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Landmark Links April 11th – Flipping Out

 

Lead Story… Circus magnate PT Barnum is often credited as the source of the infamous quote that “there is a sucker born every minute” despite the fact that there is no actual evidence that he ever uttered those words.  In fact the aphorism is more likely attributable to Joseph “Paper Collar Joe” Bessimer an infamous con-man.  If Paper Collar Joe were still around today he would probably find himself at home in the shady real estate “guru” industry.

During the housing bubble in the US, all sorts of scammers, charlatans, posers and hucksters made money by selling variations of the get-rich-quick in real estate dream to gullible marks.  Many of them vanished without a trace (other than maybe a bankruptcy filing here or there) when the market imploded 10 years ago.  Based on today’s lead story, some may have hopped the northern border to Canada.  I was short on time this weekend and wasn’t going to post a lead story, then I found this gem from MacLean’s re-capping something called The Real Estate Expo in Toronto.  I checked the date to see if it was dated April 1st, hoping that this was just an April Fools joke but was disappointed to see that it is indeed real.  From Meagan Campbell of Maclean’s (emphasis mine):

If real estate were a religion, Elijah Joseph would be a believer. He is 24-years-old, and he has devoted his future to erecting properties trimmed with 24-carat gold. “I’m looking to build a great big empire,” he says. “There is no doubt. I have a plan. I have a course of action, and right now, I’m kind of looking for a mentor.”

In mid-March, Joseph attended the Toronto Real Estate Wealth Expo, a jungle of real estate gurus and their 15,000 disciples who paid up to $500 per ticket, only to be told to invest in what is actually one of the worst buyer’s markets in Canada. While life coach Tony Robbins and singer Pitbull fired up the crowd into impulsive mode, a line-up of personalities preached that, despite record-high Toronto house prices, now is actually an ideal time to buy. The presenters all had personal stakes in the market, but attendees ignored the conflict of interest, and the event, disguised as a conference and concert, became a full-day sermon on buying real estate as the greatest good.

“Fear will kill you. Fear will drown you,” said Daryl King, who is selling properties upwards of $8.8 million throughout the Greater Toronto Area and Ontario. “Just jump in!” chanted Inez Kurdrik, a downtown realtor. On the same panel, Brad Lamb, nicknamed “the condo king,” who has built eight high-rises in Toronto, declared, “Toronto has become one of the last safe havens in the world.”

In reality, a consensus is emerging that Toronto is a in fact a buyer’s hell. The average house price in the Greater Toronto Area sold for $916,000 last month, up more than 30 per cent from the year before.

The Expo strategically tours cities in need of buyers. Sponsored by real estate agencies, developers and banks, the event will visit Miami, a seller’s market in which housing prices rose 10 per cent last year, and Chicago, which was almost an equally strong seller’s market last year when the Expo was planned.

“This event is a blood-sucking event,” said Clark Lord, a musician and artist who bought tickets solely to see Tony Robbins. “They’re telling everyone [that they can] be a millionaire when we can’t even pay for food.” Lord’s friend, Ivan Rendalic, a lawyer, only went because Lord bought him a ticket. “All this is is a stimulus package,” says Rendalic. “They’re getting high on the hype. They’re refusing the logic. Once people hit a small barrier, they’re f**ked.”

The event itself was misleading. “Gold ticket seating” meant a foldable chair at the nosebleed-back, and while attendees like Joseph paid $250 for “VIP” passes, expecting they would get to meet Robbins, such access was reserved for people who paid $500 for “Ultimate VIP” passes. Robbins showed up an hour and a half late, at which point he fist-pumped around the room while telling people to search within their hearts—a bizarre hybrid of busker and Buddha. “Our hearts start beating before our brains start working,” he said, though his embryology lesson was incorrect. Robbins wasn’t the only presenter who needed fact-checking; at the Expo in 2009, a headliner was Donald Trump.

“This is the very hugest, the very hugest of all,” said Raymond Aaron, a personal finance guru, who was supposed to present on “automatic prosperity” but instead spent his stage time selling his two-day course.You’re gunna go buzzurk. I’m going to do something unbelievably special …. Another giant, giant bonus … This is the very, very, very, very hugest … It’s not $5,000. It’s $697! No HST!”

The most aggressive salesman was realtor Tim Payne, a presenter who was expected to spill secrets on flipping houses but spent nearly two hours advertising his $995 three-day course, charging an extra $6,000 for access to contacts. “I wanna kick your legs out and choke you until you’re wealthy,” he said. As the father of six boys, he boasted to the crowd, “I feed them money. They just crap out money.”

That burden of proof was enough to convince Joseph, who stood up and headed for a registration table to pay for the course. “I just know I want to be around mansions,” he said. “I look at them. I’m in love with them. I study them.” His future house: “Marble floor. 30-foot ceilings. Maybe a tennis court, maybe not a tennis court (I’m not really a tennis guy.) And a big, big, big hangar for a variety of cars.”

Joseph currently lives with roommates in an apartment in East York for $800 per month. He works going door-to-door selling solar panels on commission. He was formerly a college basketball player and lived in Windsor with his mother, a personal support worker, but he says, “I left my family to find wealth.”

Exiting the Expo, Joseph planned to convert others to join the real estate market. He is nicknamed “The Rev,” he says, because he talks to his friends with reverend-like pedagogy. “When I ingest this, I literally spew it all out to everyone I speak with,” he says. “Maybe I’ll get into motivational speaking of my own.”

This will absolutely end in tears for everyone involved save for the so-called “gurus” who are making absurd fees for selling useless platitudes as investment advice.  The fact that anyone would take investment advice from a huckster like Tony Robbins who once presided over a “fire walk” that caused injuries to over 30 people when he convinced them to walk over hot coals is beyond me.

Done correctly, real estate investment is a rather dull business and really isn’t glamorous.  The idea that there are still con men out there trying to sell lowly door-to-door salesmen living paycheck to paycheck on the dream of getting rich quick in real estate is frankly depressing and leads me to believe that the cycle is getting a bit long in the tooth – at least in Canada.  Hint to all of the aspiring house flip multi-millionaires out there: if something sounds too good to be true, it most likely is.

House flipping in today’s market is a capital intensive and relatively low return business.  The low hanging fruit was picked off several years ago when most were too frightened to buy and capital was scarce. Ask yourself: if returns are so lucrative, why is this person with all of the supposed secrets to success spending his time doing seminars rather than devoting his waking hours to making money flipping homes? The answer is self evident and it’s not a charitable endevour but rather a scam. Perhaps if Paper Collar Joe were still alive today he’d be a real estate “guru” and would be cashing in selling expensive, worthless seminars to suckers like the ones in Toronto recently.

Economy

Extreme Bias: An individual’s economic outlook is now tied closer to partisan identity than ever before and that is not a good thing.

Rise of the Machines: A new startup in Texas has developed an army of robots to mow lawns.

Everything Old is New Again: Upside down cars are the new upside down houses.  See Also: How Wall Street is making it more difficult to buy a car as bond defaults surge and sales slump.

Commercial

Shuffle: JBREC is seeing strong apartment rent growth in secondary markets, even as primary markets, which have been soaring for years begin to drop.

Residential

Correlation vs Causality: Why lower house prices tend to lead to higher student loan default rates.

Dragging their Feet: TransUnion says that affordability, driven partially by rising interest rates is the primary reason that Millennials are delaying purchasing a home.

Profiles

Seems Sustainable: Airlines are such a shitty business that they now make more money selling miles than seats.  See Also: Forcibly removing a passenger from an overbooked plane so that airline employees could have a place to sit is the latest example of why United Airlines is an absolute garbage company.

Stumbling Block: A dearth of infrastructure is the primary hurdle facing widespread adoption of electric cars.  But See: Tesla, which sold 76,230 vehicles in 2016 and is not profitable now has a larger market cap than GM – which sold 10 million vehicles in 2016.

Rising Sun: How China came to dominate the solar industry through a combination of massive economy of scale scale and government subsidies.

Chart of the Day

Property Tax By State

Source: Marketwatch.com

WTF

Gonna Give Me Nightmares: Scientists have biologically engineered a chicken with the head of a dinosaur, because apparently someone out there didn’t find this idea horrifying.

Eccentric: Richard Branson just started the world’s first dyslexic-only sperm bank because apparently this is something that the world needed.

Seems Reasonable: Italian man granted divorce after claiming wife ‘possessed by devil’

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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