[Editor's Note: This article was refreshed on October 2, 2015. See the end of article for general change history.]
The other day I overheard a conversation between two people about flipping houses. One person had went to a seminar over the weekend to learn to flip houses. I cringed, but bit my tongue and didn't say anything.
I've been hearing commercials on the local radio for these seminars for a couple of months now. One of the stars of "Flip This House!", Than Merrill, was pitching the seminar saying something to the effect that he needs a few business partners in the area. The company running the seminars is called FortuneBuilders. Medford, Oregon's KTVL News 10 covers a few snippets of the commercial here:
"Do you want to learn how to make a ton of money flipping houses right here in Medford? My team and I are looking for a handful of people in the Medford area who want to learn how to consistently make a lot of money, per deal, in your spare time, without using any of your own money... Medford is a perfect market for my system.
KTVL News 10:
"It almost sounds too good to be true... kind of like a scam."
Did that wording make your Spidey-sense tingle like it did mine?
It definitely sounded like a scam to me as I heard the same pitch in Rhode Island, thousands of miles away. It make you wonder if there are a lot of "perfect markets."
As my friend likes to say, "We have 'The Google!'"
Using "The Google", I found that there was a warning about FortuneBuilder seminars on Cleveland.com a couple of years ago. Than Merrill's seminars have gotten a review of NBC12 News Investigation that found, "Some of the advice we heard ranged from the questionable - to the absurd." You kind find the warnings about the seminars in Michigan as well. Even in Washington state where you'd have to be more or less a registered contractor to flip a house, the advertising continued.
Indeed it seems like FortuneBuilders has found a lot of "perfect markets."
Getting back to the conversation that I had overheard. The person was obviously excited about what she learned this weekend. She explained to her friend how that seminar was free, but that this next one was going to cost $1200 to get into all the details. As that Cleveland.com article says, "The Cincinnati Better Business Bureau, which sent staffers to one of Merrill's seminars downstate two weeks ago, said organizers told the crowd that its three-day real estate investment course costs $1,200 but those signed up that day could get it for $200."
A tremendous price difference like that raises another huge red flag for me. Is the value of the course $200 or $1200? I understand early bird pricing with seminars, but it usually 1/6th the price to act now or 6x more to think about it and research the FortuneBuilders overnight. I've seen a difference of a hundred dollars for the first few days... but this level is extreme. It reminds me of when a RainSoft salesman offered thousands of dollars in free soap if I signed that day.
I have to give FortuneBuilders a little credit for learning from how drug dealers work. Get them in for free and hook them with a combination of an extreme urgency deal and use the sunk costs to push the next thing.
The "Business" of Flipping Houses
I can see how people get sucked in. I love watching house flipping shows on television. I get sucked into Flipping Vegas. I find it entertaining when Scott goes ape-poop crazy if there's an extra $300 expense. Or when one of his contractors asks for an extra scoop of porridge only to receive 30 lashings (this may not have actually happened). Then he drives off in one of his million dollar sports cars at the end of the show. He might be the nuttiest-nut on television.
I also love watching Flipping Boston. I feel like I grew up with Peter and Dave, just as Boston as Boston can be. I tell my DVR to record every episode. I particularly like these shows for background noise while I do work. I don't have to follow it like an episode of 24.
Here's the thing about these shows: they are entertainment. Have you noticed that they never lose money on a house? I must have seen 200 of these shows in my life and I can't recall ever seeing them end up in the red. They seem to make at least $50,000 for about 5-6 weeks of work... EVERY TIME. It's easy to see how someone could watch these shows and think, "I can make a half million a year doing this."
And when you hear a too-good-to-be-true-sounding radio pitch from FortuneBuilders, you almost wonder how anyone escapes it.
What the Flip This House viewers might not realize is that the people in the shows are professionals and have been doing this for years. It's their full-time job, not something they do on the weekend to make a little extra cash. It isn't done in their spare time as the radio suggests. In many cases they are contractors and designers themselves which allow them to cut major costs of hiring contractors and designers. With the shows themselves, I often wonder if they get a break on some labor and materials as a kickback for having them featured in the show. All of these things are impossible to duplicate for the average amateur. Even a professional isn't going to a break on labor or materials for advertising a brand on television.
FortuneBuilders Criticized by Yahoo Finance
In November 2014, Yahoo Finance criticized their marketing techniques. It called them out for not being transparent that they are trying to lure people into the $34,000 program. It also questioned them for telling people to put that money on credit cards with double digit interest.
The response was that people were "investing in themselves" with a comparison being made to college. That drew more criticism as these seminars aren't accredited and there's no transparency into where the money is going like colleges and universities.
If you want to use the same logic, why not pay me $34,000 to teach you how to blog. Hey it's investing in yourself, right?
FortuneBuilders Isn't Alone. See: Armando Montelongo
Years ago, I meant to write how Armando Montelongo was doing a similar thing using Flip This House to sell his teaching kit. Unfortunately, I never got the article off the cutting room floor.
Fortunately, Forbes did... and their article was a lot more scolding than mine would have been. With an "F" from the Better Business Bureau, he's raking in $50 million selling house flipping kits. The Forbes article is a great read at how dangerous the advice can be in flipping houses (such as taking on a large amount of high-interest debt). That seems to be a theme with seminars costing tens of thousands of dollars. Robert Kiyosaki's seminars were caught doing the same thing.
I don't want to discourage people from being entrepreneurs and I certainly don't want to discourage them from getting education. This seems close to some of the MLMs that I cover, where the people making the money aren't the ones digging for gold... they are the ones selling the shovels and pick axes. And like with the MLMs, extremely few people seem to ever find a speck of gold.
The ones that do are trumpeted as examples of success. Consumers aren't given the full picture. If they were, people might not buy the shovels and pick axes.
My advice as usual. Stay away from high-cost, unaccredited, seminars that rarely seem to work. As Mark Cuban says: "I don't broadcast my great deals. I keep them all to myself. The 2nd thing to remember is that if the person selling the deal was so smart, they would be rich beyond rich rather than trolling the streets looking to turn you into a sucker. There are no shortcuts."
In short, if Than Merrill really found a perfect market, he would not be likely to be telling people about it. He'd hire a group of managers and contractors in the area to take advantage of the situation.
This article has undergone what I call refreshing. Sometimes, I get more information from readers in the comments or I'll read another article on the topic. I feel like incorporating this information into the article improves the reader experience. I tend to class them as minor and major refreshes.
January 1, 2015 Refresh (Minor)
- Added information from Yahoo Finance review.
October 2, 2015 Refresh (Major)
- Changed Title from Flip This House to FortuneBuilders. When I was starting my research, I went off the name Than Merrill who I knew from Flip This House. I don't recall the commercial saying anything about FortuneBuilders and my initial research into this was from Armando Montelongo also from Flip This House. Montelongo has his own $25,000 house flipping seminars. Armed with more information, it isn't fair for me to categorize this as being related to Flip This House as the show's producers may not be connected. However, it is worth noting the connection.
- Added Medford, Oregon's KTVL News 10's coverage
- Added Conclusion
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