a loan and offers them a loan. Often, there is some bogus explanation, like "It' offshore money," to explain why the con man can get you a loan when no one else can. When you accept, the con man tells you there is a small fee for the paperwork or some such. In fact, the con man is purely in the business of collecting the fees and running. There is no loan. The real-estate-investment variation on this is to tell you that the guru will help you buy property by putting up the down payment or by advising you or by teaching you how to buy for nothing down. The nothing-down con involves various approaches from "motivated"-seller financing to government loans to lease options to flipping to finding partners to "bring me the deal and I will put up the money to buy it and split the profits with you." In fact, the con man is purely in the business of taking your "advance fee" in the form of a retainer or the cost of "training" or "mentoring" or high-priced book-and-tape courses. They have no interest in investing in deals you bring them. It is a lie to get you to part with the advance fee. Their various techniques for buying nothing down do not work in the real world. They just lie to you to get the advance fee. I got an email from a reader who told me there was a story in the Pittsburgh Post Gazette newspaper about a real estate investment guru who was in trouble with the law. The story is at https://www.post-gazette.com/neigh_city/20020808cburbs9.asp. According to the article, 61-year old Michael Enelow was indicted on 29 counts of wire and mail fraud by a grand jury in connection with a real estate investment scam. He reportedly ran ads in periodicals around the U.S. from 1995 through 2000 offering money to people who would refer real estate deals to him. The indictment said he lied about how much money he had and how many deals he did. He charged $1,500 to sign up and got over a thousand people to send him that much. (1,000 x $1,500 = $1,500,000) The FBI said Enelow lived off the $1,500 charges and that his real estate dealings were insignificant. 9. Current copyrights. I am a full-time writer. I have more than a dozen books. Only a couple have current-year copyright dates. Contrast that with Carleton Sheets. He says he is a full-time investor. He has 32 book or tape programs. In 1998, he sent me a bunch of them. At that time, every single one was copyright 1998! Sheets says of his Creative Tax Strategies book, which was "Copyright 1998," when I received it in 1998, that it is "Continually revised to include the latest changes in tax law." It still described the two-year rollover and over-55, $125,000 exclusion for home sales. Both of those laws were repealed by the Taxpayer Relief Act of 1997. He puts a loose sheet containing a brief list of Taxpayer Relief Act of 1997 changes in the package. But that does not explain how the bound book got a 1998 copyright date without mentioning a law that took effect the previous May. Starting in 2000, I began to produce print-on-demand books. That is, I print them just before you order them. I put the date printed at the bottom of each page on many of them. I can keep these books very up-to-date because they exist only in my computer. I update them whenever the need arises. 10. Emphasis on no-down, low-down techniques. Another way to overcome the "I have no money to invest" objection is to push techniques that seem to enable investing with little or no money down. These include nothing-down, "creative finance," lease-option acquisitions, and various "partner" techniques. Fundamentally, these are unsound. Lending more than 80% of the value of an owner-occupied home or about 70% of the value of a rental property is generally imprudent because experience shows that the equity above those loan-to-value ratios disappears in foreclosure. Accordingly, such loans can generally be arranged only by bamboozling an unsophisticated seller or lying to an institutional lender or when the borrower' income and other assets warrant an extension of unsecured credit for the amount above 80% of value. Furthermore, it is almost impossible for the property' net income to cover the increased mortgage payments on a high-leverage deal. Lease options have numerous other ethical and legal problems. Partnerships make sense only when each party brings something which the other must have, other than money. In the guru-style partnership, the guru' novice follower brings nothing but a need for money and the other brings only money. What a team! The typical real-estate millionaire did not get where he is by using nothing-down, lease-option (for acquisitions), or partner techniques. But the typical real-estate guru did get where he is by persuading low-net-worth individuals to believe that they can get rich making no-cash-down, real-estate acquisitions. Nothing-down acquisitions can be done both ethically and profitably. I told how in my books How to Use Leverage to Maximize Your Real Estate Investment Return and How to Buy Real Estate for at Least 20% Below Market Value. But this is a difficult, advanced route to take. Basically, the nothing-down movement is just a variation on the classic advance-fee-loan scam as I described above. It is a way to part fools from their money, not a way to invest in real estate. 11. Blank paper and/or filler. B.S. artists" books contain much blank space resulting from double-spacing, huge margins, extraordinary numbers of blank pages, large type, and so forth. They also tend to devote many pages to filler like directories of government agencies or blank forms which are repeated over and over with only slight changes on each. They charge hundreds or even thousands of dollars for "programs," seminars, or "mentoring- services which are nothing more than air-filled little books that would sell for about $9.95 to $12.95 in a book store because of the low page count they would have if they were typeset with normal margins, type size, and space between lines and paragraphs. 12. Gorgeous packages. The prettier the package, the less quality it contains in general. Carleton Sheets' books have full-color graphics sealed inside clear-overlaid plastic binders. 13. No indexes. A British Member of Parliament once proposed the death penalty for authors or publishers who left indexes out of nonfiction books. Maybe the B.S. artists would argue that their books aren"t nonfiction. 14. No acknowledgments. Here is an item which is virtually effortless, but the B.S. artists still leave it out. It is traditional, gracious, and appropriate to thank the people who have contributed indirectly to your book in an acknowledgment section in the front. We all have benefited from valuable support, advice, and opportunities provided by others in our careers. Are these guys so lacking in character that they can"t even say, "Thanks?" It certainly wouldn"t cost them anything. They could put it on one of their many blank pages.