Become a Millionaire Real Estate Investor in Orange County
Entire Trum University Playbook Released
The entire playbook or sales strategy was released by the courts because of a lawsuit by the Washington Post. Above is a link to the entire document. Bassically it’s about the pricing that is presented at the sales seminar and how to deal with the media. You can read it and be the judge. This is a link to an NPR article in which a Washington Post reporter states in the audio that the goal was to target students who could pay up to $34,000.
Editor’s Note I know some of the business opportunities on this site might seem a bit dodgy, but there have been a lot of people burnt by the dream of becoming a millionaire just like your landlord. So far this is the first business opportunity I have decided to be judgmental about and say that you should be very cautious. If you get into investing with no-money-down using other people’s money (OPM) you could really lose a lot more than your up front investment. Leverage works both ways; it can boost your returns or send you to the poor house. Below are some things to think about.
Real Estate Ownership is a great business to be in, but a lot of people get ripped-off by late night TV infomercials and seminars. To make money the rents from your buildings in Orange County, you have to have a lot of money for a down payment, you have to be patient, and you have to be willing to deal with trash, tenant issues and repairs. This can be illustrated by some general example using numbers that seem to fit Orange County Reality.
Do the MATH -- Good example with #'s that are a few years old.
Example Condo Rental — The numbers just don’t work with OC Prices.
Suppose you have a rental condo that costs $500,000 and you take out an investor mortgage at 5.25%. And assume to keep your minimum payments down, you amortize the mortgage over 30 years. Also, assume that you will get $1,400/month rent. And assume that you put 25% of the cost down. That’s what you need to get an investor loan these days. That comes to $127,500. How could you lose? Everyone in real estate is a millionaire.
Total Cost = $510,000 (Price plus 2% closing costs you pay for your mortgage, initial repairs … This is just a guess.)
Annual Rent= $1,400 x 12 = $16,800
Vacancy 5% = -$840 (Loss of rent when the unit is not occupied or tenants have gone to legal aid and have figured out how to not pay rent.)
Expected Income = $15,960
Property Taxes (aprox) = – $6,120
Fire/liability Insurance = – $700 (including amount paid for by HOA. Again this is a guess.)
HOA Fees = -1,200 (guess–this costs $100/month. This varies based on the amenities of the condo complex.)
Maintenance = -$1,200 (every year stuff will break, and in some years you will have to replace flooring, paint, …)
Mortgage Payment =-$25,346 (Annual payments based on a monthly payment of -$2112.18)
Cash Flow = -$14,011 (This is the amount you have to put into the building.)
Note that if your salary puts you into a high tax bracket, some of this loss can be taken off your taxes.
Yikes. Again this is assuming you use conventional financing. You biggest outlay is your mortgage payments. Some unscrupulous agents will try to get you into a loan that has lower payments. But be cautious of the risks. You can have “affordable” payments three ways: (1) loans will come due and have a “balloon payment” which means you have to pay off the balance all at once, if you can. (2) Loans will have a low rate for a few years, but the payments may become very high when they adjust to reflect current interest rates. (3) some sort of non-bank financing that has low payments because the payments do not even cover the interest rate, and you are putting up your personal house as collateral. The agents will assure you that this is how business is done and that you can always re-finance at a lower rate whenever you need to. And they will explain that most people became rich because they use Leverage. They become wealthy using OPM-other people’s money. Well, recent history tells us that millions of Americans were not able to re-finance and went bankrupt.
So with normal financing and 25% down, how much would the condo have to cost for it to break even? Well, the cost would have to be around $240,000 and you would have to put $61,000 down. Of course you could have just kept the 61K in the bank and not had to worry about tenants, repairs … The problem in Orange County is that property prices are just too high. And no amount of positive thinking can change that reality.
Again, Orange County Property Prices are so high, that by putting very little down and with normal financing it is hard to get a positive cash flow from your investment building. Any expert who tells you otherwise is probably just after your money.
Real Estate Seminars: Warning Signs
There are some assumptions that you might make, which could cost you a lot of money. Remember that when you assume you make an ass out of you and me. (Quote from Bad News Bears movie–it seemed appropriate.)
•On the TV Your Assumption: They have had these commercials on for a long time. People must be making money otherwise they wouldn’t let them put the infomercials on TV. This is wrong. TV stations just sell time to the highest bidder. The regulations done by the FCC only have to do with decency and community standards. Also, you are not getting a balance picture. You will never see a commercial that tells you to “come to the local hotel ball room and I will explain how I went broke and got divorced through investing in real estate.”
Since these get-rich-schemes have been going on for a long time, we will look at some things you should think about. The way they get your money is that they tell you things that are not 100% true; and they are telling you want to hear. They key into people who are a bit down on their luck or need to make extra money to have the lifestyle they feel they deserve. These schemes seem to get recycled every five or so. See the Tom Vo infomercial from the 80’s below and compare what he was saying to the commercials on TV now.
• No Business Experience You Assume: Experience does not count; how hard could it be? Most of the time promoters will emphasize that you don’t have to have any prior knowledge or experience. Usually this is backed up by personal testimony from a not-so-bright looking person who had no experience. It goes something like this “I’ve been out of a job drove to the seminar on three bald tires. Borrowing money from my family to pay for the full course is the best thing I ever did. I didn’t got no credit back then. Although I didn’t know nothing about real estate or business, I now live in a luxurious house, take dream vacations, drive luxury cars, and have time to spend with my family. And I quit my job.” The focus is on the personal story rather than the financials. “Thank you Real Estate Guru, You change my life.” Sometimes they hire an actor to say these things on the infomercials and at the seminars. (See Article 3 below.) They will tell you that they have a step-by-step process that guarantees you will make money on every deal. And they will up-sell you on a contract to talk to a real estate expert/trainer over the phone. Well think about it. Do you know any profession where experience isn’t an important factor toward success. Remember the investment principle that you don’t know what you don’t know.
• Real Estate Secrets You assome: There must be some inside knowledge. There is apparently some secret knowledge that you cannot learn from reading a book available at the book store, or library. Before you invest in a real estate course, talk to an experienced Real Estate Agent. They have a clear vested interest in getting you invested in real estate—usually it’s between 3-6 % of the sales price. And this is paid by the seller. If she says that they can not help you do what the people on the TV commercial did and kick you out of her office, you should write her a thank you note. She saved you a lot of money and heartaches.
• Developed a money making system There is a easy cookie cutter system to making money in real estate anyone can follow. Well, if this is true why wouldn’t the guy running the seminar just hire people and give them the books and tapes? The Guru could just pay them minimum wage and make all the profits his employees generate following his easy system.
- A real Millionaire Real Estate Guru will teach the class. Well yes and no. He (and it’s usually a he) will be on TV and come to your town for the big event. But the actual classes are often taught by an out side company. The instructor’s job is to keep you signing up for the next round. In fact, the practice has become so intrenched that companies, license the right to do the instruction from the instructor; but this is a secret. Students often believe that the instructors are successful friends who have been hand picked by the guru. For instance, this Canadian reporter cornered the Rich Dad guy and got him to admit that the whole system is run by an independent company called Whitney Information Network. (Click here for the video and see Rich Dad guy try to explain it away.) But give him points for being honest!! He says that he is unhappy with Whitney’s work. But he cannot do anything about it. It makes you wonder why he is doing a big hotel seminar to send more of his fans their way–his excuse is contractual obligations. So the telegenic guru who has made a name for himself ends up just as an pitch man for a product with his name on it.
•Exclusive Real Estate Deals Seminar promoters have access to secret deals that you can buy at under market value or wholesale houses. The logic is why buy retail when you could buy wholesale? Again, think about this. Why would the owners of these properties want to sell for wholesale value? Technically if a real estate agent is representing property owners, she has an obligation (in the law it’s called fiduciary duty) to get the best deal. If she is holding them off the MLS so that she can sell them to people who attended a special seminar pick them up (even if the seller is a bank or the government) for a reduced price, she is in violation of the law and could be charged with a crime.
There may be some truth to this claim. Sometimes out-of-state developers will pay huge commissions to unload stuff they can not sell locally. The commission is added into the cost you pay. The promoters of these schemes may try to avoid using the term Real Estate Agent either because they don’t have an appropriate state license or it just sounds bad. Watch out for terms like Real Estate Educator, Real Estate Coach or Wealth Coach. Technically, an agent has a duty to work in the best interest of the seller unless you have signed a special “buyers agent” agreement with them. Feel free to ask who they represent. Don’t be surprised if you get don’t get a clear auction.
The house price is low because it’s sold at an Auction The implication is that houses can be had at “auction prices,” and the winner of the auction can buy the house at their winning bid. First, many of the Real Estate Auctions are just shows. Unless it is a government auction, often you are bidding on the right to make an offer on the house. Your agent can do this anyway, even if you sleep in and miss the auction. Second, there could be straw bidders at the auction who make sure that the price is bid up. And, the owner of the house may not have to accept your winning bid. Read the auction disclosure statement. The promoters of these have worked hard to not explicitly say that you will be able to purchase at the auction at a price lower than if you made a regular offer. The auction is exciting. You pay the “auction price,” which sounds great. But it is not necessary lower than what you would pay if you just made an offer. Also, they may claim that the houses go from 30-50% less than market value. Again, if the owner of the house could just call an agent and sell the house for 30-50% more–and pay the same or less commission–why wouldn’t she? They don’t guarantee that if you have your house appraised the day after the auction the amount of money you paid will be X% less than the market value as estimated by a qualified appraiser.
• You have nothing to lose Come to an educational seminar for FREE or very little money. (This Youtube rant explains how the upsell works.) Think about it, why are they doing this? They just want to spend thousands of dollars to help educate people out of the goodness of their hearts. The educational seminar usually turns out to be a motivational speech which then turns into a high pressure sales meeting. The idea is to get you so excited about living the lifestyle you deserve that you are motivated to part with your money. Look out for a lot of personal stories and goal-setting exercises. The idea is to get you to sign up for more classes, books, DVD’s, Webinars, or phone time with a Real Estate expert. Again these cover things that are not in any book on Amazon.
• Educational only Be aware that sometimes the entire purpose of an informational seminar is to generate a list of desperate/enthusiastic investors who the seminar promoter can call and cheat. See OC Register story RE allegations. If they make sure they have all of your contact information, you should be careful; and if they ask you about your net worth or how much you have in your retirement fund, RUN RUN RUN. Remember the nearest exit may be behind you!! Why are they teaching this information for free?
• 100% Money Back Don’t worry about the cost; we have a money-back guarantee. Think about it. You have never met these nice people before in your life. Do you believe that six months from now they will give you your money back? Do you think you will be able to find them? And the stringent terms of the money back guarantee will be in a pile of papers that you will not get to until after they have your money and you are back home. This is a trick in some cases to avoid criminal charges. If they don’t deliver the goods, they can always say they were not defrauding people because they offered to give them their money back if the customer was not happy.
Limited number seats.You have to act now. We only have a limited number of openings. Well, the same seminars seem to take place again and again; and if they have a couple of extra students at the Seminar you have to pay for they can just have the hotel punt in another table. If you cannot get into one there will be another one in a few months. This is an old marketing trick that makes you feel like you are loosing out if you don’t buy now because those other people will get the seats. But the main reason you have to buy now is so you don’t have the opportunity to think about it for a couple of day or talk to your spouse. Another tactic is that at the free educational seminars (sale pitches) they allow the first 15 people to buy the program at half price.
Okay, you are still super-pumped about the real estate thing that your attending tomorrow. We are not saying that you shouldn’t go. But be forewarned about some of the things that go on. There are many newspaper articles about this topic, but they have things in common. We have just listed a few. Read through them before your give the millionaire seminar guru your money, or your contact information.
Article 1 People disappointed by seminars given by the biggest name in real estate.
Article 2 Honest looking Seal Beach Lady gets 30K out of seminar goers
Article 3 This guy reported on what an NBC Dateline story (not available on the net) had shown. Many of the actors in this informational were actors, the police even found the scripts; and it appears that this couple copied what Tom Vu was doing (see below) even reusing some clips from his infomercial. In the late 1990’s it seemed like the McCorkle’s were always on TV.
Article 4 Good wsj article from with input from the FTC in 2003 Not much has changed.
Article 5 Rippoff report. People defrauded by sales call from host of educational sieminar.
Article 9 John Alexander–Real Estate Riches in 14 Days, John Beck–Free & Clear Real Estate System, and Jeff Paul–Shortcuts to Internet Millions In a nutshell, FTC asking for $450,000,000 because these promoters got people to pay $40 for educational systems and then talked people into $15,000 of personal coaching. The issues were that”nearly all the consumers who bought them lost money,” and that people thought it was worth $39, but unbeknownst to most people they were enrolling in a program that hit their credit/debit cards for $39/month. –What can we learn from this? Don’t give promoters your credit/debit card number.
Article 10 This is based on a court case. Never give them your personal info. It appears that the the Mr. and Mrs Hays of OC wanted to learn how to flip short sale houses that they could by under market and profit from the (wait for it) instant equity they got with no money down. So they filled out forms with their personal info, and if you believe this article, that personal info was used to commit fraud in their names. So they were stuck with a $245,000 mortgage in their names.
Article 11 This is a story on Atlanta’s Fox TV which shows how a star from the Flip That House series never actually made any money flipping houses despite the numbers that were on the screen. And this guy used his TV credibility to gain the trust of investors. To their credit, it looks like the Network may have been also scammed and they no longer broadcast the show. (part 1) (part 2) So, just because someone is on TV it means the look good on TV. It doesn’t mean they know what they are doing or that they are investment experts.
Article 12 This is a CBC report that apparently someone filmed off their TV and put up on youtube for people to see. Part 1 Part 2 Part 3 CBC Link We don’t know how long the CBC will allow it to stay up.
Article 13 Orange County’s own Flip or Flop are accused of basically copping the other educational programs. Orange County Resister published a well written article. Click Here
There has also been a lot of Latino to Latino affinity fraud.
We could go on and on, but it’s basically the same story year after year.
This is CLASSIC. Tom Vo dominated late night TV back in the day. This video actually was on TV, it’s not a spoof. Yes he took it to another level with the yacht, bikini girls, and Rolls Royce. But basically the same themes runs through today’s scripts. In fact, another couple used clips from this infomercial to made their own infomercial/real estate wealth system. They ended up going to jail because the jury saw out-takes from actors they hired reading scripted personal testimonials. Variations of these sayings are still being used to motivate people. Check out this webpage infomertial-hell for more info.
Real Estate Motivation.
In the initial educational seminar (read sales pitch) they will get you going by emphasizing the following facts:
- You and your family deserve a better lifestyle (more time with your family, vacations, financial security, nice house-car, quit your dead-end job).
- Paying Rent is like throwing money away.
- You can use Other People’s Money (OPM).
- There are two types of people: people who dream about being rich their whole life and those who take action.
- It only takes a small investment in this education to change your life.
Watch the Tom Vu seminar. Times may have changed, but he used the same motivation.
But wait there is more
Secret deals at Government Auctions
Tax Lien Certificates
One of the newer tv infomercials is about tax leans that are sold in every county. This is a guaranteed system and you will make at least 16%! But you will probably make more money if the home owner does not pay her tax bill. You can pick up a nice three bedroom house for less than $1,000. And, according to the commercial, Real Estate agents and wall greedy street people do not want to tell you about this because there is no commission in it. Well think about it, if they could make a minimum of 16% guaranteed in 90 days, why wouldn’t they just quit their jobs and do this easy system full time? Why wouldn’t Warren Buffet do the same? Well apparently there is a “secret” system–that they sell to anyone with a credit card. Before you stay up all night looking for this one on late night TV, we checked and Orange County does not sell tax lien certificates. And there is a group of investors that pay all cash for properties sold by the county. Sometimes they do not make a profit on them.
US Government Auctions
William J. McCorkle was sentance to 24 years in prison (wikipedia page)
Interesting website http://www.californiarealestatefraudreport.com/