The true secrets of real estate seminars

About 20 years ago, a late-night infomercial featured Tom Vu, a Vietnamese immigrant with a rags-to-riches story. A grinning Vu stood on a yacht surrounded by girls in bikinis, or in front of a mansion with a fabulous fountain and a Bentley in the driveway. During these cheesy ads, Vu would promise that you, too, could learn the secret to making millions in real estate just by attending his free seminar.

While Tom Vu is no longer in the real estate business (he was later reincarnated as a professional poker player), his legacy remains. Chances are you’ve come across more than one late-night commercial, email or full-page newspaper ad making a similar claim about becoming financially secure through real estate investing.

This is exactly the promise—from a well-known Canadian TV personality—that enticed Fernanda Caranfa, a former teacher, to attend a free seminar in Toronto. Caranfa listened to evangelical testimonials from people who had quit their six-figure-salary jobs after only one year and went on to double, even triple their net worth through real estate investing. The stories convinced Caranfa to charge almost $30,000 to her credit card for the “comprehensive educational system” and 12 months of ongoing support. Within weeks she’d regret her decision.

No one knows exactly how much is spent on these real estate seminars and their “educational programs,” but they continue to crop up in hotel conference rooms across Canada. And judging from the dozens of websites created by would-be property moguls, there are a lot of dissatisfied customers. “These seminars don’t have to be a scam,” says Victor Ricciardi, finance professor at Goucher College in Baltimore. “But they do employ highly questionable ways of parting you from your money.” Here are the most common.

Groupthink.

Many seminars plant someone in the audience to guide the group toward a certain way of thinking. “You only need one or two dominant people to influence up to 10 others,” says Ricciardi.

These plants may offer testimonials, ask leading questions and make supportive comments throughout a presentation. Or they’ll inject a sense of urgency by being the first to sign up for such a great deal, enticing others to follow lest they feel left out.

“Don’t underestimate the power of groupthink,” says Ricciardi. Even the most skeptical investor can be drawn in. “Studies show that even risk-intolerant people will become risk takers when engaged in groupthink.”

Borrow and invest, ignore the rest.

Just about every group heartily promotes the use of leverage, whether it’s taking out a loan against your home or maxing out your credit cards. The more you borrow, they say, the more you’ll invest, and the more you’ll earn. For example, according to Don Campbell, president of the Real Estate Investment Network, if you’d invested 15% on a rental property between 1985 and 2005, when Canadian real estate appreciated by 5.1% annually, you would have earned a 33% yearly return.

What they don’t tell you is that these high-debt tactics also magnify the impact of falling home prices. If values decrease by 10% or 15%, you could kiss your equity goodbye. And corrections do happen: between 1981 and 1985, Calgary home prices plummeted by 40%, and steep declines have also occurred in Vancouver and Toronto. They will happen again.

The first one’s free.

Many would-be investors attend these seminars because they’re free. But as Caranfa discovered, the first presentation is just a come-on for expensive seminars and programs that follow.

After attending a half-day free seminar, Caranfa spent $2,000 on a three-day weekend workshop. She thought she’d learn about making money in real estate, but instead she was subjected to yet more success stories and promises that she’d get rich once she’d mastered the “secrets” taught in the full course, which cost a whopping $25,000. While Caranfa was skeptical, she eventually forked over that fee.

Caranfa thought her money was being invested in real property, but it wasn’t. All she got was “a few flimsy books, a couple of DVDs, and the chance to fly all over the U.S. for a series of three-day boot camps on how to invest successfully.” She’d paid almost $30,000 for little more than vague information she could have found for free.

Within 30 days, Caranfa started to ask for her money back and, predictably, she got the runaround. That’s when she called MoneySense. Once we got involved, the program coordinators relented and reimbursed Caranfa. “Eventually I got my money back, but I felt so stupid and foolish.”

But that’s just part of the scheme, says Ricciardi. “Skeptics will often get their money back, but only because this can reinforce how legitimate the program is to other investors.” For programs like this to make money, he says, only a small percentage of people have to be willing to buy into the inspirational message. Understanding how these seminars work will ensure you’re not one of them.