Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble
My path to real estate riches began on the New York subway, when I grabbed a copy of a free daily rag one morning to read on the way to work. On the same day that Bernie Madoff pled guilty to the biggest investment fraud in Wall Street history, I was intrigued to find a full-page ad with the blaring headline:
"HOW TO GET YOUR SHARE OF TODAY'S TRILLION DOLLAR RECOVERY."
Besides details on a series of free, upcoming workshops where all would be revealed, the ad offered a mouthwatering menu of claims on "How to cash in on the biggest real estate liquidation sale in our entire United States history" and "how to maximize your profit with lucrative foreclosures." Even better was the claim that, "You can buy homes with little or no money coming out of your pocket. That's right: GET PAID TO BUY A HOUSE." There's even a quote from CNBC's embattled maharishi of mammon, James Cramer, citing the "precise date" that the housing market will turn around. If you care to mark your calendar, it's June 30, 2009; though given some of Cramer's other predictions of late, you might want to hedge your bets. Sold!
So, on a recent Monday afternoon, I went to the Roosevelt Hotel, a stately and well-appointed place just west of Grand Central where only the most respectable types might gather. Eighty or so of us took our seats in front of a large movie screen in an opulent banquet hall, as what sounded suspiciously like the theme music from Baywatch was piped in from speakers.
"You are all in for a real treat this afternoon," said Terry, the tall gentleman in a crisp blue polo shirt who took our registrations at the front table. He then handed over our nametags with our first name printed in big bold writing. As the lights were dimmed and the promotional film for the Robert Allen Institute's "Recovery Riches" program is queued, I was transported back to an era I naively assumed no longer existed when Flip This House was one of the most top-rated TV shows on cable and the phrase "no money down" was printed on many a mortgage brokers' calling card.
Not so. The video that segues in to the free two-hour "Creating Wealth with Real Estate" workshop is full of smiling people who presumably haven't read the news lately, as they tell us rubes in the audience things like: "No money down is possible, I've seen it!" and "Turn properties over to investors for quick cash!" Testimonials are given by people who claim to have made tens or hundreds of thousands of dollars in a matter of months in real estate, thanks to the advice and guidance of one Robert G. Allen, author of such books as The One Minute Millionaire, Nothing Down and Creating Wealth. A voiceover tells us that we too can be part of this talented class of real estate gurus, as images of a young woman riding a horse, a couple relaxing with glasses of wine in hand and a family walking along the beach flow across the screen. The video ends with a rousing tune and a challenge to: "Be Robert Allen's next millionaire!"
In a country where over 6,000 homes now enter foreclosure every day, and where millions of people's retirement income has been wiped out thanks to a financial house of cards built on dubious home loans, I found it curious that the best advice about how to cash in on the collapse of the real estate market might be found in a newspaper ad or on late-night TV. So did a lot of other people it turns out. The workshop was packed, and based on my conversations with many of the other attendees -- mostly middle-aged men and women, the majority of whom appeared to be immigrant New Yorkers -- the dream of quick money through real estate still appears to be a component of our hardwiring that is difficult to turn off.
As the economic crisis plunges more people in to unemployment, crushes investments and leaves more Americans homeless or dangerously close to it, it's not surprising then that these kinds of pie-in-the-sky, get-rich-quick schemes are coming out of the woodwork -- reminiscent of the army of snake oil salesmen that proliferated during the Great Depression. Then, as now, an expanding pool of desperate people searched for cures, hope and salvation. And in New York City, where real estate and God vie for supremacy, this kind of pitch is especially seductive. The remarkable thing is that with only a few minor tweaks, this "real estate riches" pitch is seamlessly adapted to our new, post-subprime-lending implosion era with relative ease.
Missed your opportunity to cash in on the housing bubble? Never fear, the Robert Allen Institute and its frontmen who roam the land will teach you how to find the silver lining in the real estate rubble all around us.
When James Gripshover strides in to the room, it's clear who's in charge. While the mug of "best-selling author" Robert Allen may have graced the full-page ads and the promotional video, Gripshover is clearly the Closer. He's an easygoing guy with an intense gaze who paces up and down the aisle and uses his hands expressively to drive a point home, wears the same blue polo shirt as Terry and sports a clean-cut blond head of hair. "I need your help," Gripshover tells us.
"I need you to nod your head and say yes when you agree with something I say. Can everybody do that?"
"Yes!" the audience responds with gusto, gripping their pens and sitting up straight.
Over the next two hours Gripshover employs many of the tried-and-true methods of emotional and persuasive group marketing. He addresses people by their first name (thanks to the name tags), talks about his own remarkable success flipping properties in pre-foreclosure and short sales for the last 12-plus yearswhich helped him buy a beach house near San Diego and a condo in Tahoe. Gripshover is living the good life now, so he has all the time in the world to coach his daughter's softball team. He shows us a few cheerful slides of his daughter at the batting cage for effect.
As a cautionary tale, though, he also chronicles the sad tale of his brotherin-law. "Chuck" is a chronic procrastinator and never could quite get with the houseflipping program. When he finally did get in the game in 2006, he bought late and he bought high. So, he sadly remains a nonmillionaire to this day.
In contrast, we are shown a photo of "JJ Bright," a precocious scamp with bushy, brown hair and braces who just graduated from the eighth grade. After enrolling in the program, JJ found a home in preforeclosure "in his own neighborhood" and made a cool $23,000 on his first dealif Gripshover is to be believed. The message is clear, but just in case we missed it, we are told, "If JJ can do it, anyone can!"
I glance over at a mother and her young son sitting on the other side of the room and wonder if I may be looking at the next JJ Bright.
Gripshover also takes us through a sort of Subprime Real Estate Implosion 101, and cites data from the New York Times and the Center for Responsible Lending to the effect that, ladies and gentleman, we here in this room are all sitting on top of a 30-year record amount of undervalued properties. Although Gripshover does express some misgivings about the unfortunate circumstances in which many of those homeowners now find themselves, he's also an optimist. "It's a goldmine!" he tells us. "Don't let yourself do what my brother did!"
Indeed, nobody wants to be Chuck, and we are all asked to repeat out loud a sentence that flashes up on the screen: "Procrastination is the killer of our goals and dreams."
So how does it work? Basically, this free session is a set up to convince us to pay $2,995 for an upcoming three-day seminar where they will really spill the beans
about how to find undervalued properties in pre-foreclosure, how to package the perfect short sale proposal for the bank that holds the mortgage and how to flip the property for a quick profit after we've bought it from the bank for a song.
Bad credit, no credit or no money down? Not a problem, the Institute has an "exclusive" list of "private lenders" who will lend you the dough at "elevated" interest rates (even James admits the rates can be as high as 13 percent). Don't sweat the details though, because you're going to make a huge profit off the transaction. No money to pay for the three-day seminar to get you going on your new career? No biggie, put it on your MasterCard. By the time you cut your first deal and get that $20,000 profit check, you'll be able to pay it off in whole. Additional books, DVDs and subscriptions to a database of foreclosed and about-to-beforeclosed properties can also be had, for an additional charge to your credit card.
Sound familiar? I too seem to remember that the subprime meltdownwhich has by now brought the global economy to its knees was built on a similar ideological foundation of fake money, hidden and usurious interest rates, "no money down," "no risk" and "buy now, pay later." And I don't think I need to remind you how that one ended.
At times the workshop takes on the feel of a Marxist cadre meeting, or a study group convened to discuss the work of influential political thinker David Harvey and his theory of "accumulation by dispossession." The phrase describes a form of capitalism built on dispossessing others of all forms of wealthland, resources, labor powerby targeting those already most vulnerable to the market's depredations. In the banquet hall of the Roosevelt Hotel though, the proles in the room don't appear to feel much solidarity with the lumpen whose homes are being dispossessed en masse. When Gripshover tells the crowd that, over the next 18 months, "we will witness the largest shift of wealth in U.S. history," an excited murmur rises from the crowd. And when he shows a slide from the "proprietary database," which highlights the 3,000-plus properties heading in to foreclosure in Brooklyn, somebody in the back of the room yells out, "Woo Hoo!"
When I later ask one of the other attendees, a Caribbean woman named Dolores, if she doesn't find it a bit troubling that the program is banking on the financial ruin of other homeowners, she changes the subject.
After the question-and-answer period while small groups of attendees are gangpressed to the back of the room for the hard sellI approach a few people in the hallway outside to get their take on the workshop.
"It's beautiful, pure genius," says Clay, a gentleman with an accent who sat to my left during the presentation, and who was still deliberating on whether to drop the $3,000 for the three-day seminar.
Although Dave -- whose snores carried across the room as he dozed off a few times during the workshop -- wasn't prepared to hand over his credit card just yet, he was impressed all the same. "Like, wow, the guy just says things, and you know he knows what he's talking about."
I do find a slight skeptic in Pete Valdez, an elderly man from Queens who urges that I attend other seminars and don't commit "just yet."
It's frankly amazing, and quite depressing, that in this era of information overflow, so many people still employ so little due diligence when tempted by propositions that fit the dictionary definition of "too good to be true." One of the first hits for a quick Google search on the Robert Allen Institute is at ripoffreport.com, a site dedicated to complaints about frauds, scams and unscrupulous businesses. Here you will find a long and sad list of people from all over the country who also had hopes of learning how to house-flip their way to millionaire status.
"They take your money and then won't give it back, even though they promise you a refund if you don't succeed," reports Patti, of Elmwood Park, Illinois. "I personally put $15,000 on my credit card, under the idea of making that money back with my first house deal, that hasn't happened and won't happen anytime soon. Now I can't even get a loan for a house because I have too much debt, and I'm in a hole so deep I can't get out."
"I have gone in to debt with my credit cards and wasted the little money I had in the bank account, and my family's money as well," reports Andres from Dallas, Texas. "The Robert Allen Institute has put my family and I through so much stress I don't know what else to do anymore!"
Then again, maybe this isn't so surprising, after all human behavior is driven as much or more by emotion and wishful thinking than informed decision-making, despite what we often tell ourselves. And given the collapsing economy, I wonder how many attendees of the "real estate riches" workshop at the Roosevelt Hotel are worried about keeping up on their own mortgage payments, or how many are only a few months away from foreclosure themselves.
Or perhaps they're just looking for a little good news. I did notice that many of the people leaving the seminar seemed energized and invigorated, their confidence restored in the miracle making abilities of our laissez faire system despite all the negative news. And in this bold new era, who can blame them for not wanting to be left behind. While Flip This House continues to air on A&E to a devoted following, the way things are going, maybe it's only a matter of time before some plucky TV producer launches Flip or be Flipped, the newest cutthroat reality show for the Great Recession.