Have you seen these signs lately? If you live in Dallas / Fort Worth, Texas area like I do, they’re on every busy intersection. They’re usually small signs, the size of open house signs, mounted on a little metal stick and stuck in the ground. Signs like these are called “Bandit Signs.” And in this case, bandits not only describe the signs, but also describe the people using them. The signs I’m referring to usually say something like “Seeking Real Estate Investor Apprentice – $20,000 a Month” with a phone number listed at the bottom. Is this an opportunity to make money? No. NO! NO!!!!!! Don’t fall for it. I have some experience with the people behind these signs and I’d like to share it with you so you don’t fall prey to these people trying to fleece the apprentice investor.
First of all, if you held the secrets of earning $240,000 per year, would you really share it with your competition? Second of all, would you really advertise it on a $2.00 bandit sign planted next to a stop sign? No!
I knew the message on the sign sounded too good to be true, but I was curious to know where it would take me . For the record, I was curious, but my money was content not knowing. I called the phone number and was given a canned sales pitch, a very bad one at that, about this organization that catered to investors in an all-too familiar multi-level marketing scheme designed to separate novice investors from their money.
I was still curious so I went to their seminar. The seminar was held in a vacant office space somewhere in Richardson, Texas. Usually things like this are held in hotel ballrooms but hey, first class all the way, right? I found myself surrounded by people wanting to get into real estate investing but they didn’t know how to do it. If only someone could show them the secrets of real estate investing. Who indeed, thought the hosts of this seminar. Into the room steps a high-pressured salesmen that was so pushy, that you’d feel more comfortable buying a used car than you would be sitting in that room. They herded us into a room for a sales presentation that revealed their multi-level marketing company and how we could pay through the nose to join it. The rest of the presentation was spent drilling into our heads how stupid we would be to pass up this “opportunity.” While it resembled a pyramid scheme, they were quick to insist that it was not a pyramid scheme but a multi-level marketing scheme. If you’re confused about the difference let me explain. In pyramid schemes, participants attempt to make money solely by recruiting new participants into the program. In multi-level marketing, most of money is made by recruiting, but some of the money earned is made by selling the products this organization markets. While, a pyramid scheme is illegal, if that same pyramid scheme has you sell one stick of gum while you’re recruiting members then it legally becomes a multi-level marketing company because you now have income coming from multiple levels, recruiting and gum revenues from that one stick of gum you sold last year. See the difference? Me neither.
The group behind this lecture tried to pass themselves off as an “investor university” that taught classes, offered degrees in investing or something like that, offered incredible wholesale deals for houses, and best of all, gave us the opportunity to profit by recruiting others to buy into this chance of a lifetime opportunity. If you haven’t thrown up yet, go grab a bucket and read on. Graduates, dumb enough to successfully pay for all these classes would receive “coveted” but laughable degrees, that were degrees in name only, and they would finally become eligible to join the “alumni group” of investors that shared deals with each other nationwide. This privileged group was given access to the best deals on planet Earth, or so they would have you believe. Actually it’s just a bunch of over-priced houses other members were wholesaling with a big markup to other investors, just like any other wholesaler, except that you had to pay lots of money just to see their inventory list of overpriced fixer-upper houses.
I looked around me and I couldn’t believe what I was seeing. The crowd was taking this crap seriously. Eating it up. They were ready to go out and make their millions. I wanted to just stand up and shout, “How stupid are you?” I didn’t have to because I pretty much knew the answer.
So, the next time you’re driving home and see one of those signs, do everyone a favor and run over it.
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Bill, it’s interesting how you work with realtors and amazingly enough, most realtors out there know absolutely nothing about real estate investing. It’s funny because I have gone through real estate investor training and have made well over $20,000 per month so I know education works. The only “stupid” people out there (as you call them) are the ones that get trained and do nothing with it. To expand on that example, if you graduated from a college or university and then went out there and couldn’t find a J.O.B. (just over broke), do you blame the school for your failure to get a job? What a moron! In addition, you mention people make money off of marketing and building a team. Interesting, name any company out there that does not have a marketing department. C’mon, name just one! If you are so hyped on multi-level or pyramids, whatever, I believe they are described as one where the person on top makes money off of everyone below them who work or sell a product… funny, that sounds just like corporate america. People like you are exactly why people are so skeptical of everything and in turn never do anything but take what life throws at them, which is usually not much. A smart person would take the time to be educated on the facts before they spout out their opinion. Sounds like the “stupid” one here is you!
First of all, thanks for commenting and adding to the conversation.
I too share your opinion of real estate agents. Most Realtors do not know about real estate investing. That’s the main reason I, as an investor actually became a Realtor. If you know how to do the advanced MLS searches (I’ve found most agents don’t), you’d be amazed the kind of info info you can gleam from the database, far beyond the basics, to spot deals and opportunities. Of course, the convenience of having SupraKey access and a HUD key were also perks too.
I’m not downing real estate investing education, as a matter of fact, I have attended more classes and seminars than I can count (either that’s a lot of classes or I’m as stupid as you profess). However, even you’ll have to admit that there are a lot of scam seminar salesmen out there peddling classes offering “get rich quick schemes” that might have worked during the market heydays, but are no longer valid strategies. As a matter of fact, since they don’t work anymore, they found it more profitable to teach the old ways rather than use them. In my experience, the best classes have been the free ones or the ones priced under $50. I did find one class that was a few hundred that I’d recommend. However, outdated strategies is not my gripe against real estate investor MLMs or other MLM companies.
My gripe against multi-level marketing schemes of any kind is how they make their money by convincing others to buy into the MLM program. The products MLM companies sell is a small portion of the revenue stream. MLM is nothing more than a pyramid with a product. In a real estate investor MLM seminar I attended, they admitted that they were a MLM company and that they pay you to get others to buy their “education materials” and they also pay you to recruit new recruiters. I believe they said that they pay you half of the value of the product as an incentive for you to get your friends to buy it. Assuming they make a profit from their materials at the same markup they pay you, then it’s safe to assume at least a 300% markup on cost of the products they sell or more.
You describe MLM sales as marketing, but in reality, it isn’t as much marketing as it is recruiting. MLM participants profit the most by recruiting future recruiters and getting them to recruit future recruiters, etc, etc, etc, forming a hierarchy chart resembling a pyramid. The MLM recruiter burnout rate is very high because they eventually wise-up, and the discover that most people they try to recruit don’t drink the MLM Cool-Aid and it’s not as easy to recruit as they originally think. I suspect that if your MLM company only sold education products without MLM recruiting they would be far less profitable. Most of an MLM companies’ revenues come from the money paid by new recruits and not from the products the company sells which sounds like a legal form of a fully-disclosed Ponzi scheme, without the deception, investor fraud or victimization. I bet if you compared Madoff’s investment firm’s cash flow statement (the real ones, not the ones they used to con the public with) to a MLM company’s financials there would be a lot of similarities. I’m not comparing MLM to the evils of a Ponzi scheme, nor am I implying they’re unethical or anything like that. I just don’t drink the Cool-Aid and I’m amazed at anyone that would.
I have to cut this comment short because I Just received an email from a Nigerian banker looking for an investor apprentice to help move some funds from a Nigerian bank to the US so I’ve got to go. I hear he’s looking for other apprentices. Interested in earning $20 Million per month? Funny they all like using the number 20. I hope I can get all those Zeros to fit on my bandit sign.
Let me brake it down for you here. There is no difference, the problem is people often think scheme and scam are the same thing when if fact they are completely different. A scam is something where you get completely robbed like buy shoes from a company and not getting any shoes. A scheme is great for some but not so good for others depending on where you fall in the mix. A Pyramid scheme is as legal and as American as apple pie my friend. Now scamming people is illegal. But this is the way the world works everything is a pyramid from MacDonald’s to Microsoft you have the people on the bottom doing a lot of work so the people on top can make boat loads of money for doing very little. it’s all about the angle. if you buy something and get what you paid for it is legal unless your are selling and buying something illegal of course. If i walk around selling pennies for 5 bucks and you are dumb enough to buy them it is 100% legal.
Regarding the legality of Pyramid Schemes:
Pyramid schemes by nature work by scamming people because they only work by misleading the “investor.” MacDonald’s and Microsoft are not pyramid schemes. They are retailers selling legitimate products. They don’t mislead the public about those products. MacDonald’s doesn’t offer the “12 Big Macs a day weight loss diet.” Microsoft doesn’t promise that you can get rich by using Windows, however you can get rich by selling services to fix it but that’s another story.
I disagree with you about “people on the bottom doing a lot of work so the people on the top can make boat loads of money for doing very little.” The people on the top got there because they had an idea, an ability to execute that idea, and they sacrificed everything to make it happen. Many failed and we don’t hear about them, but the ones that succeeded created jobs for the rest of us. Rich people make jobs. I like having a job therefore, I like rich people. You should too. It’s much easier to find a new employee than it is to find a new employer. Don’t bite the hand that feeds you.
While multi-level marketing isn’t a scam because it’s based (sometimes loosely) around selling a product. However, it’s usually a crappy product that you’d never buy without the promise of riches that only a Multi-Level Marketing scheme can bring.
Think about it, if it’s commonly referred to as a “scheme,” it can’t be good.
I live in Utah and have recently seen those signs everywhere. My first thought was, of course, how stupid are the people who fall for this? You see, while I would not classify myself as an investor, I have bought a few properties over the last few years which were, due to the crashing economy, fairly reasonable priced. The home had good bones and were located in good areas. They were also bank repos and HUDS which I found in a list that any person can get for free off the Internet. I bought the homes and since my husband has electrical, plumbing and construction background, we were able to fix the homes up. We sold the first one for about a 60,000 profit and are currently renting the other two since they are making us more omen as rentals than we could sell them for. We do not have any “special” training or degree is some fictitious school, we just have common sense and the drive to do our homework to know if something is a good deal or not. Because of this I find it absolutely insane that any person would pay someone up to $16,000 for this knowledge when it is free and easily accessible on the Internet. Then again, I guess that is not really the point is it? Does anyone involved in this real-estate investing scheme actually invest in real estate? My guess is probably not. For one thing, even reasonably priced properties cost money and from what I saw at the seminar I went to (yes, I too was curious) none of the individuals there had the cash or the credit to even purchase a single property let alone pay to renovate it. Of course they do offer money for luring other unsuspecting victims in and perhaps if you scam… uh…I mean convince enough people to join your company you may someday be able to have enough to purchase a cheap property (after you have paid back the 16,000 for tuition that is). Of course, if you are actually able to do this then why would you? You would be at the top of the pyramid at that point, you would make more money building your team than actually doing the thing you were supposedly taking classes to learn how to do in the first place, right? In conclusion, I do not know a single person who has made a dime off of a multi level marketing scheme, but I do know several who have lost thousands due to them. Now, before any one asserts that this same risk is taken by anyone who attends a training program or college may I point out that according to statistics found in Newsweek, USA Today and Time magazine, only 1-10% of participants in MLM schemes see any profit with only 1% seeing a profit of more than $5000. Compare this to 53% of college grads who are able to find high paying jobs after graduation- a number that is notably far lower than it was before the economy crashed while MLM success rates have stayed pretty much the same. College is a risk, but I would still take a 53% chance over a 1% chance any day.
You want to know why they buy into these schemes? The dream. They sell the dream to people wanting to live the dream without working hard to achieve it. There’s always a market for easy money. Sadly the easy money is taken from these people, not paid to them as they were promised. As PT Barnum is credited for saying, “There’s a fool born every minute.”
The sad thing about buying homes through these groups and any wholesaler is the added markup. What usually ends up happening is that the person taking the least risk (the wholesaler) ends up making the most money.
By the way, great comment. Thanks for adding your insight to the discussion.
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Great article Bill and “spot on” about the reason people buy into this stuff; the dream. I,too, have heard people say how much they have spent in trying to learn real estate investing and have been absolutely shocked. Although I agree with you for the most part, I would have to disagree with you when it comes to wholesalers. Now, not all of them, but some of them are great at what they do and I have purchased property from them in the past because they were great deals. The problem is that the bad ones always outweigh the good ones and; therefore, give everyone a bad name. So, in the meantime, what can we do? Just keep posting articles like this Bill so that others are simply made aware. Great job and thanks for sharing
Thanks for the comment. Yes, I will agree that wholesaling does fill a need, but like with any investment deal, verify all the figures yourself. If the deal works, then go for it, if not, walk away. However, in lots of cases, they do tend to make as much or more than the rehab investor without the risk. The main reason I don’t use wholesalers is that it’s another large expense on a rehab with an already tight budget. There are a few wholesalers out there that don’t get greedy and leave enough margin on the table to make it a rehab worth doing. I’ll give you that one. However, most don’t. The biggest problem with wholesale flippers is that anyone can do it. You don’t need money, good credit, or anything other than a buyer and a seller. Without such barriers to entry, you tend to attract all types.
Actually, MLM with only token retail sales to external customers is an illegal pyramid, according to the FTC and SEC websites, as well as court precedents. For the details, see http://www.StopTheAmwayToolScam.wordpress.com, which was written for Amway but applies to most MLMs.
Thanks for the article. I agree, MLM is a just another way to get around the Pyramid scheme definition in a legal sense. But who are they really fooling? Unfortunately, lots of people.
I would like to help investors find what they r looking for…I have no experience but follow instructions very well. Please help me get started on my quest to becoming a real estate guru. Thanks laura
See if your city has a local real estate club or organization that isn’t 90% sales guru seminar sales pitches. Don’t attend the meetings held by traveling gurus spinning their latest $1000 get rich quick packet, but attend the meetings where local experts are sharing their knowledge. Pay more attention to the audience, but weed out the newbies who attend the seminars and spend more in $1000 get rich quick packets than they ever do in a real estate transaction. Find the people who make a living doing what you want to do. For instance, if you can’t afford to buy and rent, or buy, fix and flip, then try wholesaling.
Thanks for the explanation. I knew it was a scam and was curious about what it was all about, but didn’t have time to attend the “seminar”!
It’s like that Primerica bs that I almost fell for, but I did my research and declined the job.
I’m contacting you with regards to my investment opportunity quest, I ‘m Costica Dormitiv, I hail from Ukraine, seeking for investment opportunity in a good project with great potential.I saw your company’s name through investment site, I wish us to have a discussion with you on any project that you have at the moment that requires funding, and I’m capable of handling project with huge capital volume requirements.
I will love to have a chat with you and for us to move forward. All expenses throughout our investment transaction that might arise will be under my obligation to take care of it/them alone and there will be no hiding upfront fee whatsoever, as I will handle all expenses alone as promised.
I do have a $10M dollar project I’m working on with a Barrister from Nigeria. If you’re interested, buy in is 75% total investment up front. If you’re really serious, we sell you as much as 175% of the total equity of the project. I’ll send you the details. Trust me, it’s a steal.
Sometimes these posts just write themselves.
My advice to investors. Before you invest your money in any company, request an Audited Financial Statements of the company you are going to invest your money. The financial statements are: Income Statement, Balance Sheet, and Statement of Cash Flows.
Go to any CPA and let him or her explain to you what the numbers indicates. If you investment is based on the information from the financial statements, and you loss your money, the Audit Firm is liable for your loss. The possibility of recover your losses are 100%. Consult your lawyer.
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Sorry, Really Rotten Realty is not hiring at the moment.
Bill how does a guy just starting out in real estate that has buyers go to the next level with properties? Can you help me out?
First thing you need to do is find a local real estate investment group, meet the club’s members and learn from them. Offer to help them work some of their deals for experience.
If you have buyers, then you should find properties to sell them. Either you can buy, fixup and sell, or find a seller, get under contract with the seller then assign the contract to one of your buyers for a finder’s fee. The term is called wholesaling.
I know nothing about reality and very little about investing. I’ve seen these signs and what has tipped me off that they are a scam is the fact that they are vague and promise a set amount of income. A legitimate company would be proud to have their name on a sign and would not promise that you would make thousands. They give a contact name, number, website, physical address to contact. Think about it. Have you ever seen Coca-cola, Apple, or even local companies in your area recruit in this manner? I have a business of my own doing website development. You’ll find all kinds of scams on the internet and with my experience in my line of work I’ve learned how to spot scams. These signs are a good indication that the company behind them may not be one you want to be a part of. My interest was peaked in the phrase “Realty Investment Apprenticeship”, so I looked that up online and discovered this site. I guess in my case the sign wasn’t all that bad, right? 🙂
I don’t think the signs are from one single company. The seminar I attended showed an Amway type structure where everyone was an independent operator with their own business but they all used the resources and tried to sell the resources of this single company. I’m not sure I’d consider it a scam since that implies fraud or theft. But I would consider it an overpriced scheme. Scheme, scam, you decide if there’s a difference. It’s a waste of money either way.
Hi, Thanks for the information. 🙂
I am located Washington State and want to get involved in legitimate Real Estate investments.
I just finished up taking several Real Estate classes at a local community college and can test for the WA State Real Estate broker exam but would prefer to not become an agent at this time.
I have excellent credit but little cash to invest and would need someone to partner with who can provide the hard private money and expertise and on job training. I can do house and yard repair/cleaning as well as whatever is needed to be a success. I understand that our partnership may be 80/20 or even 90/10 since I am new. Any ideas on finding an honest “mentor/apprentice/partner” opportunity in my area? I am really eager (but scared of getting taken advantage of) to partner with someone in fixing and flipping properties/homes in the Seattle WA and surrounding areas.
Thanks again for the article.
The best way to find investors to help you get into the business is to find a local real estate group or club in your area. Join that, get involved, attend meetings, and socialize. The more local investors you meet, the better your chances of getting really good advice. However, there are sharks in those waters too. Not everyone is going to help you. So investor beware, and use caution. Also start looking at houses and getting familiar with the market. Most important, get your license. Having access to MLS rocks for an investor.
Bill, thanks for the suggestions.
I will research to see if there are any local groups and clubs but worry I will only find scammers-especially online. Would you know of any legitimate groups/clubs on Facebook that I could join and network with?
Thanks again. 🙂
It’s not such a problem if you’re among locals. However they usually bring in out of town speakers that always have some overpriced product to sell. Just ask around. You can always find out who’s respected in town. Don’t know any Facebook groups.
Interesting. I say the same thing when I see those signs, and when I see those signs on cars, or where. Especially in the bathroom. I say, who would go for that? Right? It’s like going to the bar to pickup a classy woman. Not going to happen.
I worked for one of these companies in 2007 as an intern in Utah. This was the precursor to Trump University – we’d direct mail 200,000 people “tickets” to a Trump conference, where he (or usually one of his kids) would be there to “teach them Trump’s secrets to wealth.”
What followed was an all-day series of get rich quick presentations, and one of the Trumps would drop in for 30 minutes to give a canned speech halfway through. We’d hand the attendees instant credit card applications, which they’d turn around and max out for worthless books and tapes, and then they’d go to followup “training” which was just a pitch for the $20,000 “advanced course”, which was just a very watered down how-to on flipping houses.
These guys made $200 million a year on this schlock, and then went out of business the following year due to embezzlement and bad business deals.
Rule of thumb: if someone is selling you the secret to some wealth-building technique, that means the technique is played out and you’re the backup plan.
I’ve heard the same thing regarding your “rule of thumb” from investment club owners. They’ve revealed that some investor seminars are pedaling techniques that don’t work anymore, and some that are now illegal due to new lending regulations. I even know one seminar that has a $10,000 Motivational Event that’s a big “You Can Do It” themed weekend camp out seminar with no how-to advice whatsoever. I can’t think of any advice I’ve received that’s worth paying $10,000 for. Actually the best advice I’ve received, experts were more than happy to give to me for free, or for the price of a latte at a local coffee shop one afternoon. I’d be leery of any get rich quick seminar that had a big named attendee, Trump, Shark Tank, Rich Dad Poor Dad, Celebrities, heck, anyone with any recognition seems to be getting in on the act of headlining one of these events to make you part with lots of money. The only get rich quick seminar I’d consider attending is a get rich quick seminar about running your own get rich quick seminar. It’s amazing to me how many people can see it for what it so clearly is. While I don’t think it’s a con, I do think it’s heavily marked up common sense and motivational cheerleading.