Roadshows appeal to dreams of quick riches

May 12, 1992|By Kim Clark | Kim Clark,Staff Writer

Delano Thomas, mother of two sons who've recently been laid off and a daughter who needed financial help to buy a house, spent Mother's Day learning how to get rich quick in real estate. And junk bonds. And T-shirts that change color depending on the weather.

For 12 hours Saturday and again Sunday, she watched a parade of self-proclaimed financial whizzes promise to make her wealthy -- for a price: $495 for audiocassettes, or $7,000 for Russell Whitney's weeklong "Millionaire University" course in Florida.

Altogether, she and about 200 others -- ranging from hopeful laid-off workers to skeptical plumbers -- plunked down a total of more than $20,000 for the latest ideas in an industry that plays to the American Dream of wealth and property.

The salesmen sought to distinguish themselves from their colleagues who have filed for bankruptcy (such as Tony Hoffman's "no-money-down" seminar company) or are being investigated by law enforcement officials (such as Tom Vu, who has suspended his real estate seminars because of an investigation by the Florida attorney general.)

These salesmen, however, insisted they were legitimate.

"I am not a con man," said John Hayes, in town to show the benefits of buying corporate bonds with mostly borrowed money. The conference, "Russell Whitney's Wealth Building Seminar," was held at the Omni Inner Harbor Hotel.

But real estate and financial experts contacted yesterday said most of the programs won't deliver the riches promised. And some of them might not be legal in many parts of Maryland.

The weekend started in earnest Saturday morning when a gaunt balding man in a dark suit and the manner of a Southern preacher promised to teach the audience how to get rich by buying corporate bonds and trading them for real estate.

Mr. Hayes told the audience to "change your lives . . . get out of debt" by buying corporate bonds on margin -- that is, borrowing about two-thirds of the purchase price.

Mr. Hayes said that many well-known corporations issue bonds that sometimes sell at a discount to their face value, and thus can offer extremely high interest rates.

"You can get a 32 percent return on $250," he exhorted. "Isn't that great?"

"Great!" the audience shouted back.

But Gregory S. Hulbrink, an investment executive at Legg Mason Inc., said that although Mr. Hayes' plan could work in theory, plenty of bond buyers have "had their clock cleaned."

Bonds that sell at a discount are inherently risky, he said. People don't sell a $1,000 bond for $750 unless they have a good reason, such as the fear that the company might not pay off, he noted.

If a bond bought on margin went into default, the owner could end up having to pay interest on the margin loan and the remainder of the principal that he borrowed.

But the highlight of the seminar was the Saturday afternoon pitch by Russell Whitney, sponsor of the seminar.

Mr. Whitney, an athletically built man with perfectly coiffed black hair and a thin salt-and-pepper mustache, showed the audience slides of his Coral Gables house with its jet-ski ramp and swimming pool.

In the middle of his slide presentation, he pulled out a roll of money and slipped what he announced to the crowd was a $100 bill to an aide for fixing the projection screen.

He said he was looking for "bird dogs" in Baltimore to find local distressed properties. He would make the down payments and close the deals, he said. And he'd split the profits with his local "partners" 50-50.

He showed slides of damaged housing he bought in Florida, fixed up for a few hundred dollars and then either turned into rooming houses for big rents or sold quickly for thousands of dollars in profits.

"This is how Donald Trump made his money," he said.

Mr. Whitney made the biggest stir of the day when he pulled out his roll of money and started distributing $100 bills to audience members who had lined up to buy his audiocassettes.

But Melvin Knight, a local Realtor, said Mr. Trump's financial troubles show just how risky that kind of real estate investment is.

Mr. Knight, who has been investing in troubled properties around Baltimore for years, said several of Mr. Whitney's practices wouldn't be legal in Maryland.

For example, carving single-family homes into rooming houses for more than four unrelated people is illegal in some areas. And counting on tenants to pay off a mortgage can be financially risky in a city like Baltimore, where the vacancy rate for rental housing is 15 percent.

Besides, he said, fixing up most of Baltimore's dilapidated housing would cost much more than Mr. Whitney estimates. "Has he ever heard of lead paint?" Mr. Knight asked, estimating it can cost several thousand dollars to remove lead paint from a building.

Sunday, other salesmen tried to persuade people to set up businesses that would help people pay down their mortgages faster (for a fee), attend Mr. Whitney's $7,000-a-week "Millionaire University" (free trip on Mr. Whitney's yacht included) or market a T-shirt.

Carolyn Janik, who has written several books about investing in real estate, said most of the advice in the seminars is legal.

"Real estate roadshows have been around for decades. Almost never are they illegitimate. . . . Theoretically, they can work. But it isn't as easy" to make the kind of money as the pitchmen promise, she said from her New Jersey home.

"People flock to them thinking they are going to make a fortune. But 99.9 percent fail," she said.

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