Real estate education programs are booming as capital flows into the industry. But the enthusiastic message of some seminars doesn't always prepare novice investors for changing markets
BY MICHAEL GOTTLIEB
CREJ Managing Editor
More than 200 potential investors hung on the speaker's every word at a recent real estate conference in downtown Los Angeles.
Audience members smiled and nodded their heads throughout the pitch as they learned what the speaker called "fool-proof" methods to avoid vacancies and improve cash flow, and were handed the "golden Rolodex" of purchase opportunities.
Not long after the applause died down, many of the listeners had lined up, ready to invest ... not in a real estate deal, but to spend hundreds, even thousands of dollars for additional educational seminars, computer programs, tapes and books on the "hottest real estate markets and trends in the U.S."
For small private investors, who make up the largest portion of commercial real estate owners, initial exposure to the industry often comes in the form of late-night television infomercials, personal-growth seminars or books such as "101 Ways to Massively Increase the Value of Your Real Estate Without Spending Much Money" by Dolf de Roos, who bills himself as a "top real estate investor."
De Roos holds about 40 seminars a year like the one described above. He said the goals of his efforts are to share his enthusiasm for real estate and to show attendees that anyone with a little money of their own can own investment real estate.
"It is so easy to do well with relatively little cash input," he said. "I don't, for the life of me, know why everyone doesn't do it."
Although the tidal wave of capital coming into the real estate market is starting to flow back toward equities, interest in real estate remains strong. Historic low interest rates and the security of owning bricks and mortar continues to draw new would-be investors to packed classrooms and seminars every day. Real estate classes ranging from undergraduate degree programs at four-year universities, industry certification programs from organizations such as the Building Owners & Managers Association and adult continuing education programs report strong attendance across the board.
The increase in people pursuing real estate as a career reflects this interest.
For instance, the state Department of Real Estate reported in its fall 2003 annual licensing report that it is servicing approximately 7,250 calls every business day by people interested in pursuing real estate sales or brokerage licenses. That's a 549 percent increase since fiscal year 1998-1999. The department also reported that the number of California real estate licenses jumped 10 percent - to 355,912 - by the end of fiscal year 2002-2003.
This "unprecedented" increase of interest in real estate may be coming too late for the current market cycle. Potential investors entering the market with little experience face increased risk. They can quickly discover that there "are no shortcuts in real estate."
Mixed Messages
Good deals are hard to find even for experienced deal makers who report that they might look at 1,000 properties before making a buy. At the same time, most experts agree that an interest rate hike is in the cards, but none can say with certainty when.
The combination of these conditions raises the potential for highly leveraged investors to face greater risks if the economy doesn't improve occupancy in high-priced properties.
"If you are looking to get in as a small investor, I would be very cautious," said Craig Hall, chairman of Texas-based Hall Financial, which owns properties throughout the Southwest, including California.
Hall is also an author. His latest book, "Timing the Real Estate Market," urges caution in the current economic climate.
"My fear is that, particularly for novices but even for experienced real estate people, there is kind of a go-with-the-herd mentality that is always present in real estate," he said. "You don't buy for the exact moment you are buying, you buy for where the trends are going."
Hall was inspired to get started in real estate in part by William Nickerson's 1950's book "How I Turned $1,000 into $1 Million in Real Estate in My Spare Time," which many consider the seminal work on real estate investment for those new to the industry.
"There are great books, and there are those that make people think it is easier than it is," Hall said. "There is no easy, simple formula to how people get rich in real estate."
Yet, this message is not the one that everyone hears.
The Learning Annex's Web site reports that four of the alternative adult-education source's top 10 classes in Los Angeles were real estate-related in 2003.
Complaints Rare
With the explosion of interest in real estate, there has been an increase in complaints filed against licensed real estate sellers and brokers, which totaled 7,828 in California during fiscal 2003-2003, according to Tom Pool, spokesman for the state Department of Real Estate.
The department, however, does not regulate real estate education programs, except for those "that qualify for continuing education credit to maintain licenses."
"Ultimately, if there were enough complaints, it would land in the hands of the Attorney General's office," Pool said.
An official from the state Attorney General's office said that that department rarely receives such complaints, adding that "people blame themselves" when their investments fail
Yet, it is an area of consumer concern. In 1998, following "Operation Showtime," an investigation of 18 business seminar operators in 11 states, the Federal Trade Commission put out a warning about seminars and conferences that promise attendees that they can make a lot of money.
"Promises of quick, easy money can be a powerful lure, " the commission report warned. "If you buy into a business opportunity at a seminar, you may find that the products and information you purchased are worthless and that your money is gone."
Bursting the Bubble
Karim Cherif, director of UCLA Extension's Department of Business & Management, says real estate programs can help people get their start in real estate by introducing them to simple concepts and processes.
Taken alone, however, classes often don't provide enough information to prepare people for real estate investing.
"I just say that it is not enough," he said. "They tend to show you everything is a go. They are not bursting your bubble; they are just blowing it up higher and higher.
"You have to be realistic. If it sounds too good to be true, it probably is."
UCLA Extension has experienced a surge of interest in its extensive real estate course offerings due to the strength of the Southern California real estate markets, he said.
"Our enrollment increase has pretty closely matched the appreciation rate of property in Southern California," he said. "It is remarkable how closely enrollment follows the market."
Cherif said UCLA Extension programs use experienced real estate professionals to teach students what it takes to pursue an interest in real estate.
"We are not trying to tell them to go out and buy," he said.
Brian M. Good is president of Eagle Group LLC, a buyer and syndicator of industrial and retail properties in California and Texas. He also has taught real estate classes since 1997.
His introduction to real estate investment course at UCLA Extension covers some of the same topics promoted in television infomercial seminars, such as leverage, but Good said he also discusses finance, legal and other technical issues providing details glossed over in other programs.
Moreover, he attempts to show people just how much they don't know about real estate. By the end of the class, he said most of his students say they were going to buy - and now they are not.
"People come into my class looking to get started in real estate in terms of purchasing something," Good said. "By the end of the day, they realize it is not as easy as they once thought it would. They realize it has tons of pitfalls.
"It takes years and years of experience. Otherwise you are at the mercy of the market. You are going to get creamed."
You wouldn't think this after hearing the pitch from some investment gurus.
For $18.95, novice investors can purchase a book that promises to guide them through the first critical four months of real estate wealth building.
In "Are You Dumb Enough to Be Rich?: The Amazingly Simple Way to Make Millions in Real Estate," author G. William Barnett II, director of acquisitions for Texas-based Capstone Properties Group, claims to provide a comprehensive crash course in real estate investment.
"No other investment strategy has created more millionaires than investing in real estate," Barnett said.
Robert G. Allen, a "renowned investment guru" and best-selling author who tours with Barnett speaking on real estate investment, agreed.
"Financial freedom can be achieved faster through real estate than any other investment," Allen wrote in the forward to "Are You Dumb Enough to Be Rich?"
For De Roos, teaching real estate is a secondary priority to deal making. That, he said, is what sets him apart from others, who derive a bulk of the income from teaching.
"I am first and foremost an investor. Because I am an investor all over the world I can speak in detail all over the world," he said. "I'm a player in the market and I share what I do and how I do it."
De Roos, a native of New Zealand and founder of Property Ventures LTD, said that when he first began teaching, about 4 percent of his students went on to purchase real estate, but that number has increased to 80 percent.
He said he never gets complaints from people who have attended his program.
"Anyone who bought anything in the last five years is sitting very pretty right now," he said.
Though he says he does not know how large his portfolio is, de Roos prefers to invest in office space in growing markets, retail - "Of course, retail can always break you," he said - and warehouses.
De Roos agrees that a rise in interest rates could put a damper on the markets, although he said it will be short-lived, as values will continue to rise over the long-term.
"If you do all your research and you don't quite get the best deal, best property, best tenant - real estate will take care of you well," he said
No Money Down
Many speakers on the real estate seminar circuit advocate high-leverage property purchases of up to 125 percent loan-to-value.
Cherif said that those programs don't teach the dangers of high-leverage investing. He compared 100-percent-plus financing to gambling.
"Real estate is not black and white. Every investment is different, every market is different," he said. "There is no book or material or tape that can just tell you the process to follow regardless of where you are. There is an awful lot of analysis that goes on."
Get-rich-quick programs, Cherif said, can harm the image of the real estate industry, which already suffers from image problems.
"Any time you take something as complex as real estate investment, financial analysis and land economics and you condense it into an evening seminar or call it, '10 Simple Steps to a Fortune in Foreclosure Properties,' you are demeaning a whole industry, because it is never that easy.
"There are people who are very sophisticated in real estate that have not done so well."
Hall does not think that such programs have a lasting impact on the real estate industry, due to its intrinsic entrepreneurial attraction.
"But the sad thing is, a lot of people can get hurt by falsely believing that this is easy and that a simple formula works," he said.
The Spark
The real estate industry has spent the past two decades improving its transparency to promote outside investment.
And many agree that programs that inspire people to pursue opportunities in real estate have value.
Michael Clevenger, executive vice president of the Blackwater Group, which contracts with organizations such as BOMA and the Marriott Group, said there is a tremendous market to raise the training level of real estate practitioners.
Pursuing continuing education is a daunting experience for many adults, he said.
"If you give them an opportunity to see what little bit of growth they need to get there, you find the one light that could be turned on," he said.
It is that same spark that inspires de Roos. He said there is a psychological barrier to creating wealth that starts at an early age when children are taught that "money doesn't grow on trees" or "money is the route of all evil." By demonstrating the advantages of real estate investing, he tries to break down those psychological barriers to creating wealth so his students can become wealthy too.
But that is precisely what concerns Cherif.
"Visible wealth is very obvious in this part of the country," he said. "You can be convinced there is no difference between these people and yourself. You can see how people might get drawn into that."
David Dale-Johnson, director of the executive program for the Lusk Center for Real Estate at the University of Southern Californiacolor>, also tries to inspire students who attend the USC Ross Minority Program in Real Estate.color>
The intensive program emerses students in issues of urban real estate investment and development, with the goal of revitalizing communities. Dale-Johnsoncolor> estimated that one-third to one-half of the graduates become involved in significant real estate deals or projects after completing the program.
The rigor of the program, either a two-week in-residence program during the summer or a six-week fall program, which is in session, is also meant to show students that "there is no free lunch."
"At the end of the day, we don't want them to go out and try to do deals that are impossible or train them to fail," he said. "We are trying to make them aware of what to do in market conditions and how to position themselves for when things don't go well."
Among the program's core topics is teaching the power of the market, the nexus between economics, finance, architecture and design and how quality developments make economic sense.
"We can't expect them to master or understand, nor will they ever in their lives, all aspects of the process," he said.
"But they will know who to call."
Indeed, a lifetime of learning can't provide everything a real estate investor will need to know.
"I've been studying and thinking about this stuff for 25 to 30 years," Dale-Johnson said, "and I pick up something new every day."