How to Avoid Coaching Ripoffs & Get What You Need
To be perfectly honest with you, this is one of those articles that I’m writing with some trepidation, because of the clear conflict of interest that someone who sells mentoring has in WARNING people (and that’s what I’m about to do) about the potential pitfalls of “free” mentoring.
Nonetheless, this is something I’ve often observed at both the REIAs in which I am directly involved and at associations throughout the country, and it’s uncool, so I’m going to talk about it anyway, and you can just choose to take my advice with a grain of salt if that makes you listen anyway.
There’s this thing that goes on out in the real estate world that’s promulgated by both sides, but really only benefits one side, and it’s this: most newbie investors want someone who has a whole lot of experience to hold their hand and help them with their first deals, and some active investors are willing to take advantage of someone with limited knowledge and experience.
Here’s how the relationship usually develops: the more experienced investor approaches the newbie with an extremely generous (in fact, practically irresistible) offer to “show them the ropes”, at no charge, usually with apparently-altruistic purpose of “giving back” the knowledge the experience investor has, himself received in the past.
The newbie, of course, jumps at this incredible offer.
The experienced investor then spends some time with the newbie, showing him properties, explaining the great deals that the experienced investor has, himself negotiated on them, and why they’re such spectacular deals.
Then, within a few days or weeks, the other shoe drops, as the experienced investor generously offers the newbie the once-in-a-lifetime chance to:
1. Buy one of these amazing deals (which the newbie actually has no way of evaluating as ‘amazing’, as all he knows is that the experienced investors SAYS it’s worth $100,000 and only needs $10,000 in work and is thus a spectacular buy at just $80,000)
2. Fund one of these amazing deals (see above)
3. Partner in one of these amazing deals (see above, again)
In the worst of these cases—and I can literally tell you about a dozen I’ve heard of in the past 6 months—the newbie is being badly ripped off by their involvement in these deals. In the best, they’re simply being recruited as lenders/partners/buyers when they THINK they’re getting valuable information about how to do these deals themselves.
In my entire experience with REIA-type associations, I have yet to see a truly advanced, knowledgeable investor who had the time or inclination to altruistically take a newbie under his wing, at no charge, and truly show that newbie how to be a successful investor.
But That Doesn’t Mean You Can’t Get What You Want…
Despite my basic cynicism about the advanced/newbie relationships, as they exist within and outside of associations, I think that there are ways for you to get the experienced help and advice you need without paying thousands of dollars for coaching (although paying thousands of dollars to CERTAIN coaches can definitely get you where you want to go more quickly and with less effort!). If you’re looking for a way to get help and advice (and, let’s face it, a hand to hold when you’re scared), here’s the way to go about it:
1. Use multiple mentors. The difficult truth is, just about any experienced investor at just about any local association is perfectly willing to answer questions for you, but, if she’s truly successful, doesn’t have the time to “walk you through” your first deal or building your business. In fact, one of the biggest signs that you’re headed for a rip-off is when someone tells you that you only need them, should depend on them entirely, or, worst of all, forces you to sign an agreement to that effect.
What’s more, getting multiple opinions on a particular question—and you will, even if you’re asking it of equally experienced people—is part of the learning process as you sort out WHY one person thinks the neighborhood you’re looking at is awful and another thinks it’s just fine, or WHY one thinks a 3 bedroom ranch in that area is only worth $55,000 when another thinks it’s worth $75,000.
2. Tone down your expectations. If you were a busy person whose head was crammed with years of random knowledge and experience, how would YOU feel if every new investor on the planet wanted to ‘take you to lunch and pick your brain’ or ‘just come work for you for free for a few weeks’? I’d say that you’d probably feel pretty overwhelmed, and like you HAD to say no even if the folks who needed your help REALLY needed your help, and even if you knew that they were going to think you were stuck up/mean/rude for denying yet another request for help.
Remember, most of the people you’d want to mentor you are NOT professional educators. They’ve never sat down and thought through their own philosophies, or how they do things, or organized their thoughts about what works and what doesn’t. In short, teaching is not easy, fun, or lucrative for them. The idea of getting their brain picked for hours or weeks isn’t as easy for them, and doesn’t appeal to them the way it appeals to those of us who’ve decided to organize their teachings and mentor for profit.
So keep your questions short. Don’t ask people to take time out of their busy weeks to help you—catch them at a meeting with your questions already thought out and written down.
3. Arm YOURSELF with knowledge and information. When I hear about a newbie who’s been ‘taken’ in the context of a REIA group, I always ask myself, “How did that happen? It’s not as if the group itself didn’t provide information about how to evaluate properties, how deals are supposed to work, how private lending is done…”. And, of course, there’s ample information in bookstores, on the web, in homestudy courses and seminars, and more.
The answer, of course, is that while the other members of the group were in the meetings learning, the victimized newbie was out in the hotel foyer talking with his ‘mentor’, every. Single. Meeting. After all the mentor was more interesting, more on point to what the newbie wanted to hear, and more comforting, flattering, and generally willing to make his student ‘feel good’ as well.
4. Don’t be afraid to ask questions. I’ve saved a couple of new investors from doing deals that they REALLY would have regretted simply because they bothered to ask me, or someone else knowledgeable, whether the deal that their ‘mentor’ was pitching to them sounded Kosher.
I think that people are sometimes hesitant to do this, especially when the “mentor” is well-known or high-up in an association, because it seems to indicate a lack of trust of the mentor in questions. But so what—this is business. The rule is ALWAYS “Trust, but verify”.
For instance, last year, a member of Cincinnati REIA approached me about a “deal” he’d been offered by another member. The “deal” would have ended with the newbie holding a 3rd mortgage on an already-overleveraged property ‘just for a little while’, ‘just to cover some operating expenses’. It took me about 3 minutes to explain that this loan was a terrible idea, and why, and the newbie didn’t do it, and the ‘mentor’ later went belly-up and left a bunch of other newbies holding worthless junior mortgages.
I don’t care how smart your ‘mentor’ seems to be, or how much respect he seems to have in your association, it is NOT wrong and NOT a slap in his face to run anything he offers you past another, unrelated investor in the association. You’d be amazed at how long these people can get away with this without the leadership of the organization even knowing about it, because no member every brings it to the attention of the board or owners of the group, and yet the members seem to think that Investor Joe has the permission or even endorsement of the group to do it, ‘cause he’s at the meetings every month.
5. PAY for your coaching. I think a mentoring/coaching relationship where you pay for access to a really experienced investor’s knowledge is much more honest (and likely to succeed) than one where the coach’s willingness to help you might be contingent upon how much money it appears that YOU’RE going to be able to make THEM.
That’s why my Inner Circle and FastTrack programs are simple exchanges: you give me money, and I give you a certain level of help. You don’t owe me part of your deals; I’m not going to resent giving you advice because I was expecting you to generate me a check and you’re not doing it fast enough to suit me.
6. Having said all of this, there’s nothing wrong with partnering with a more experienced investor in order to learn more about how deals or done, or to invest money that you can’t invest in your own deals, or whatever. I’ve had probably 2 dozen partners in deals over the years who basically said, “I’m going to partner with you until I understand what I’m doing, then I’m going to do these deals myself and be your biggest competitor. Oh, and since I’m giving you money, you’re going to walk me through all the paperwork, show me the property, let me observe the rehab process…”
So what’s the difference between this and what I’ve been warning you against all this time? The clarity of the nature of the relationship. These were not mentoring students of mine who’d paid me to share everything about my business and hold their hands through their own deals. Nor were they people that I’d volunteered to do those things for, when really, what I wanted was their money.
They were people who were very clear on the scope and form of our relationship: “I’ll show you how to do THIS deal that we’re doing together. What YOU get is a small part of the profit and access to the detail of THIS deal. What I get is the money to do THIS deal and the responsibility to make you understand how THIS deal worked.”
And they were people who had, in my opinion, at least a working knowledge of how real estate investing works. I’ve also turned down dozens of people who wanted to ‘partner’ but who clearly had no ability to get help evaluating the deal separately from my evaluation of it. In fact, I now make all potential partners fill out a detailed form showing me that they either have the knowledge to evaluate the investment or giving me names of the professionals who will help them evaluate it!
It may seem like a pretty minor distinction, but in my mind, there’s a big difference between thinking you have a mentor when you in fact have someone who’s turning you into a buyer, birddog, or partner, and knowing from the outset what you both want, outlining that clearly, and getting what you expect.
There will be a special offer on joining Inner Circle on Real Life Real Estate on June 8th. Listen in at www.WMKVfm,org at 5 pm eastern to try it out for $5.