Real Estate B.S. Artist Detection Checklist, Part 1
Posted by John T. Reed on
“The power of accurate observation is commonly called cynicism by those who have not got it.” - George Bernard Shaw
“The most essential gift for a good writer is a built-in, shockproof s*** detector.”
- Ernest Hemingway
This is from two articles which were published in the January 1990 and July 1998 issues of John T. Reed’s Real Estate Investor’s Monthly newsletter. I have also added additional points since 1998. Copyright by John T. Reed. All rights reserved.
Readers often ask me what I think of a particular guru’s 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.
Readers who like this article will probably also like my article on “Intellectually honest and intellectually dishonest debate tactics.”
1. Emphasis on luxurious lifestyle. Gurus I respect, like Bill Tappan (author of Real Estate Exchange and Acquisition Techniques) and the late 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’s 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 CDs or TV infomercials. Everybody makes mistakes. But you rarely read about a guru’s mistake or see a correction in a B.S. artist’s 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. Some of my books that tell of the real estate mistakes I or others made are:
- Distressed Real Estate Times
- Aggressive Tax Avoidance for Real Estate Investors
- Single-Family Lease-Options
- How to Structure Your Mortgage
- How to Get Started in Real Estate Investment
- How to Buy Real Estate For Little or No Money Down
- Checklists for Buying Rental Houses and Apartment Buildings
- How to Increase the Value of Real Estate
- How to Manage Residential Property For Maximum Cash Flow and Resale Value
It’s better for you to learn from the mistakes of others than to reinvent the wheel and lose your money in the process.
On the other hand, worthwhile gurus 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. They are saying the same thing in 2008 about the sub-prime mortgage crisis which has lowered property values widely.
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’s 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’s there anyway.
My newsletter, Real Estate Investor’s Monthly, reports on both the good and bad news and explains how to deal with both.
5. Universally-applicable techniques. The various techniques one can use in real estate investment are like mechanic’s 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 CDs 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’s 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.
My Succeeding book admonishes you not to underestimate yourself. For example, it says, “Reject Little Old Me-ism. Substitute All they can say is no’ism instead.” In other words, don’t assume that you cannot do something because you’re not good enough. Give it a shot. But it also tells you to be realistic about goals that require talent or which do not fit you. No “rah rah you can do anything” nonsense.
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.
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 poor 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’s 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’s 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’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-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 bad gurus teach for buying nothing down do not work in the real world. They just lie to you to get the advance fee. My book How to Buy Real Estate for Little or No Money Down tells you the nothing down techniques that actually work and do not break the law or ethics but that book does not tell you it’s as easy as the other nothing down books do.
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 http://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 about three 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 CD 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.
See my How to Write, Publish, and Sell Your Own How-To Book for details on writing books and copyright dates.
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, flipping, 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’s 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’s net income to cover the increased mortgage payments on a high-leverage deal. Lease options have numerous other ethical and legal problems. See my article on the subject. Partnerships make sense only when each party brings something which the other must have, other than money. In the guru-style partnership, the guru’s 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, How to Buy Real Estate for Little or No Money Down, Single-Family Lease Options, 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’s 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.
15. No bibliography. It is also traditional and helpful to include a bibliography in nonfiction works. In part, it is another type of acknowledgment section where the author reveals his sources. It is also very helpful to the reader who wants to read more about the subject and get other perspectives. Leigh Robinson’s Landlording has 15 pages of “Sources and Resources.” He’s one of the non-B.S. artists. The bad gurus have no bibliographies because they did no research and are scared to death that you will discover the other books on the subject and realize what an overpriced piece of garbage you bought from them. My books almost all have lengthy bibliographies. Those that don’t are on subjects which few books have been written about.
16. High prices. Legit real estate books cost about $20 to $80 depending on whether they sell in book stores or only by mail. Mail-only books cost more because fewer are sold, press runs are shorter, and printing and handling costs per unit are higher. Legit real-estate seminars cost up to $500 per day. B.S. artists charge hundreds for their books and thousands for their “boot camps,” “training,” and “mentoring” services. One would-be guru customer demanded that I explain to him what is wrong with the “mentor concept.” I have no complaint with the “mentoring concept” or the friend concept or the sex concept. But if you pay for any of those, something’s wrong. My book How to Get Started in Real Estate Investment has a chapter on finding a mentor of the no-charge variety which is the only kind I recommend.
17. Bundling a book with CDs. Books are good. So are CDs. I used to sell both. Some people may even want both, and there’s nothing wrong with giving such gluttons both. But there is no legitimate reason to force people to buy both by only selling your product in book-and-CD form. Foreign-language courses may require both the printed word and audio CDs, but not real-estate-investment courses. The B.S. artists bundle CDs and books to make the product bulkier, hoping the customer will be too dumb to realize he is buying two copies of the same material. I sell no CDs and if I do start selling audio products through iTunes or some such, they will not be bundled with books forcing you to buy both.
18. Too-good-to-be-true testimonials. B.S. artists never make absurd claims like, “You will make $400,000 in six months if you buy my course.” They just have Mr. and Mrs. Average go on TV and say it for them. One guru’s (McCorkle) secretary testified at her guru’s trial that employees, friends, actors, and actresses were hired to give their TV testimonials. There is no way a novice nothing-down investor can remotely approach those kinds of profits in such a short period of time. Few millionaire investors with a lifetime of experience could do that. In other words, the real-estate-investment testimonials you see on TV are almost certainly barefaced lies or they are leaving out pertinent facts like that they committed fraud to do the deal in question. Some have asked me why the bad gurus never sue me. I suspect it’s mainly because they know I would subpoena the addresses and other details of their deals and testimonials if they did.
When Russ Whitney sued me, I tried to investigate one of his testimonial givers. I spoke to the wife of the guy who told how many properties he had bought as a result of Whitney’s training. She said they could not remember any of the details, had no documents for me to subpoena, could not remember the addresses of any of the properties he bragged about, or the dates when they bought them or who sold them or brokered the deals. In other words, zilch to support the claims made in the infomercial. See my Reed on Whitney Web page for details about that.
19. White-on-white words at beginning of their Web pages. In the Internet era, one of the things dishonest people do is put white-on-white or color-on-same-color words at the top of their web pages to mislead search engines. I found one the other day that contained Carleton Sheets’ name repeatedly, as well as words and phrases like Wade Cook, “foreclosures,” “nothing down,” and so forth. To find these hidden words, simply place your cursor about two inches below the top right corner of the Web page then hold the mouse button down and drag to the upper left corner of the Web page. You will see the offending words suddenly appear. Any guru who gets you to his Web site by misleading the search engine you use is not trustworthy and does not deserve your business.
Several people have written to me to protest that they do that and they are good guys. Bull! It’s dishonest and maybe illegal.
20. Use of the following words. These words are dishonest because they depict a degree of ease or exclusivity or certainty or absence of risk or amount of profit which does not exist. They are fraud at worst and puffing at best. Puffing is a legal term. Black’s Law Dictionary defines it as “Exaggeration by a salesperson concerning quality of goods.” If the guru you are considering uses any of these words or phrases in his or her presentation, brochures or Web site, he or she is probably a B.S. artist.
- perfect offer
- removes doubts
- secret (if it ever was a secret, it stopped being one when he sold the first copy)
- lazy way
- anyone can make a killing
- removes risk
- easy money
- easily determine market value
- take the fear out
- judgment proof
- removes guesswork
- gold mine
- This is not a get-rich-quick scheme
- dream stealer
The following words seem neutral, but for some reason they are used especially heavily by B.S. artists. Be suspicious of anyone who uses these words a lot or uses one very prominently, like in the name of their company or product.
- nothing down
- cookie cutter
- global (unless they are in the international shipping or moving business)
- money machine
- boot camp
What is the difference between a book and a “course” as the term is used by B.S. artists? Price, mainly. Also packaging. When the word is used by a B.S. artist, a “course” is merely a grossly overpriced book puffed up with blank paper and audio cassettes which duplicate the written words in the “course.”
Two of my three sons are currently students: one in college, one in high school (the other graduated college). They take real “courses.” In those courses they read, listen to lectures, ask questions, watch demonstrations or audio-visual presentations, perform laboratory experiments, go on field trips, complete assigned exercises which are not graded, submit papers and other individual and group projects based on research, and pass oral and written tests.
Here is the definition of a “course” taken from my Webster’s New Universal Unabridged Dictionary: “in education, (a) a complete, progressive series of studies necessary for graduation, for a degree, etc.; (b) any of the studies; a unit of instruction in a subject made up of recitations, lectures, etc.”
My wife did high school by correspondence course because her father worked for the Agency for International Development and she grew up in underdeveloped countries where there were no acceptable high schools for her to attend. Those courses consisted of reading material, exercises, tests, and other graded papers.
I took a bunch of real-estate courses including the Certified Commercial-Investment Member of the Realtors® National Marketing Institute courses, Appraisal Institute courses, and Institute of Real Estate Management courses. They involved reading material, lectures, questions from the students, exercises, field trips, and written tests. I have also taken other business-related courses like the Dale Carnegie course, which involved reading material, lectures, questions, discussions, homework, and classroom exercises. There are some real “courses” in the B.S. artists’ world. Only in their inflated rhetoric, a book is a “course” and a course is a “boot camp.” And, as you would expect, almost all of the “boot camps” aren’t worth what they cost either.
I offer no courses, seminars, “boot camps,” or “mentoring,” just books and a newsletter. In view of the fact that I am a West Point graduate airborne ranger Vietnam veteran who coached 15 football teams and has written seven books about coaching, you should be grateful that I do not offer a boot camp. If I did, the brochure headline would be something like, “You want a boot camp? I’ll give you a boot camp to end all boot camps. My only guarantee is that after you complete my boot camp you will never want to attend another boot camp as long as you live.”
21. Testimonials with incomplete names. Gurus I do not respect often give testimonials which give less than a full name and city and state or email link to the person. Typical B.S. artist variations are initials only or a first name and initial in place of last name. The basic idea is, does the guru give you enough to get in touch with the person and confirm the testimonial? If not, he or she is probably a B.S. artist. Generally, each of my books has a “reader comments” link that contains statements that readers made to me and gave me permission to quote. In almost every case, their name is linked to an email that is pre-addressed to them.
22. Prohibition against recording at free seminars. Many gurus hold free seminars to encourage prospective students to sign up for their “courses,” “boot camps,” and “mentoring services.” No information is given at those seminars. Therefore there is no legitimate reason to prohibit recording. To do so would be like Coca-Cola prohibiting the New York Times from running one of its ads in their newspaper with no charge to Coca Cola. Legit advertisers want their ads distributed as widely as possible. They normally have to pay. When someone wants to record an advertising presentation to play back for another person, a legitimate guru would say, “Great! The more the merrier.” Gurus who prohibit recording of free promotional seminars are doing so only to prevent you from gathering evidence of the fraud they are perpetrating.
You generally should not buy investment advice sold in TV infomercials. The same applies to the come-on speeches given in hotel room meetings. But if you insist on buying such products, make sure you tape record the entire infomercial or come-on speech before you do. Then you have legal evidence for getting your money back if the product does not live up to the advertising, which it won’t. Suing and actually getting your money back is easier said than done, even when you have evidence, but it is next to impossible if you fail to collect the evidence.
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