NO. 10 Lacking a solid reputation. What is the teacher’s reputation among experienced investors? Go to a meeting of a local real estate investment club, find several of the most experienced investors, and ask what they think of the teacher you are considering. NO. 11 Not admitting mistakes. “You don’t learn to walk by following rules. You learn by doing, and by falling over.” —Richard Branson. An honest teacher admits their mistakes so you can learn from them. A dishonest teacher either doesn’t admit them or claims they were smart enough to make them profitable. NO. 12 Using motivational language. “You can succeed!” and other phrases like that are marketing gimmicks. Motivational language has no place in an educational environment. NO. 13 Advocating high leverage. Does the teacher use terms like “nothing down,” “low down,” “creative financing” to describe strategies? These high-leverage approaches all result in negative cash flow, aka money out of your pocket every month, because the rent doesn’t cover the mortgage, taxes, insurance, and maintenance. NO. 14 Relying on anonymous testimonials. People claiming they made windfalls with the training are often phony, especially if their names are incomplete (“B. W.” or “John A.” for example). Look up William McCorkle. He made some $50 mil - lion convincing people that if they bought his real estate courses, they would get rich. In court, his secretary tes- tified that he used friends, employees, and paid actors to falsely claim in testimonials that they made big money from what they learned from him. He was convicted on 82 fraud and money laundering charges and sentenced to 24 years in federal prison. McCorkle is far from the only one who puts out false or misleading testimonials; he just got caught. If those who offer the testimonials are not lying, they are not tell- ing you the whole story when they say such things as, “I bought 20 houses worth $2 million with no money down!” That means they have 20 houses with negative cash flow (they must dip into their savings to pay the mortgages and expenses every month), 20 roofs, 20 furnaces, 20 air conditioners, etc. to maintain and replace, 20 property tax bills, 20 insurance bills—all with no income from the houses. And they are $2 million in debt. Unless they have very deep pockets—and if they did, they wouldn’t need to use high leverage—they will soon lose those properties. Bankruptcy court, here we come.
NO. 15 Claiming access to a fund. Do they have a fund or an offer to put you in touch with funds? Too many times people lose their money in real estate and note funds through mismanagement or out- right theft. Did you know that the Securities and Exchange Commission can shut down funds that miss filing even one document and then confiscate the assets—even if no investor has lost a dime? Have fun trying to get your money back. Selling to students. This is a huge red flag. Would you trust someone who told you that if you pay them, they will teach you how to buy something at the lowest price—and then try to sell it to you? No ethical person would sell what they teach to their students or promise to give you access to a “secret list” of properties or notes for sale, and/or offer to invest with you. NO. 16 A wise investor once said, “There is an inherent con- flict of interest with any education program that offers investment assets as well. Someone can’t be an impartial and expert educator and also offer assets for sale. The educator’s fiduciary obligation is to teach discerning and quality due diligence (and to help one master the art of the negotiation) to maximize the student’s profit from the acquisition of an asset. The seller’s function is to maxi- mize the asset’s sale price. The two are, by definition, in conflict. If you expect a two-for-one deal you’re merely asking to get screwed.” •
W. J. Mencarow has more than 30 years of experience exposing dishonest real estate and note teachers. A former investigator for the U. S. House of Representatives, he is a real estate and note investor. He also hosts a radio talk show and edits a newsletter about note investing. Email wjm@cashflows.org or visit www.PaperSourceOnline.com. For more red flags, read John T. Reed’s “Real Estate B. S. Artist Detection Checklist” at www.JohnTReed.com
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