Real estate gurus:
If only it were that easy
You've probably heard the real-estate seminar pitches -- whether delivered live, on tapes, or late-night TV -- claiming you can buy property with little work and no money down, or promising that you can get rich in your spare time.
Ah, if only it were so easy.
Real estate seminar salespeople emerge in times
of rapid appreciation, says Steve Tripoli, a consumer advocate at
the National Law Center in Boston. Many offer programs and practices
that promise much, but deliver very little that is useful.
Not every teacher and book
author out there is unworthy, but searching through the pitches is
The good news
Many of the techniques these famous names tout to make you rich
are doable, says Phillip Storms, certified financial planner and
president of Westmont Companies in Aurora, Colo., a financial firm
that specializes in real estate. They simply make it sound easier
than it is.
"I haven't used most of those practices, because they're too
much work," he says.
For example, a common suggestion is to offer someone full price
on a property, but with a catch: The investor puts 20 percent to
30 percent down, and the seller carries the balance for 20 years
at no interest. Sounds like you just gave someone full price, doesn't
it? Yet the setup lands the investor a tremendous discount.
"There may be a few sellers here and there who will fall for
that. But you're looking for a naive seller or someone dying to
get out of a deal," Storms says. Try finding them.
"Basically, if you can purchase a property and rent
it out or improve it and turn it over in a short period of time, you can make
these things work on paper fairly easily," says Nancy Flint-Budde, an independent
certified financial planner in Salem, N.Y.
Storms is comfortable with Robert Allen's system,
mainly because interested folks can simply buy the book if they
don't want to take a risk on the seminar. Allen has written many
books on getting started and investing in real estate. On the other
hand, John T. Reed, owner of the Real Estate Investor's Monthly
newsletter and author of 17 real estate investment books, publicly
calls this original "no money down" advocate "little
more than a financial publicity stunt man." Reed's Web site
his personal research on various real estate gurus.
Instead, Reed recommends real estate columnist Bob
Bruss, Jane Garvey (publisher of Creative Investor newsletter),
and John Schaub seminars.
In a nutshell, experts say, guru courses conveniently overlook life's
realities. "Infomercials are expensive, so you have to tell
the audience that whatever you're selling is applicable to massive
numbers of people," says Reed.
But it's not that easy. For instance, if you become a landlord,
eventually a tenant won't pay on time. Can you throw out a 6-foot-3-inch
biker wearing chains?
Not to mention the law in your state could mean it takes you up
to a year to get deadbeats out, Flint-Budde says. She also tells
her clients to stockpile an amount equaling three to six months'
worth of rent payments per unit to cover unforeseen repairs and
glitches. So if your net rental price is $1,000 a month, you need
to set aside a minimum of $3,000 to $6,000 for every unit you own.
As for that "positive cash flow" phrase media mavens
throw around, don't forget you have to take the vacancy rate into
consideration. Banks typically use 25 percent when qualifying you
to purchase an investment property, so if you set the rent at $1,000,
the bank will only expect you to haul in $750. "If you can
generate a positive cash flow on the $750, then good," says