News that Donald Trump settled several lawsuits brought by former students of his Trump University to the tune of $25 million got a bit buried in the social media–driven news cycle by the story of Vice President–elect Mike Pence getting an impromptu lecture in a Broadway theater by the cast of the hit musical “Hamilton.”
The president-elect, who didn’t want to face trial while he’s putting together his new administration, quietly settled the suits—covering about 6,000 students of the now-defunct, non-accredited real estate investment school who’d alleged they were hoodwinked—without admitting any wrongdoing. Now, onto more Cabinet appointments!
But the legal actions still shined a harsh spotlight onto the little known and controversial world of real estate investing gurus, seminars, and schools, all promising to help attendees get rich off real estate deals.
Plenty of legit educational programs on buying and selling property for profit do, of course, exist. But they fight for attention against a rising tide of shady programs that are widely accused of preying on low-income participants through a variety of get-rich-quick schemes, delivered through costly seminars and training sessions.
There’s been an uptick in the number of complaints about wealth building and real estate seminars received by the Council of Better Business Bureaus. The council is the umbrella organization for the local and independent bureaus in the U.S., Canada, and Mexico.
It received 101 complaints about wealth building and real estate seminars and training in 2015, compared with 78 in 2014, according to the council’s most recent numbers. The group is aware of about 375 for-profit real estate educational companies currently operating in the U.S. and Canada.
“Most of these real estate gurus are just charlatans,” says David Crook, author of “The Wall Street Journal Complete Real-Estate Investing Guidebook.”
“They peddle dreams to poor people.”
Who’s signing up for these seminars and schools, anyhow?
Real estate investment programs tend to attract immigrants, retirees, and minorities, says John T. Reed, who writes about real estate investment and has a website that rates real estate investment gurus.
“[The gurus] pick on people who are not skeptical and are uneducated and are more susceptible than the average person to high-pressure sales tactics,” he says. “It’s deliberately designed to cause skeptical people or people who have experience in the industry not to sign up.”
In fact, security personnel at many programs will often throw out attendees who ask too-pointed questions about the instructor’s system, he says.
The specifics differ, but here’s how these programs usually work:
Students are attracted by a free, heavily promoted introductory class (with free lunch) promising to enlighten outsiders on the secrets of cashing in on real estate, delivered by experts. It turns out to be a sales pitch for a paid seminar, where attendees learn a bit about real estate investment while being strongly pressured into signing up for additional, ever-pricier workshops and mentoring services. They are encouraged to bring new people into the seminars as well. This, in the biz, is known as “upselling.”
The quality and effectiveness of the information delivered is a matter of debate and varies widely.
Sometimes gurus will even urge pupils to sign up for bus tours to view—and even buy—some of the expert’s own investment properties. Many of these are overpriced, Reed warns.
“Real estate is a great place to [make] money,” says Reed, author of “Aggressive Tax Avoidance for Real Estate Investors.” “But you would have to take high risks if you’d like to make a lot of money fast. It’s not advisable.”
The good news is that laws have been enacted allowing buyers to renege within three days on educational purchases they made in a hotel meeting room, restaurant, or convention center—exactly the places where most of these seminars are held.
Reality stars’ fame doesn’t always lead others to fortune
President-elect Trump isn’t the only reality TV star to get into the real estate investment self-help business and come under scrutiny.
There’s also Armando Montelongo‘s seminars. The star of “Flip This House,” a show that ran on A&E from 2005 through 2009, was sued earlier this year by more than 160 of his former students for allegedly pocketing thousands of dollars of their lifesavings for a real estate investing system they claimed didn’t work. The Better Business Bureau, which chronicled complaints, has not accredited the business.
In a statement, Armando Montelongo Companies dismissed the lawsuit, saying the plaintiffs are trying to “make money the easy way by clogging up our legal system with a frivolous lawsuit.” Company representatives did not return requests for further comment.
The students voluntarily withdrew the suit because it was filed in California instead of Texas, where Montelongo lives. They said they would refile in Texas.
The price structure of the Montelongo program is fairly typical of this industry. Attendees are typically invited to a free seminar, and then encouraged to sign up for a three-day training session at nearly $1,500, according to the Better Business Bureau’s website. After that, they may be urged to sign up for more education packages, at prices that often exceed $12,000.
Another example of a wealth-building guru coming under fire is Robert Kiyosaki, author of the best-seller “Rich Dad, Poor Dad,” investor, and radio host.
MarketWatch columnist Chuck Jaffe named Kiyosaki’s training program a “Stupid Investment of the Week” in 2007, saying that “Kiyosaki’s world is full of platitudes, and is not so rich on specific advice.”
The Better Business Bureau said it had “received a pattern of complaints that substance and/or availability of the programs did not meet the customers’ expectations compared to what was presented to them at the business’ seminars.
Kiyosaki’s company officials also did not return requests for comment.
Alternatives for education in real estate
Pricey seminars aren’t the only way to learn about making money in real estate. Consider joining a local real estate investors club instead, says Reed.
For example, the National Real Estate Investors Association, a Cincinnati-based group of about 40,000 independent home flippers, landlords, and investors around the country, offers a series of informative monthly meetings and educational programs. Members pay an annual fee of $150.
“The biggest thing that people come to our groups for is education and hand-holding,” says the association’s executive director, Rebecca McLean. She adds that many aspiring investors are spooked after seeing people lose money in the last housing bust.
She’s seeing fewer scams since the bust nearly a decade ago. However, this time around, scam artists are appealing to more middle-class professionals who have the savings and credit to afford the seminars.
“With the right project in the right market, you can make that $25,000 [in seminar costs] back in just one deal,” says McLean. “[But] to assume you’re going to pick up a property for $20,000, put $5,000 in it, and sell it for $100,000, that’s just insanity. Those deals don’t come around every day.”
She recommends that budding property owners get feedback from other local investors before parting with their lifesavings.
Do your homework before signing up
Potential students should evaluate these schools and gurus very carefully before signing up for anything, warn experts. That means looking very carefully at whether their mentor of choice has made their own money in the business—and whether that was the result of skill or just good luck.
“You don’t need to pay $25,000 in education if you buy at the right time,” says Dennis Cisterna, chief revenue officer of Denver-based Investability, an online marketplace for those looking for rental properties.
In addition, there are ways to avoid being hustled.
First, do some due diligence online: Search the name of the guru and business online along with the words “rip off” or “scam,” says Ed Magedson, founder of the RipOffReport.com, where consumers can report shady businesses. That should bring up negative reviews and lawsuits. And check the Better Business Bureau’s website for complaints or legal actions.
But just because a business got a bad review or a student complaint doesn’t mean it’s necessarily crooked.
“Everybody’s a critic,” Magedson says. “None of us could ever satisfy 100% of the people 100% of the time.”
Folks should look for money-back guarantees and cancellation policies before signing up. Take screen shots of that guarantee on the website (just in case the company later takes it down) and save the link to that page.
They should also ask representatives about the rules for getting a refund before plunking any money down. But the written agreement will prevail over any spoken promises.
And participants should pay by credit card, as they can later challenge charges if they fall victim to high-pressure sales tactics.
Finally, aspiring millionaires need to adjust their expectations.
“There’s no program that’s going to work the same way for everyone,” says Magedson, adding that students may receive perfectly good readings that they don’t understand. “It may work well in Milwaukee, WI, but not work as well for somebody in Tulsa, OK. Not all markets are the same.”
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