The sentencing early last month of financial guru Wade Cook to 88 months in a federal penitentiary for tax evasion should stand as a warning to anyone thinking of buying into the get-rich-quick schemes peddled on late-night television, especially those hawked by self-styled real estate specialists.

“Real estate gurus, such as they were in the ’60s and ’70s, were all legit. Some were better than others, but they all were sincere,” said Alamo real estate investor and newsletter publisher John Reed, who keeps tabs on the purveyors of seminars, tapes and books supposedly filled with ways to reach real estate nirvana on his Web site, www.johntreed.com.

“But now the real estate information business has been taken over almost entirely by con men. They push their seminars and mentoring services out of boiler rooms, and the typical seminar pushes you to sign up for additional seminars, books and tapes. But they don’t provide the content promised. I get complaints every day. They are criminal enterprises.”

Cook talked a good game, but pending an appeal, the onetime taxi driver is going away for seven years and four months because a federal jury convicted him of seven counts of tax fraud. Not only did he falsify his tax returns from 1998 through 2000 on royalty payments of $9.5 million, he obstructed federal investigations into his actions, a U.S. District Court jury in Seattle found.

For years, Reed has been tracking Cook’s antics, including filing bankruptcy three times and twice being brought up on charges before the Federal Trade Commission, once for misrepresenting the earnings potential of his advice and once for failing to comply with the FTC’s order to set up a redress program and alter advertising claims.

But even after he and his wife, Laura, were charged with tax evasion in late 2005, he started a new company and still claimed 20 percent monthly returns by using his “secret weapon.”

“People like Cook prey on unsuspecting - some would say naive - consumers who are looking for the secret of success to making millions, either in the stock market or in real estate. But there is no hidden route from rags to riches in either field other than hard work.”

“It’s harder than it’s portrayed to be,” said Alison Rogers, the author of “Diary of a Real Estate Rookie,” who became a real estate agent in Manhattan only because her grand plan to make a living buying rundown houses, fixing them up and selling them at a great profit fell flat on its keister.

Rogers left her job as real estate editor at the New York Post in 2005 to flip properties in Newark, N.J., where prices had been escalating at the rate of 31 percent annually for three years. But she quickly found out that her competitors - mostly professional contractors - were much better financed than she was.

“Their cost of capital was lower than mine because I had to go through banks, and they had cash,” she said.

She also found it “almost impossible” to locate properties worth her time and money. “It was like looking for a needle in a haystack,” she said. In her six or seven months of searching, she found only one candidate, and that was in such a dangerous part of town that she couldn’t find a bank willing to put up the financing.

The agent-author warns against teaming up with supposed financial backers or infomercial gurus who want you to act as a “flipper” in a “you-buy, we-fund” arrangement. The come-on is that if you find the property, they’ll put up the money.

If you get lucky and happen to be successful, they’ll talk you into buying more books and tapes, she says. But if you are not, you’ll be the only one with any skin in the game. “If you fail, the only person who will get burned is you, not them, because they have no exposure,” Rogers said.

And the odds against even one success are steep, especially for beginners, she said. “I was experienced. I bought and sold co-ops in New York several times and made money each time. If it was hard for me, someone with a background in real estate, I can’t imagine how hard it is for someone without experience.”

Recently, it seems, the late-night real estate gurus have discovered note-buying as a way of selling the dream of easy money. But the business is “hard work and getting harder by the day,” said Travis Creed of Avalar LLC, a note-buying firm he started after 12 years in the banking and mortgage industry. “Even in good times, it’s a full-time job.”

In note-buying, investors attempt to purchase at deep discount the mortgages, sometimes known as paper, taken back by sellers. In difficult markets, sellers, acting as the lender of last resort, often offer to “hold the paper” for buyers who cannot secure financing from conventional lenders.

Creed, an attorney in Little Rock, Ark., says he’s truly concerned about the number of unscrupulous peddlers of training courses that supposedly outline the steps to note-buying wealth. Based on the hundreds of calls he’s received from struggling buyers who have no clue what a good note looks like, he says the claims being made are “absolutely wrong.”

Typically, “students” are told there are notes all over the place, so all they have to do is scoop some up for themselves. Then, after they have read the books and listened to the tapes but nothing happens, they are told they need to buy mentoring services to achieve real success. Creed says the mentor is most likely an hourly wage earner with “no more knowledge of the subject than what is written on the script in front of them.

“I do not wish to discourage anyone from learning about this business,” the note-buying pro said. “I do want to discourage everyone from spending thousands of dollars to do so.”

Creed says he has spoken with people who have spent up to $9,000 and never bought a single note. But “what really irks me the most” are those people who appear on the infomercials as successful note buyers. One guy he talked to was represented as a superstar, but actually never even took the course being advertised.

“People don’t know this, or understand the great lengths these guys will go to” to separate them from their money, he said.

Reed, the investor-author, lists more than 130 real estate and financial gurus on his Web site. The questionable ones, in red, outnumber the reputable ones, in green, by 3 to 1. “There are maybe three dozen that I consider up-and-up,” he says.

The standard line is to tell people they can get rich quick with no cash or effort.

“They don’t say ‘get rich quick,’ but they offer six testimonials from people who say that,” Reed says. “Every con requires a plausible scenario. If someone says they did it, it becomes plausible.”

The common pattern of attending real estate seminar after seminar to get a winning formula makes Reed laugh. “Mainly, those get-rich-quick seminars’ formulas are for making the seminar company rich.”

Certainly, that was the case with Wade and Laura Cook. At its peak, the Wade Cook Financial Corp. - which was forced into bankruptcy in 2002, only to be replaced by a new company, Liberty Network - employed 550 people and had annual revenue of $118 million, according to court documents.

Even as the company posted $1.7 million in trading losses in 2000, according to government prosecutors, the Cooks spent lavishly on themselves, including $487,000 a year to maintain their estate, $360,000 to purchase 10 cars, and $200,000 to buy at least nine houses.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/09/16/REPNRQRTT.DTL