REAL ESTATE SNAKE-OIL

By Neil Jenman

Article originally published on APRIL 17, 2003 – Reviewed and approved.

They came from the East, fanning across the country, setting up shows with promises of miracle health cures and “new discoveries”. They were the snake oil salesmen of nineteenth century America, making fortunes from gullible consumers.

Today, they still infest America; but their product is no longer health cures, it’s wealth cures. Their motive is the same: making money selling dud cures.

Now they are polluting Australia and New Zealand, fleecing millions from naïve consumers eager to find out “how to do it” in real estate.

THE SNAKE OIL SCAM

The real estate snake oil boys all use similar methods.

First, there is the free seminar. Sometimes there is a small charge, with a “money back guarantee”. There are amazing promises of “easy wealth” and information guaranteed to be “life changing”. The purpose of these seminars is to talk you into paying a huge fee for a “big” seminar, where “all the information will be revealed”.

Snake oil salesmen follow two rules to trap you. First, they target your desire, and second, they convince you that they can fulfil your desire. “If your dream is to create wealth, look at me, I am wealthy. Let me show you how I did it.”

But the snake oil boys rarely get wealthy from real estate. They get wealthy from your money.

Like most con artists, they prey on fear. They want you to feel inadequate with your own financial life. They will come out with such lines such as “Job stands for Just Over Broke.” You are supposed to think, “That’s me.” The speaker will tell his story which will be like yours. He was once poor, he was struggling, he had no hope. And then, one day. Well, look at me now. I am young. I am rich. I am confident. Hey, you’ve gotta like what I’ve done; and I can show you how to do it.

For a fee, of course. And, for tonight, you can have a “special price”.

In case you are wondering why the speaker is sharing all this “secret” wealth creating information when, surely, if it were that good, he could do it himself, you will be told, “I like to help people.”

You will also be told, “All successful people act fast.” This is nonsense. Successful people rarely act fast. They wait until they gather facts, they assess the risk, including asking that all-important question, “What’s the most I could lose?”

Successful people – and in this case we are talking about financially successful people – look for clues before deciding. They recognise warning signs. One of the biggest warning signs will be the techniques suggested by the snake oil gurus.

THE CROOKS’ TECHNIQUES

The “techniques” of the snake oil merchants range from the barely ethical to downright deceptive.

For example, here’s how they suggest you buy property: look for people who are in trouble. It’s called “distress”. Take advantage of their situation.

There will be tricks you can use with valuers, such as getting quotes from several valuers before you employ one or two of them. You ask, roughly, what price they think a property is worth. The technique is to find two valuers – one who gives a low price and one who gives a high price. You then use the low valuation to convince sellers to sell cheaply and the high valuation to convince lenders to give you more money.

And then you improve the property, from simple methods of painting and cleaning to deceitful methods of showing false high rents to increase the “value” so you can borrow more money and buy another property. And you keep repeating the process, over and over, buying more properties and making more and more money. Leap-frogging the fraud.

There will be “how to buy without using your own money” schemes. Many of these methods also involve fraud.

One is known as “Hydraulicing”, where you are taught to create two prices for a property you buy – the real price and a pumped-up price on the contract.

If you buy a property for $600,000, you ask for a contract price of $700,000. Inside the contract is a clause giving you a “discount” of $100,000. You tell the valuer that you are “paying $700,000”. And you have the contract to “prove” it. You find a valuer who gives you a valuation close to, or at, the contract price. You then go to a lender and say, “I am buying for $700,000. Here is the contract for $700,000. Here is a valuation for $700,000. I want to borrow $600,000.”  Add on a bit more for expenses and, presto, the guru says, “You buy properties for nothing.”

You are now a real estate cheat.

Hydraulicing is often suggested by developers. Once they can show that units in a building have sold at a certain price, the valuers – who rely on selling prices to set valuations – can often be influenced by these false prices to create inflated valuations. Hopefully, one day, people will be prosecuted over these scams.

If you use your home as additional security, you can borrow even more. You can buy a property for $700,000 and borrow $750,000, maybe more. You now have at least an extra $50,000 to put down on another property. And you can keep using the same trick.

To get bargains, you will also be told to look for properties where the owners live overseas or interstate, so they don’t know the real values. This works well when prices have risen suddenly and you can offer distant owners a price thousands above what they think it is worth, but well below its new value in the booming market. 

The snake oil boys call this “smart”. Decent people call it fraud.

These seminar gurus, to whom you are a stranger, will tell you they “want to help you”. Then they teach you how to harm strangers.

You should remember the saying, “If a man will steal for me, he will steal from me.”

If any real estate “experts” suggest anything even slightly dishonest, you should avoid them, no matter how much money you can make. There is something inherently sick about seeking to profit from deceit. Don’t be swayed by the statement, “business is business”. That’s a common excuse for cheating. People who use investment strategies that involve cheating or preying on the misfortunes of others are crooks. Don’t become one of them.

THEIR PURPOSE IS TO FLEECE YOU

Most get-rich-quick seminars have one purpose – to sell you advice for thousands of dollars. But is their advice ever good? Rarely. Is it ever good value? Never. You will be charged thousands of dollars for information you could easily get from a $30 book. The only difference between a good book and most of these courses is the cost.

Buy the books. Do the research. And save thousands of dollars before you invest in real estate.

CHECKING OUT SNAKE OIL EXPERTS

Before an “expert” asks you to buy property, ask to see the expert’s personal financial statements with evidence that their “wealth” comes from the methods they recommend. They will probably say this information is “private and confidential”.

But the words private and confidential are often modern synonyms for “embarrassing and disgraceful”. It’s almost certain that the real estate “expert” encouraging you to make your fortune in real estate is making his fortune from you.

Today’s wealth gurus are just a variation on snake oil salesmen from years past.

Stay away from them.