Nonprofit organizations and consumer-advocate groups across Northeast Ohio have released a series of advisories in recent weeks warning against the predatory tactics of certain house-flipping seminars.
Last week, the Youngs-town Better Business Bureau cautioned against the seminars, which make “exaggerated claims stating that an individual can make upward of $10,000 a month by house-flipping.”
The criticism mainly was leveled against Fortune-Builders of San Diego, which ran ads featuring co-owner Than Merrill, a cast member on A&E TV’s “Flip This House” program.
But FortuneBuilders co-owner Paul Esajian said there was too much misinformation about his company, which he said merely educates the public.
“I totally understand people’s hesitation. I’ve had people telling me that ‘We don’t want local folks to carpet over problems,’” Esajian said of his company. “That’s not what we do. We do good business with a legal, ethical approach. If you don’t do it that way, it’s only a matter of time before you can’t do it anymore.”
FortuneBuilders will host a daylong seminar Wednesday at the Boardman Holiday Inn on Southern Avenue. Initial two-hour sessions are free; afterward, guests can purchase books, kits and instructional videos on how to buy wholesale property, such as foreclosures, vacant buildings or condemned properties, and sell them for a profit. They can pay about $200 for an additional three-day training seminar.
But the sales pitch, which promises between $10,000 and $40,000 per deal, little monthly work and no upfront cash or credit, is completely unrealistic for the majority of those attending, detractors say.
“It’s a ‘come get rich quick scam,’ and it’s really sad,” said Mark Wiseman, of Neighborhood Housing Services of Greater Cleveland, which last week joined six other nonprofit organizations in issuing a warning to the city’s mayor and city council. “Most of the people attending these seminars look as though they don’t have a job.”
Officials say the seminars fail to inform consumers of the daunting challenges that come with house-flipping.
Esajian refuted those claims by saying his company teaches people how to identify property worth flipping and then finding investors or hard-money lenders to fund the project, such as those who might be looking to redirect their money from low-yield mutual funds, certificates of deposit, or other securities.
Esajian said the seminars teach networking skills that help flippers find investors interested in asset-based lending.
Some contend, however, that the FortuneBuilders seminars are better geared toward wealthier clients.
“It’s not as easy as they portray it to be,” said Michael D. Klacik, broker and co-owner at Klacik Real Estate in Poland. “These properties are predominantly found in the city, and most investors pay cash and sell to other investors out of state.”
Klacik said profits can be made in house-flipping, but he said markets throughout Northeast Ohio are not as profitable in the arena as others in Nevada and California, where the sector is less stable and populations are high.
Further complicating the Valley’s market is a lower sale price. In June, the average sale price increased year over year by 9 percent to $85,133 but is still well below the national average, something that complicates the profit margin on wholesale property, Klacik said.
But Esajian said FortuneBuilders is well aware of this information. The company, he said, teaches a formula based on average sale prices in a given market. He said it’s extremely important to consider all the costs that come with flipping a house, and it doesn’t always yield large profits.
“Flipping is like anything else; it’s a gamble,” Klacik said. “You could win or it could be devastating. Either way, you’re going to need to spend money.”