Gurunomics

I wrote an old post on my blog about Gurunomics, particularly regarding the bad gurus. I thought I would share my story here about one of the particluarly bad ones. Just be careful what you pay for regarding these things. Some are good, but many, probably most, are useless:

First are the TV commercials saying “Free day long seminar on how to get rich flipping real estate.” Fantastic. Well business was pretty slow at the time, so we decided to go and see if there was a kernel of wisdom in it. Of course there wasn’t, it was a day long sales pitch for a three day event. Still that only cost $100. We figured it would be a great place to network with potential investors so we decided to suck it up and pay the $100.

At the event we were given a work book. The first section educated readers how to negotiate with their banks to increase their credit lines so they could pay for Wuss Rhitney’s main program. I found it incredible how blunt they were. (How is someone supposed to invest in real estate if they’ve maxed out their credit lines buying educational material?) Then when we started passing out business cards, we were told we couldn’t. Why on Earth would they have such a rule? Because it was an “educational event.” More accurately, it would be because they wanted to ensure we didn’t get anything useful out of the event.

And of course it wasn’t an educational event, it was a sales pitch. The first four hours before lunch included one sales pitch after another about how helpful the boot camps and mentorship program were. As well as throw away lines about the greatness of financial freedom and how the speaker just wanted to spend time with his kids. (If he was financially free, why was he speaking at a seminar and not spending time with his kids?) They even boasted about being investigated by the SEC. That, in their minds, is a “right of passage” or something like that. The only piece of information pertaining to investment the speaker gave was that from 1987 to 1989 or thereabout, Fannie Mae allowed mortgages to be assumed, thereby you wouldn’t have to take out a new loan.

I need to stop here to elaborate on how useless this tidbit is. The average homeowner owns a home for about four and half to seven years. And many refinance even if they own it longer. Regardless, this seminar was in 2007. A loan made in 1987 would be about half paid off by then.* Furthermore, houses in my area of the country had appreciate at least three fold since then. So let’s say someone purchased a house in 1987 for $60,000. By 2007, their mortgage balance was about $30,000 while the property had appreciated to be worth at least $180,000. So let’s say you get a steal and the seller agrees to sell you the property for $120,000. Do you really want to assume a $30,000 loan on this house in first position? That’s 25% loan to value. So if you can find one of these loans that still exists (probably about one hundredth of one percent of all mortgages), it’s still worthless unless you can buy the property for around 15-20% of market value. But if you can buy it that cheap, who cares about assuming the existing loan?