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I have been amazed and disturbed by the recent trend in the real-estate-investment guru business to charge thousands of dollars for seminars, boot camps, and mentoring services.
The State of California Department of Corporations has a list of the Top Ten Investment Scams to Avoid at their Web site (http://www.corp.ca.gov/pub/tips10att.htm). One is,
Investment Seminars. Often the people getting rich are those running the seminar money making from admission fees and the sale of books and audiotapes. These seminas are marketed through newspaper, radio, and TV ads and infomercials' on cable television. Regulators urge investors to be extremely skeptical about any get-rich-quick scheme.
One expensive service that I discussed with the guru is Claude Diamond's.
Diamond charges over two thousand dollars for his mentoring service. The fee is completely non-refundable. For that you mainly get to call him and talk to him about your lease-option business for a year. In contrast, asset-protection planning attorney F. Bentley Mooney, Jr. (www.lbc.com/fbmooney) charges $150 per year for telephone consulting. In addition to his law degrree, Mooney has a masters degree in tax law and is a board certified specialist in estate planning, trust, and probate law.
I complained to Diamond about his fee structure. I do not object to any hourly rate he wants to charge. He has a law degree so you would expect him to charge over $100 per hour, at least when he is giving legal advice. But I do object to lump-sum, nonrefundable fees. I told Diamond that such fees sound to me as if they are designed to get more out of a person than he would willingly pay on an hourly rate.
In other words, if I charge by the hour, the customer may decide after several hours that he no longer wants or needs my services. Large lump fees sound like they are based on the notion that a speaker can cast a spell over the customer at a seminar, sign him up for an expensive service while he is still under that spell, then reject the refund request when the customer cools off.
This sort of front-end loaded pricing is common in the health-club business where people resolve to get in shape, then decide it's too hard and drop out. Health-club owners know that a high percentage will do that, so they often charge big front-end fees.
Diamond denies that is his motivation. He says he bills by the year because he doesn't want to be bothered by sending lots of bills. I suggested that he solve that problem by making people pay by credit card to his secretary at the beginning of each call. Many attorneys do that. Or he could give advice by way of a 900-number. In that case, the phone company would automatically send him the money. Or he could collect a retainer which he draws down as each hour of his time is used, refunding any unused amount. Diamond rejected all those suggestions.
The only situation I know of where nonrefundable, one-year fees make sense is private-school tuition. Schools can only search for students in August. Once they allocate a slot to a student, his changing his mind leaves them with an empty seat which it's too late to resell.
But virtually all other businesses can “mitigate their damages” by finding another customer to “fill the seat.” Landlords are required to try to find a replacement tenant when someone breaks a lease. And they are prohibited from collecting double rent by not refunding money on a unit which has been rerented. Diamond treats his real-estate-investor customers in a way that real-estate investors themselves are not allowed to treat their tenants.
Diamond says he has had about 150 mentoring clients and that only three have requested refunds.
Finally, I have never met Diamond in person, but I did talk to him on the phone at length. He gave me the impression that he is articulate, extremely self-confident, and a bit arrogant about how good he is. Many people are attracted to such personalities. Their thought is, Wow! This guy's really hot stuff! I want to be like him. I want to hang around him. One of his newsletters has these words after his name, JD Editor-Publisher-Mentor-Friend at the top of the front page. Note the word friend.
There are a number of businesses where one person pays another for his or her company or conversation: escort services, psychics, psychologists, phone sex, and so forth. An argument could be made that many an attorney's fee was really for this purpose rather than legal advice. When I dabbled in consulting years ago (for an hourly fee), I quickly dropped the service because I felt the clients really just wanted to hang around with me. They seemed more interested in telling me how well they were doing and getting attaboys, than they were in hearing what I had to say. I have friends. I would welcome more. But I do not charge for my friendship service.
You learned how to ride a bike and drive a car without a multi-thousand dollar “mentoring” service or “boot camp.” I became a nationally-known real-estate investment expert without ever having a mentorfree or otherwiseor attending a multi-thousand dollar seminar. You do not need to pay anyone that much money for real-estate-investment information. I know of no such high-priced service or seminar that would give you anywhere near your money's worth. Read all the articles and books you can find on your subject of interest. Take all the reasonably-priced adult-education and trade association seminars you can on the subject. Look for fellow practitioners who will give you friendly advice on an informal basis. Then just do it and learn the rest from experience.
There was an article in a major magazine in the late nineties or so about consultants. Mentors are consultants. The article said that consulting companies claim that they are giving customized, tailor-made advice to each client based on studying that client's individual situation. But an executive who moved from one company to another discovered that both had used the same consultant and he thereby got to see both consulting reports. Consulting companies normally require in their contract that clients never disclose the contents of the report. We now know why.
The executive discovered that the “customized, tailor-made” reports were identical except that the name of the client had been changed, as well as some other client-related facts, but not the advice. In other words, consulting or “mentoring” is little more than a way to sell a $25 book for thousands of dollars a copy. You should ask any “mentor” why he can’t just put his advice into a book which you would then buy. If he gives you the “customized, tailor-made” line of bull, ask for the names of some other clients so you can compare notes to see if the customization is really there. I can almost guarantee you that you will get no names.
The guru may claim he is obligated to keep such names confidential. But he could ask clients if they would mind talking to you. Most professionals who owe a duty of confidentiality to their clients have nevertheless gotten permission from many of them to give their names as references or to quote their testimonials in advertising.
Here are some prices I have heard gurus ask for their boot camps or mentoring services along with similarly priced, legit educational offerings.
|$2,000||One year at Reedley College in Reedley, CA including tuition, room, board, and health care (CA resident). That would take you half way to an associate degree in business administration||All of my books and 6 years worth of subscriptions to my newsletter|
|$4,500||Almost one year's tuition, room, board, and health care at the University of California at Berkeley ($4,354 in-state tuition plus $7,657 room and board less the average grant of $5,451)||All of my books and 16 years worth of subscriptions to my newsletter|
|$6,000||One year in the University of Wisconsin's highly respected Real Estate and Urban Land Economics undergraduate program ($3,180 in-state tuition plus $4,860 room and board less average grant of $3,264)||All of my books and 23 years worth of subscriptions to my newsletter|
|$10,000||Two-thirds of a year at Harvard ($22,802 tuition plus $7,278 room and board less average grant of $14,358)||All of my books and 40 years worth of subscriptions to my newsletter|
|If you are spending this kind of money to talk to some real-estate guru for a year or to attend a week-long boot camp, you are an idiot.|
You say you have no respect for Ivory Tower academics when it comes to getting rich in real estate? OK. Here's what quality, real-world, real-estate gurus and organizations charge for their courses.
|Certified Commercial-Investment Member of the Realtors® National Marketing Institute week-long seminar (I highly recommend)||$845 (nonmember price as of as of 2/22/98)|
|Bob Bruss's College of San Mateo (650-574-6494) semester-long (16 three-hour sessions) course||$39 plus $10 registration as of 3/18/98|
|Appraisal Institute two-week courses||$249-$675 (nonmember price as of 2/22/98)|
|Bay Area Investors Educational Services lectures (510-339-9635)||$20 for evening lecture, $59 for all-day conference, $170 a year gets you 12 monthly evening lectures and a big discount on all-day conferences as of 2/24/98|
|John Schaub's Making it Big on Little Deals or Advanced Class three-day seminars (800-237-9222)||$595 as of 2/24/98|
|Al Seastrand's (916-446-6200) half-day foreclosure lecture||$45 as of 2/24/98|
None of these guys pays me in any way to mention them.
The media are full of recurring scandals about charities that spend extremely high percentages of their gross income on fund raising and hardly any on the charity itself. I suspect the same is true of most of the high-priced guru offerings. That’s why high-pressure salespeople are calling you at home in the evening and urging you go borrow money to buy their course. The guy who is trying to sell you is probably getting a commission in the hundreds of dollars or even a thousand dollars or more.
Think about how much money it would take to get you to hustle as hard as those guys who are calling you are working. The answer to that question is probably how much of your fee is going to pay those salespeople to call you. The higher the fee, the greater the probability that the guru in question is only getting a small percentage of the money. He is not going to give you a $4,000 seminar or course when he is only netting $100 from you (the other $3,900 is going to telephone boiler room phone salespeople, TV station, seminar instructor/salesman). If you’re lucky, you’ll get a $1,000 seminar or course. And since people who charge you $4,000 for a $1,000 seminar are not very ethical to begin with, you’ll probably get a $20 seminar for your $4,000.
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’s 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-CD 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.
Here's a letter I got from a visitor to this Web site:
Sat, 31 Oct 1998 08:15:48 -0600 From:
Judith Abbott <email@example.com>
I have been around the Real Estate industry literally my entire life. My parents sold real estate and had a few rent houses. As an elementary school child, I stood in front of a rental unit refrigerator full of dead food and SWORE that I would find a better way to make a living when I grew up...but, here I am, still doing it. I bought my first property in 1974. I stumbled across your webpage recently. I read your Guru Review with great gusto. If RE Investing were simple and easy, fast and risk free, everyone would be doing it. And, even though I consider myself an experienced, sophisticated investor, I let myself get sweet-talked (and high-pressured) into one of those high-cost mentoring programs about two years ago. I should have known better.
Copyright by John T. Reed