The Washington PostDemocracy Dies in Darkness

Colorado case offers cautionary tale on real estate investing schemes

Pierce is a real estate investor based in Northern Virginia who regularly chronicles his experiences renovating and selling houses in the region.

We’ve all seen the late night infomercials with so-called real estate gurus promising quick and easy real estate riches. Most people look on those advertisements with skepticism, but many people are curious. Well, I’ve attended many seminars and purchased dozens of books. I can tell you from experience that a healthy dose of skepticism is certainly in order.

Last month, Colorado Attorney General John Suthers announced that his office and the Federal Trade Commission (FTC) reached a settlement with Russell T. Dalbey for allegedly defrauding consumers with promises of making money using the system laid out in his course “Winning in the Cash Flow Business” and related products and services. Dalbey’s courses promised to teach students how to find and broker promissory notes or private financing instruments attached to real estate. Dalbey’s students were simply supposed to find the notes and then find a buyer. They would collect a commission for bringing the parties together.

Dalbey and three of his businesses agreed to pay a $330 million judgment and he is forever banned from telemarketing, selling business opportunities and producing and distributing infomercials.

I spoke with David Frankel, the FTC staff attorney who led the agency’s efforts in this case. He summarized the case like this: “Over about 15 years, approximately 949,000 customers purchased Mr. Dalbey’s courses. Only 296 people are documented to have made a penny or more using the system and only 129 people made more brokering notes than they spent on the courses.”

Dalbey’s infomercials often featured celebrity endorsers and made deceptive claims and featured allegedly atypical and sometimes false testimonials, officials said. The state of Colorado and the FTC also settled with one of those featured students separately. She had claimed that she had earned $79,975.01 for brokering one note and had earned more than $134,000 using the three-step system: “Find Em,” “List Em,” and “Make Money.”

Now there are probably thousands of people offering real estate education. Some of them have put together some pretty good courses. The case above is particularly egregious.

I purchased a course at the beginning of my career. I found it very useful and informative. I also have heard many people accuse the creator of that course of being a fraud. So, it’s extremely hard to know what you’re getting.

Here’s how the typical pitch works: The initial ads are usually filled with testimonials of successful students and portray a romanticized picture of real estate investing in general. It’s made to look easy and often risk free. Many times, they offer free seminars and cheap initial programs. Once you attend the seminar or buy the initial course you are subjected to high pressure sales tactics to buy more expensive advanced courses, boot camps and mentorships. This is called the upsell. Almost all of the courses, good and bad, follow this script.

The first thing you need to know is that real estate investing involves significant risk. Some will say that tactics like wholesaling and note brokering involve no or very limited risk, but I highly disagree. It involves a great risk of time and even money in many cases. Most real estate investing methods put you at risk to lose much more than your initial investment.

The second and most important thing to keep in mind is that real estate investing is a lot of work and stress. I have reviewed systems that I believe to be generally solid. I have yet to see a system that I felt was easy. They all require a lot of time to build systems, assets and networks.

Real estate is not easy money. You can make money in real estate if you work hard and are competent at your craft but you can make money in any industry if you have those attributes. Be skeptical of any course that promises quick, easy money or uses terms like passive income.

Every course that I’ve seen has some good information. I never personally reviewed Dalbey’s courses but I’m pretty sure there were at least a couple good nuggets of information in them. One thing I don’t stand for is someone wasting my time. I’ve sat through hours of seminars and only got five or 10 minutes worth of good information.

I recall one seminar where the guru talked about how he had worked in corporate America, and getting fired from that job was the best thing that ever happened to him. He told us how much he’d spent on his education and we, too, should invest in our education. Forty-five minutes into the presentation he had yet to give us one useful piece of real estate investing information. He wanted us instead to pay hundreds of dollars to attend his three-day seminar.

This is very typical. They try to get you excited about real estate without ever telling you a single thing about their system until you lay down the big bucks. It is very common for a course to consist of a dozen CDs, a couple videos and a bunch of books and documents. It looks very impressive. However, if their presentations are 90 percent fluff, you can assume their course will be, too.

If you are considering one of these courses, you can simply do an Internet search to see what unpaid former students are saying about the course. There are also many real estate investing Web sites where you can find out what other investors are saying about the system or even ask other investors via forums and posts. You can also find local real estate investing groups on Linkedin and Facebook.

If you do purchase a course, try to buy the cheapest version and fully evaluate the system before buying the more expensive products. It’s a big red flag when you order a course that turns out to be little more than another advertisement.

Frankel, the attorney for the FTC on this case, also suggested that consumers ask the salesman what percent of their students have made more money than the costs of the course. The company should know this information. Most of the sales calls are recorded so they either have to tell a documented lie or they have to give you the information you request.

Buying a real estate course is much like real estate investing. It involves risk. Even a good course may not be of great use to you. A 10-hour course may only have an hour worth of useful information. Is that information worth the time and money you put into the course? Only you can answer that. And finally, not a single course out there is going to be worth a penny if you don’t put in the work to apply the system.

Before you buy any real estate investing course, ask yourself: Do I have 10 to 20 hours a week to spend on a new business and do I like taking significant financial risks? If you say no to either of these questions, then real estate investing is not for you and there’s no need to spend time and money on one of these courses.

If you think you have been cheated you can lodge a complaint with the Federal Trade Commission at

Follow Pierce on Twitter at @justinpierce1.