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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.

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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 challenging.

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 offers 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.

Missing in action
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 Flint-Budde.


-- Posted: July 7, 2005




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