We’ve all seen these reality real estate television shows , and most of us indulge in at least one of them as a “guilty pleasure” of sorts. Of course, not me. Of course, not you. Just, you know, everyone else…
Say, for a moment, though, that we did admit that we have seen a “reality” real estate television program or two in our time.
You know how these shows work: the stars of the show acquire a fixer-upper. They draw out the plans using some very cutesy graphics that make it look very fast and very easy to design a completely new layout for a home, including knocking down walls, adding bathrooms, and installing some sort of really trendy, custom cabinets or closets. Then, they encounter a few small problems (thank goodness they manage to fix them during the commercial breaks) and, with about 15 minutes of airtime to spare, showcase an absolute beauty of a fix-and-flip that ultimately, when we fast-forward through time and space thanks to the magic of reality real estate television, it yields our intrepid stars a handsome profit.
Unfortunately, as you probably already know, reality real estate television is not reality when it comes to real estate. Even more unfortunately, despite the FTC actually calling house-flipping shows out as “a total scam,” another season is heading your way to keep you warm on cold winter nights this January. Too bad the people who bought into the hype are going to be feeling the chill very soon if they are not already.
If Your Investment Manager is a “Star,” They’re Probably Not an Investment Manager
Here’s what made the FTC sit up and take notice of this reality real estate television problem our industry is developing: the “stars” are starting to endorse real estate products, and they have no idea what they’re doing.
In a public statement made last October, the FTC and the Utah Division of Consumer Protection announced they planned to charge a Utah-based company called Zurixx with “allegedly lying to consumers to convince them to attend the company’s supposedly free real estate seminars.” The FTC accused the company of hiring HGTV stars and other celebrity personalities to entice people to attend the events. Once attendees arrived, the featured acts would essentially endorse real estate seminars that the attendees could then purchase.
The problem? According to the FTC, the promises made about the free events were “deceptive” as were the “promises of big profits” made to “lure consumers into real estate seminars costing thousands of dollars.”
Some of the celebrities named in the FTC claim included household names like Tarek and Christina El Moussa (“Flip or Flop” fame) and Hilary Farr (“Love It or List It”). The free seminars are, as many investors will likely recognize, a sales pitch for a paid weekend seminar that then segues into a sales pitch for a more expensive coaching program. The implication is that the reality real estate television stars will teach the attendees at the weekend events or even coach investors in the more expensive programs, and that is where things get dicey since the reality real estate stars do not teach, do not coach, and, in my opinion, probably should do either anyway!
They are not operating in the real world because their product is not an investment property; their product is entertainment. Even if the celebrities in question vetted a deal within an inch of its life, I probably would rather take my chances with a plain old boring investor who has been plugging away hitting “base hits” with consistently for years and occasionally scoring a big “home run” than with these souped-up “investors” for whom every deal has a dramatic narrative and a carefully designed story arc with few or no comps to back any of it up.
What should be done about reality real estate television?
The real issue for the FTC is not, as it turns out, that investors are being misled about how difficult or easy it is to flip a house. In fact, where the Utah company went wrong and ended up in this negative limelight is by encouraging event attendees to take out new lines of credit to gain access to the coaching and educational products. That should always be a red flag to you!
The sad thing is that these types of scams and these types of shows actually discourage would-be investors, both passive and active, from ever getting started in this incredible industry. So many investors would never have gotten their start without the quality education and seminars they attended, but today’s potential investors are far more likely to never open the door to a seminar hall because of this “fake real estate” scam. Many passive investors who would double or triple their returns from conventional assets like stocks and bonds will never do so and, as a result, will never experience the retirement lifestyle or financial security that a real estate portfolio affords because they will never find the confidence to trust a real estate investing firm to do its job.
Reality real estate television and the associated “endorsements” that stem from it are a bad business for the real estate industry. Whether the FTC is right about Zurixx or not, reality real estate television hurts our industry and our investors. The only way to bring this problem to light is to address it directly and frequently. I commit to you that I will do so each and every time an issue comes to light so that you can make the most informed decisions possible about your real estate investing.