By Konrad Knoeferl
Hey I’m a little bit late this week dear readers. Many apologies! I’m trying to get this blog out regularly on Sunday night or Monday morning. But I took a little mini vacation to Las Vegas this past weekend. Thought I would be clever and write the blog while I was there but way too many distractions. More about that later. So let’s get to it. I promised a discussion on the advantages and disadvantages of spending money on a real estate guru, so here goes.
This is a very interesting question. We’ve all heard the radio spots from the different real estate gurus. “Join us at our seminar on Saturday where we will teach you how to flip houses without using your own money. Seating is available for both morning and afternoon sessions.” Have you ever attended one of these? Well, if you haven’t done so yet I have, so allow me to enlighten you.
Being naturally curious I attended one of these seminars when I first considered getting into the business back in 2013. Actually, I attended a few of them put on by different Gurus. First of all, nobody can teach you how to flip houses in four hours on a Saturday afternoon. That being said I did find the information provided informative and helpful. The downside is they are all essentially a four-hour sales pitch. They all use the same script which is a four-hour tease where they up the stakes and try to get you put out some cash for a more in-depth overview. To be honest they are all up front about that. They state right from the beginning that there is just too much information to assimilate in one four-hour session. And they offer the opportunity of attending one of their three day seminars for a small fee. The fee ranges anywhere from $200 to $1,000. They then proceed to give you a lot of information about how the business works and how you can make big money flipping houses. It all sounds very exciting and they wrap up with a reminder about their three-day seminar. They may throw in that seating is limited so once the event is sold out there will be no more seats available. All designed to get you to put out your money before you have a chance to consider it. This is marketing 101. They know that statistically, if you take just twenty-four hours to think it over you will probably change your mind. It’s like the five-pound bag of bite sized Snickers you bought at the supermarket. At the store they looked really good but once you get them home you begin to wonder if you can get a refund on a half-eaten bag of bite sized Snickers.
There was just enough information presented to keep me curious, so I paid the fee and attended the three-day event. Much more information. I was taking notes constantly. But again, it was another sales pitch. They weren’t deceptive at all about the pitch. They offer different mentoring programs, software availability, one-on-one training, boots on the ground training. A very thorough education. They usually divide it into levels with a base program costing around $30,000 and going up to as much as $100,000 or more.
The first seminar I attended was produced by Fortune Builders. I honestly felt then, and still feel, that the information I got at the three-day seminar was worth the $100 I spent. At the time, though, I wasn’t ready to plunk down $50,000 to join their Mastery program. I next attended a seminar put on by Dean Graziosi. Dean takes a little bit different approach in his seminars. He gives you the same basic information to get you pumped up about investing in real estate. But then, rather than selling you a ticket to a three day follow up, he offers various real estate investing courses. Maybe one on wholesaling, another on owning rental properties, another on flipping. I bought one on buying tax liens which I found to be an interesting strategy and I will probably blog on it in the future.
Because I had attended the two previous events, I was on somebody’s mailing list. In late 2014 I got a call and was invited to a seminar being put on by REEG, Real Estate Education Group. Their spokesman was Scott Yancey who stared in the A&E show Flipping Vegas. Now Scott, as far as I know and discovered later, didn’t really have much to do with the actual company. Rather, because of the television show, he was a celebrity with some name recognition. That was the hook to get people to attend. He wasn’t at the half day seminar or at the three-day event I bought into for $1000. They do, or did as I haven’t kept up with them, hold a major nationwide event once a month at the Luxor in Las Vegas and Scott and his wife will usually be speaking at that one.
So, what did my $1000 buy me? Well, the three-day follow up was scheduled for the following weekend. Both events were held in my hometown of Bakersfield, but I wasn’t going to be able to attend the three-day follow up because of my work schedule. The organizer and I looked at a few future dates. They move around a lot and the most convenient date for me was a three-day being held in San Diego in a couple months, early March. Because San Diego is a good four or five hour drive they paid two nights for a hotel room where the event was held. They also gave me a voucher for $100 for meal money. And they actually paid for two rooms. I was allowed to bring a guest but my wife wasn’t interested. I invited a friend, but he begged off about a week prior to the event. I called everyone I knew but nobody either was interested or could get the time off on short notice. So I called Kevin Oliver. You will probably hear his name a lot if you read this blog regularly. At the time we were, I guess business associates is the best word. He is a local realtor/broker with Miramar International and has extensive experience with flipping and wholesaling property. I had put up the money for a couple of his smaller projects so we had a business relationship. This is also a perfect example of flipping properties using OPM, Other People’s Money. I also knew he had gone through the Rich Dad program so I figured he wouldn’t be interested in what was best described as an introduction to Real Estate Investing. Not even REI 101 yet.
To my surprise he said he’d love to go. As a realtor, March is still the slow season so he could easily take the time off. The hotel was free. At least one good meal was also free. So his attitude was free road trip, I’m in. it was on that trip that we formed a solid friendship that eventually made us business partners. More importantly Kevin gave me some of the best advice I’ve received in this business. The seminar was once again very informative but was also an unabashed sales pitch for their $30,000 training program. I liked some of the things they were offering and by now had been going to these seminars for two years. I would still occasionally excavate some new bit of information but it seemed that I was getting diminishing returns on my investment as a lot of what I was hearing was, by now, repetitive. I had also done a deal and bought a rental property, for which I probably overpaid due to a lack of experience. I was learning but I felt something was missing from my education.
It was lunch of the second day of the seminar. Kevin and I were sitting in the hotel bar enjoying a glass of wine and discussing what we, or I, had been learning. At one point I said “Kevin, I like what I’m hearing about this education program they are offering. I’m seriously considering making the investment. What do you think?”
Now Kevin had been in this business for about fourteen years at the time. Prior to that he had worked as a loan originator with GE Finance but was ready to make a change. He heard about the Rich Dad program and decided to make the investment. In that case about $32,000. He replied “That decision changed my life. At the time I had six figures of credit card debt and I traveled a lot and wasn’t at home to be with my wife and two sons. Going through the Rich Dad program gave me financial freedom and my current lifestyle. So for me it was the best decision I ever made. But I can’t tell you if it will be a good decision for you. You know it will take work, so you just have to look inside yourself and ask if you are ready to make that commitment. But only you can answer that question.”
So I put up the $30,000 and, like Kevin, it was the right decision for me. The question for you, dear reader, if you are considering making that investment, is it the right decision for you? There are several factors to consider here. Unfortunately, many people pay for these courses and expect to become magically rich. they hear all the hype at the seminars, especially the one about passive income. They wrongly assume that simply paying this money is going to make wholesale changes in their life. It doesn’t really work that way. Like with anything in life this is going to require effort on your part. I haven’t really heard any official statistics, but I think it’s safe to say that more than 95% of the people that paid for these programs never get all, and in many cases, any other investment back.
This is the way I treated it. I looked at the money as college tuition. If you want to become say, an engineer, you’re going to go to college for four to six years and spend well over six figures in tuition. That is the cost of your education. This is no different and actually a lot less expensive. Even when you get your degree as an engineer you have to go out and get a job, starting at the bottom, and work your way up. Now, granted, starting at the bottom as an engineer you’re still going to make very good money. But then you also spent a lot more money for your education so in that regard it’s all relative. I think I had some advantage over most of the people that signed up the day I did. By then I already had some real estate transactions under my belt. Also, when I decided to spend the money for the education, I think Kevin took notice. He realized that I was in this for the long haul. So, I think our relationship changed at that time. I was no longer a guy that had a little bit of money to invest in his flips but now I was a potential partner. And in the long term, Kevin became my mentor which is a huge advantage for anyone starting out in this business. Also, the fact that I spent $30,000 meant I had some skin in the game, to coin a phrase. I knew this business would take a lot of work and if I wanted to get that $30,000 back I was going to have to put in that effort. Being cheap does have its advantages.
So, like Kevin said to me back in March of 2015, I will now say to you dear reader. I consider that money well spent. It has made changes in my life for the better. Not just monetarily either. I’ve acquired a new circle of friends and a great deal of life experience because of that decision. But you have to look inside and ask yourself if you’re ready to put in the effort and do the work required to make that investment worthwhile. Too many people are reactive in that regard. By this I mean that they react to circumstance. They put up the money and wait for the changes to come to them. In reality putting up the money is simply a matter of writing out a check. For true change to occur you have to be proactive. That means you have to go out and make change happen. Use the tools that you get with whichever program you are going to buy. Follow the steps. Take advantage of your mentors, which most programs will include.
Having said all that, there are some other considerations before you plunk down your $30,000 plus. While the information they provide is invaluable if you’re going to be successful in this business, there are less expensive ways to come by that information. For one, many colleges now offer courses on flipping houses and related subjects. You might check your local junior college to see what they offer. Another alternative is the Internet. There is a wealth of information out there and most of it is free or nearly free. The downside to that is you’ll end up on somebody’s mailing list and you’ll probably be bombarded with offers but you can send those straight to your spam folder. Kind of a parallel to the Internet option is to read books, which you can find on the Internet. The Millionaire Real Estate Investor by Gary Keller of Keller-Williams Real Estate is highly recommended. Rich Dad Poor Dad by Robert T. Kiyosaki is a good read and he is the founder of the organization of the same name. A light but also very helpful read is the book Who Moved My Cheese? By Spencer Johnson. Think and Grow Rich by Napoleon Hill should be on everyone’s reading list. These are just four, what I would call, essential books but there are many others to choose from. A fourth option would be to start attending real estate investment meetings. Most communities have them. Go to meetup.com to see what’s available in your area. They usually have knowledgeable speakers and opportunities to network and possibly meet mentors. I met my partner Kevin at one such meeting. Network! I can’t stress this enough. You can do that at the investment meetings, at school, or pretty much anyplace. You can join investment groups on Facebook, start your own investment page, do a blog. On second thought, don’t do a blog. I don’t want the competition. You will have to put yourself out there. Meet people, ask questions, build a list of advisors and potential partners.
If you google some of the training organizations I’ve mentioned, Rich Dad, Fortune Builders, Dean Graziosi, and add the word scam you will probably get a lot of feedback. My personal opinion is that scam is too strong of a word. I am sure they have all faced their share of legal battles from people that bought into their program and did not get what they expected. As I mentioned above, probably something like 95% of the people that invest will not recover their investment. If I have any criticisms, and I have a few, I don’t think they stress enough how much work this business will take to be successful. They get everybody into a room with high energy speakers talking up the big rewards which is fine. Again, that’s marketing 101. But caveat emptor, let the buyer beware. It’s your job not to get swept up in the heat of the moment but rather to give it serious thought and check into it. I myself attended several seminars to see what they were about and I talked to other people that had actually invested in these seminars including my partner Kevin. I looked at the whole idea for two years before I actually decided to jump in.
I think they also spend too much time stressing the big money that can be made. They point to themselves and people who came up through their organization as examples. To be really successful in this you have to be an aggressive type A personality. A highly motivated self-starter. Most people aren’t that, which is why the high failure rate. You also have to be risk averse. Making a deal even on a $100,000 fixer upper that has been beat to crap and you’re hoping you can renovate for $50,000 or $60,000 and maybe make $20,000 or $30,000 in profit is a scary proposition. Some of these really successful investors are doing $1,000,000 deals. To me that is absolutely terrifying. The actual fact of the matter as if 5% of those that invest in these programs actually make their money back probably less than 1% actually make big money. The others, including myself, are making some money but still working their day job. As far as I’m concerned I’m setting up my retirement with this.
Another concern, in my own instance anyway, is a failure on their part to do proper follow up. This is partly my fault and I’m also speaking about one organization. I can’t say the same is true for all. I’m sure I can reach out and contact them if I have a problem. For me the program lasted about one year. I went to the training and then had a one-on-one mentor that worked with me for six months. My membership is for lifetime training so again they are a phone call away. I just really haven’t felt a need to make that call. I was contacted by them on, another subject, and in the course of the conversation they realized that they owed me a one-on-one training in my market. They said they would get back to me and set that up but they never did. Again, I could make it an issue and I’m sure they would take care of that but where I am at now in my investment education it really isn’t necessary.
These gurus generally started out as small-time investors just like us. Due to a combination of their aggressive personalities, timing, and luck they have become very successful. And they want to share that success, which is admirable. but they have also discovered there is a huge cash cow out there of people willing to put down large sums of money to learn how to be wealthy real estate investors. They have simply monetized their knowledge and their systems. And that is all well and good. This is, after all, America and capitalism is what built this country. But I also think they have drifted away from what got them there in the first place, which is real estate investing. I’m sure they make much more money teaching these courses than they do with their actual investments. And I’m sure the return on investment is much higher the stress level is much lower.
This last is more a criticism of the stuff you see on TV concerning flipping houses. They generally show you how much was paid for the house, let’s say $100,000 for example, and how much the rehab was, let’s say another $50,000 in this example, and then the final sales price of $200,000. So they just made $50,000 right. No they didn’t. They left out things like the cost of hard money which is a high interest rate loan of usually around 10% to 12%, property insurance which you have to carry, and closing costs when you sell. Add all that in and that $50,000 profit is now about $25,000. Still a nice chunk of change but I think they are highly misleading there.
So, in summary, was the $30,000 worth it? For me it was. I tend to like structure and organization and these programs provide that. Also, if you are a newbie and you use some of the resources I mentioned above, rather than a guru, you are asking questions, which is good, but are you asking all the questions. You may be missing something in your education that you’re not even aware of. These organizations have everything you need right there at your fingertips in a nice, organized structure. They also provide a lot of proprietary software that you can use so that’s a plus as well. And by having everything readily available the time it takes to become proficient is much less then if you try the self-taught method. By nature, I’m cheap so having skin in the game, in the form of a $30,000 investment, was a huge motivating factor for me as well. Most of these organizations will have at least one, if not several, large nationwide gatherings every year. The idea here is to sell you additional programs which, if you feel they have a value may be worth it. The real value, though, is in being able to network. Also, if you are becoming discouraged, these gatherings generally are very high energy and you will leave feeling pumped up and ready to go out and conquer the world.
So in the end it’s a question that only you can answer. The answer will be different for different people. I just say go in with your eyes wide open, look at alternatives, ask questions, and network, network, network! Remember knowledge is power.
For my next blog I’m going down one of those rabbit holes I promised and rant about Las Vegas! see you in about a week.