The free introductory sessions were heavily advertised with radio and web ads. The clincher was a front page story in the Arizona Daily Star which, while raising some questions about the program, included comments from a local economist that appeared to endorse buying distressed properties.
Fortune Builders, one of the firms featured on A&E’s “Flip This House”, was coming to town to offer their expertise in flipping houses.
The session we attended was full, with about 100 attendees, and the speaker was funny and engaging. He was a real estate investor who had reached “financial independence” at age 39 and had still learned so much from Fortune Builders that he began conducting these sessions. He was up front that the purpose of this session was to sell the attendees on a subsequent three-day session. He was also clear that he was going to “tell us the truth” because that’s what we deserved.
Fortune Builders proposes that they will teach three areas critical to successful real estate flipping – “systems” to leverage knowledge and experience, “hidden markets” for properties outside of the conventional listings and foreclosure sales, and “other people’s money” (OPM, cute) to maximize profits and reduce risk. Hidden markets such as properties in probate, out-of-state owners and negligent landlords certainly exist but are already being pursued by plenty of investors. OPM is also out there, but cash investors have plenty of existing real estate options, and the suggestion that Fortune can show anyone, regardless of their financial circumstances, how to get a $50,000 business line of credit seems inconsistent with today’s lending standards.
Other exaggerations included an example of losses in 401k’s (and conveniently skipping the fact that many of those losses have been recovered) and the ease with which 401k and IRA funds could be used to invest in real estate. Most troubling was the same scenario presented in “Rich Dad, Poor Dad” – a hard-working, dedicated long-term employee was suddenly fired late in his career and financially devastated, leading to the idea that real estate is the best way to financial stability. It is certainly true that many employees suffer by no fault of their own, but real estate presents an even lower likelihood of success, and the suggestion that working hard for someone else is somehow foolish or less honorable bothers me mightily.
There were some worthwhile ideas shared by the speaker. For example, a “staged” property will sell faster and for a higher price than an empty property and staging is well worth the cost. Likewise, even if you are a skilled tradesman and enjoy the work, you should not do the renovation work yourself because it takes your time and is more likely to create an emotional attachment to the property. Good advice, but not rocket science, and those lessons take as long to learn as it took to read this paragraph.
The financial opportunities presented were indeed enticing. Locating some OPM to repurchase a property before identifying the property itself (a “wholesale” transaction) should result in a profit of $5,000 to$20,000. Buying, rehabbing and reselling a property should net $20,000 to $60,000, and all those profits can then be reinvested in rental properties to be retained and generate income for life.
We ran into an old friend at the seminar; a professional speaker himself, he was interested in the speaker’s technique. As it turns out, our friend had briefly given flipping seminars back in the 80’s for a sponsor who eventually ran afoul of the Federal Trade Commission. Even then, the sponsor was well aware that only 4% of the people going through the full training would ever actually buy a property and a fraction of those would continue buying properties.
The opportunity to sign up for the three-day seminar began halfway through the session. The seminar, which “costs $1,197 retail”, was offered for only $197 if you signed up at the session. But wait, there was more – you could bring a spouse or guest to the seminar and get a number of DVD’s and other materials bringing the total package to a value of $2,688 – still for only $197. People immediately signed up (although we wondered if some were “shills” to generate interest) and eventually around 40% of the attendees signed up, while another 20% left early without signing up.
Is there money to be made by flipping properties? Of course, if one is willing to work hard, learn from others and experience, persevere through mistakes and defeats, and take risks. These are the same requirements for success in nearly every business. Does Fortune Builders, or any other seminar, hold some secret to making money, whether by flipping properties or some other means? Of course not, although it may be part of the learning component of this particular field. Ultimately, Fortune Builders is a successful business for the sponsors and anyone flipping properties should not expect any magic.
Fortune Builders has been one of the “Top Education Companies” on the Inc. Magazine 5000 List for three years, a distinction that was highlighted in the session. Unfortunately, that list has absolutely nothing to do with the quality or value of their education; it is based solely on the growth in Fortune Builders’ revenues, which reached just under $20 million in 2012. That sure beats rehabbing houses.