Yesterday I enjoyed three hours escaping a torrential downpour in Waikiki. We had fresh hot coffee, yummy macadamia nut chocolate chip cookies, & entertaining speakers sharing valuable information with us presumed high-net-worth investors.
Well, maybe the audience wasn't all HNW investors. One guy was heard to ask "What's a REIT?" But surely we were all highly motivated to pay our money to RealSource free ourselves from the cubicle by investing in real estate.
I love a good sales pitch and I wasn't disappointed. RealSource
claims to have indexed the nation's rentals by ZIP code and analyzed them by 200 quantitative factors & 100 subjective factors. (300 factors are much more credible than just 200 factors.) They've identified eight areas where rental real estate is ready to give a monthly 8-10% cash-on-cash return plus annual appreciation of at least 13%. (Hint: It ain't Hawaii.) IOW they've already done the analysis and all we need to do is bring money. Guns, lawyers, & Warren Zevon are not required.
RealSource acts as middleman with a few enhancements. They promise to find these deals before the general public (or local insiders) have snapped them up. Most are "not on the market yet" or have been "languishing for the right buyer financing". Some are "C" class rentals in need of rehab to attract "A" class renters. Because RealSource enjoys such a great reputation ("In Salt Lake City since 1989!") they can hook you up with seller's agents, mortgage brokers, 1031 exchange experts, property-management firms-- whatever you want!
Once you've bought a rental property, either on your own or with a TIC group, they're here for you. You're free to go your own way but they're happy to help! They'll find you a property manager and you two can use the RealSource website to enter/review monthly QuickBooks reports. RealSource will mount a camera at your building with a broadband connection to allow you to "keep an eye" on the landscaping & exterior maintenance. Your property manager can even walk around with a camcorder showing you the apartment repairs & improvements (as far as you can tell from three time zones away). All these enhancements are available for a "low monthly fee" that presumably is barely noticable alongside the torrent of cash flow.
After a couple years, hypothetically when you're confronted with a 50-100% appreciation in your properties, RealSource will take you on a tour to a new "top eight" area where you can put your equity "back to work" with a 1031 exchange into something bigger, better, and even more likely to appreciate. The speaker actually had the chutzpah to show "real-world performance" of a $100K investment growing to $1.3M in 10 years (28% APY).
For $8250.00 you're a member with access to their website data and a week-long "property tour" to an area of your choice. You pay airfare & lodging (plus an additional $785 for your spouse) while they provide food, bus tours, & meetings with your new team members.
The realtor who "invited" me to this meeting went on a tour in March 2005 as an observer-- he wasn't going to invest. By the end of the week he couldn't take it any more and he put $200K into a TIC with seven others to rehab an apartment building. They were in business by June and receiving 10% cash flow when Katrina hit. Now he has a different batch of insurance/construction problems and, since the project was 80% financed, an entirely new set of cash flow issues. OTOH $200K is a tiny fraction of his net worth so he's not exactly laying awake nights.
He shared his compensation arrangement with me. He owns one of the island's busier real estate agencies and has turned over the day-to-day operations to his kids-- one handles the listings and the other the property management. He & his wife have spent the last decade or so traveling to realtor conventions, training/sales meetings, and college reunions. (He's never going to retire, but that's a topic for a separate thread.) When RealSource came along it fit right into their traveling lifestyle. For every customer he brings to RealSource (one who actually buys a property, not just pays the $8250) he gets a $1000 finder's fee plus a chance to sell that customer's Hawaii property, perhaps even handled via his agency's 1031 exchange staff. He says he's already earned $14K plus a dozen listings, so the sting of that $200K Katrina hit is healing quickly. RealSource is rumored to get 22% of the property's sales commission as well, so they make a bit more of their money from the realtors selling those rental units than from the membership fees.
The RealSource staff briefly mentioned the National Association of Real Estate Investors
, which appears to be a guy named Marc Garrison who wrote a book & gives presentations. I'm not sure if RealSource is a Garrison company or just one of many busy NAREI members. I saw one NAREI logo before the RealSource publicity machine took over.
Has anyone invested with RealSource or NAREI or a similar group? I heard plenty of success stories, but I'd love to hear from the other side of the experience.