Today I will share with you my views on an unfortunate event that happens in our industry. Real estate investing is not exempt from scammers. These scammers come in different forms. These scammers have become more sophisticated in their presentations and now they take their show on the road. Do you remember the movie "Yes Man" with Jim Carrey?; lots of people crammed into a amphiteather building the tension until the presenter comes out and people explode and start screaming Yes!. They kept repeating it everytime the speaker ask them to do it and after the show is over, people leave like zombies repeating Yes!
Scammers have found new ways to motivate young and inexperienced investors into spending money in what many times are useless and outdated strategies. Many times is the same information repackaged into a different format. Many years ago I remember it was the infomercials. Now a days they come in the form of expensive investment seminars where a motivational speaker, an investment expert or even a self-made millionaire will give you advice on investing and will try and convince you to follow high risk investment strategies. Also, the internet is filled with many landing pages with free offers for you to get useless information so they can have your contact data. These free offers will then be followed by enticing offers that seem unreal on how easy is for you without knowledge and without working to become a gazillionare real estate tycoon. While investment advice can be legitimate and beneficial, it is important to look carefully at what an investment scheme or seminar is offering.
In my opinion the organizers of these seminars and real estate investment schemes make their money by charging you an attendance fees, and by selling you over-priced reports or books. They are real estate marketers more than real estate investors. Many of them are so humble that they have done the research for and bring you a list of properties ripe for the picking (ouch! many of these are their properties they are trying to sell) and you do not need to seek an independent advice. The unfortunate event here is that these scams do great harm to beginning investors, who waste hundreds of dollars on old information. What is worst, those beginners soon get discouraged and miss out on the true (and profitable) adventure of real estate investing.
The problem is not the scammer, it is us. We allow them to do this. They exist because of us. We do not want to work and become rich. We want to become experts and not have to think. We want the food already chewed so we do not have chew it ourselves. We go to 7-Eleven and other "convenience stores" and pay somewhere around 15% more for the milk than going another block to get it at a fair price.
So how can you detect a scam? Here are 10 basic points that will help you on how to spot a B.S. artist:
1. Emphasis on luxurious lifestyle. The B.S. Artists want to present a fantasy where you live in your own island and all of the money was made from real estate investing and best of all you did not have to work for it. The B.S. artists feature the imagined lifestyle of the rich in their TV ads. They also accessorize themselves with flash jewelry, rented limousines, and rented private jets. Bottom-line they imply that they have achieved great financial success. Real investors do not need to try to oversell their success.
2. The "Expert" claim. These "gurus" are self-proclaimed experts. There was a time when you needed it to prove your knowledge and experience by your actions. You earned the "expert title" and it was given to you by true independent third parties experts. Today there are real estate investment experts everywhere describing themselves as the “leading real estate expert in the United States today” and “Number One, most-sought-after...” Blah, blah, blah.
3. No Risk. Please read this carefully, there is risk on ALL investments. However, these B.S. Artist insist that they have discovered a way to defy the financial and investment laws. Real estate investing is a real investment, thus it exposed to tax, lawsuits, economical changes, etc. To be successful in real estate investing you must learn to mitigate these factors.
4. Emphasis on no-down, low-down techniques. In their fear the their victim will object to the "opportunity", they like to emphasize on the fact that their programs do not require any money from you. They like tell you that there is no risk (see point No. 3). Fundamentally, these techniques are unsound. It has been proven time over time that when you over-leverage your real estate properties you are exposing yourself to a higher risk of loss during the natural fluctuations of the market. Also, the higher the amount of the loan the more difficult it is to cover the monthly mortgage payments of the property. They will try to convenience you that the higher loan amount will generate higher interest expense which is tax deductible. This is useless if you cannot make the mortgage payments with the rental income and have to cover the deficiency with money out of you pocket.
5. Pressure to get your credit card limit raised. When you have a guru ask to raise your credit card limit, you need to be concerned. Only a scam artist will ask you to raise your credit limit and spend it in their products. They are concerned about THEIR financial success.
6. High prices. Legit real estate books should not cost more than $80 depending on whether they sell in book stores or only by mail. A legit real-estate seminars should not cost more than $500 per day. More than that, you should question the reason for the higher price and the value received. I am in favor of training and improving our skills, I think that it makes us better investors. However, we should pay a fair fee for the information.
7. Use of "Puff" Selling Words. The fraudsters will use marketing puffing words to entice you into believing that you are being offered a "secret" (which is no longer a secret after the first book is sold) or invited into an "exclusive club" making you a "perfect offer" to make "easy money" the "lazy way". This is a "risk-free" opportunity which is "bullet-proof" or what they offer is a "no brainer". The use of these type of words in their offer indicates that they are trying very hard to sell you a scam.
8. The focus is entirely on the acquisition phase of real-estate investment. Real estate investing goes beyond the acquisition phase. Real estate investing just starts at the acquisition phase. A legit "guru" will tell you how to buy, finance, renovate, manage, and sell real estate and how to avoid paying income taxes in the process.
9. Catchy title. These gurus love to award themselves titles like "Mr. Flipper", "The Millionaire Man", "The Wholesaler Lady". These are just hype! These titles prove nothing, it is just a PR title which offer no proof of its accuracy. Stay away from them.
10. Allowing Automatic debiting of your account. This is one of the strong signs that this guru is after your money. Think about it, a legitimate business is not afraid to have you reconsider whether you want to pay them monthly or annually. Customers know that if I offer a quality service and deliver what I promise I do not have to bind them, you will want to come back, you want more of what I have to offer. Illegitimate businesses fear that you think about their offer and decide against it. That’s why they want to get you to sign non-cancellable leases and “mentoring” contracts, and other documents to prevent you from looking somewhere else, after all you already spent your hard earned money with "Mr. Guru". If someone is trying to get you to agree to let them debit your account, run away.
This is a short list of warning signs that can help you detect a potential scam. I hope this information is useful to you. If you have any other ideas on how to prevent scams, please share them with the rest of the readers of this blog.
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