Real Estates’ ‘Siren Song’ Leaves Speculators ‘Fleeced’
The LA Times looks at a housing scam. “At the height of the real estate boom last year, a group of investment promoters crisscrossed California, touting a plan to build rental duplexes in distant states. Mile High Capital Group’s scheme generated so much interest that its executives said they were interested only in buyers who were willing to take a risk.”
“And after investors handed over a $16,500 down payment for each duplex, Mile High founder Rick Dryer warned: ‘It’s no longer your money. It’s our money.’ That turned out to be all too true for hundreds of Mile High buyers, who fear they will never see the money again.”
“The Denver company filed for bankruptcy protection last month and is all but defunct. It collected deposits on nearly 1,200 duplexes but finished building only 55 of them. Regulators say the company’s files are in such disarray that it will be a long time before they know exactly what happened and who was responsible.”
“As a hot housing market becomes tepid, economists and other observers warn that many of those who bought speculative properties could wind up losing a bundle, some because of the market downturn, others because of frauds coming undone. Mile High Capital stands as a vivid example of the latter.”
“The 57-year-old Dryer, celebrated at Mile High’s sales seminars as a millionaire home builder and author of a book on real estate investing, turned out to have a record of securities fraud stretching back a quarter of a century. His book didn’t exist either, despite the fact that it was pictured on promotional materials at the seminars. McFaul joined Mile High in late 2004, a few weeks after he pleaded guilty to felony theft for stealing more than $10,000 of tools from the workers building his house.”
“To thousands of investors who attended the Mile High seminars, the pitch was irresistible. Massoud Balbas, a Laguna Niguel computer consultant, went to three seminars last winter. He bought a duplex each time, one in Colorado, one in Texas, one in ‘North Carolina or South Carolina or one of those places.’ The 60-year-old’s own fall was particularly hard: ‘I was a brand-new investor. I thought I was doing the right thing, but it looks like I lost everything. My wife is mad at me.’”
“Those first few months of 2005 were a heady time, a moment when it seemed more important to buy real estate immediately, before it went up again, than to think too much about where the property was or how much it cost. Homeowners were refinancing and taking cash out at unprecedented levels. Several factors combined to make Balbas and the other investors so eager to surrender their money.”
“First and most elemental was the siren song of real estate. The metaphors at the seminars may have been mixed; ‘Our duplexes are appreciating like an avalanche and cash-flowing like a freight train,’ a promotional film asserted, but the message was clear. ‘If you don’t have several million dollars’ worth of real estate working for you by the time you retire, you’re going to condemn yourself to a life of struggle,’ Dryer said at a San Francisco seminar.”
“Prospective buyers were advised that they should refinance their duplexes every year, taking money out to buy another. ‘You’re in the harvesting business,’ Dryer said. ‘You’re harvesting money.’”
“Colorado Securities Commissioner Fred Joseph wasn’t surprised that the scam revolved around real estate. It depends, he said, ‘what the thing of the day is. It can be wireless cables , it can be oil and gas.’ Investors can get fleeced when they latch onto the latest boom, he warned.”
“Some of the fleeced refuse to be disillusioned. Silicon Valley jeweler Geoffrey Stern figures he’s lost forever his down payment on two duplexes. ‘I was so naive,’ he said. ‘I made an emotional decision, not a logical one.’ His interest in real estate is unabated, however. He recently bought a share of a house in Los Altos Hills, Calif. The partnership is going to renovate the house and sell it. ‘It’s a calculated risk,’ Stern acknowledged. ‘But I feel really good about it.’”
Thanks to Stanley Johnson for sending in this link.
If you were a company doing a pyramid scheme on unsuspecting investors wouldn’t you want an address to reflect what you were doing.
checkout address of Mile High Capital
Website: http://www.milehighcapital.com
Address: 9780 Mt. Pyramid Court Ste 270
Englewood, Colorado 80112
Email Address: BHill@MileHighCapital.com
Another classic bubble quote. I hope someone is compiling a list of all these because they speak volumes about the bubble and how it permeated all of society. My thoughts during 2003-2005 in Sacramento, CA was that there is no way the powers that be are going to let regular people keep all this money. It just doesn’t fit with what little I know about how the world works. The markets, whether stock or real estate, are designed to take the most amount of money from the most amount of people in the least amount of time. Sure seems to be what’s happening here. Human behavior never changes. What a beautiful thing.
Uh, yeah, I bet she is.
Sounds like one of those Yahoo stock boards after something really blows up.
Nobody will recover a penny but the lawyers and accountants will do great. Damn, makes me want to go back to bankruptcy work. LOL
Who said “don’t steal a million from one, steal one from a million”?
I believe that was the tax man and his buddy Fed.
I have no sympathy for this mans plight. I rent and my wife is mad at me. No justice no peace!
Doesn’t look like he learned much, after all.
Sorry Stern, another bad move. Los Altos Hills is an ultra high end (2M+ homes) town in Silly Valley. The agent I know that works that area tell me it’s been dead there since Nov- Barely anything is moving there.
WOW! I hope they prosecute those guys…
Regarding the guy who lost money on 2 duplexes, then put money to a partnership, where someone else does the rehab and selling. Poor guy, he’s about to lose again. I have seem many of those types of partnerships, and not 1 of them has worked out.
“Some of the fleeced refuse to be disillusioned. Silicon Valley jeweler Geoffrey Stern figures he’s lost forever his down payment on two duplexes. ‘I was so naive,’ he said. ‘I made an emotional decision, not a logical one.’ His interest in real estate is unabated, however. He recently bought a share of a house in Los Altos Hills, Calif. The partnership is going to renovate the house and sell it. ‘It’s a calculated risk,’ Stern acknowledged. ‘But I feel really good about it.’”
This guy was looking for the quick cash, and is still looking for the quick cash. One would think that losing $33,000 would have taught him a huge lesson. At the very least, that he should do his homework and thoroughly investigate his options and the legitimacy of a program he is about to become a part of. Now, is this so-called partnership, he thinks he is safe, but he did not do his homework.
Is he living in a vacuum or under a rock? I can’t believe that he and his partners think they are going to come out ahead as flippers in this climate.
Unbelievable! Somebody…please pass the What-Were-You-Thinking Award to this man. He deserves it.
BayQT~
You need people like this if you’re a quick buck or scam artist. You’re not going to take money from real professionals. It won’t be long before you get another stock market full of suckers like this. Bring it on!
Perhaps something like a the Darwin Awards for amateur investors…
Or, he could be the first subject of a new show on HGTV: Flipper’s Follies.
Kind of reminds me of bugs being attracted to a bug zapper. “I can’t help myself …the light.. I must fly into the light.” ZAP
This bubble is playing out like every other one.
1.Greed
2. Euphoria
2. Denial
3. Anger
4. Depression
5. Acceptance
Looks like we are in between the denial and anger phase. The rush to the exits has begun. This will take a few years to wring out the excess. I see around 2010 as a bottom.
Between 3 &4, don’t forget “bargaining”
Phoenix
new record today!!!!!!! dude where’s my car… dude where’s my equity?
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I thought Ben Bernanke said something about deceleration in the housing market. But those new PHX listings appear to be exhibiting acceleration. I am so confused. (Oh, right, he said “prices” would decelerate, not “inventories”…)
STOP! go back one post and look up. inventory is up over 1,000 in 2 days? even the hardest-core bear has gotta grimmace at this carnage.
ptp, surely this is a typo………
Sometimes it pays to read between the lines. I was specifically commenting on the acceleration in new inventory, as evidenced by the 1000+ jump.
This is a calculus question not Algebra.
What is the instantaneous rate of change been over the past few days? You can clearly see that the velocity is increasing. Oh WOW! This thing is going to get NASTY! It will get worse before it gets better.
this is not a typo. go in ziprealty.com and search all counties and all towns, in PHX metro…that means Pinal and Maricopa, and put all towns in the right column. I repeat…THIS IS NOT A TYPO.
I selected “all counties” and put all cities in the left column. Then I selected “any” for all catagories and only came up with 35,632..What am I doing wrong?
You got a different number because of the time of day that you got your data, and I got mine… I am not sure if it is real time, but I know Ziprealty updates it either every 12 or 6 or 8 hours., so I always get a different number at night than in the morning.
based on my local market in washington, dc, i’d say the bump in inventory is spot on. i’m tracking homes out here and i saw a similar bump. what seems to be driving the inventory build-up here is condos for sale. single family home inventories are increasing, but condo inventories are increasing much more.
In case you need a translation. This is the total numbers of POS properties for sale in Phoenix metro. Basically every town with in 35 miles of Sky Harbor Airport. Now, let me tell you… I did not start that spreadsheet until July, but that was only because I was shocked that the invetory had gone from 6500~ in late May 2005 when I joined the ZIP website to 10700~ in mid July. Now, last I heard from a realtor, there were about 27000 homes on the market in December 2003 before things took off like crazy in 2004 and 2005. Still, you can’t find ONE stinkin’ home out of 36260, that is not listed at a 100% higher price than in 2002. Homes in the valley have doubled and tripled, and even quadrupled in price thru out the valley… and I think the median income is dead flat.
And the creative financing is going to be gone. higher Rates will cause these prices to revert to the mean. Everyone who bought hoping to make a quick buc are screwed.
The creative financing is gone. These prices have nowhere to go but to revert back to the mean and they will probably overcorrect IMO.
phucktheflippers,
Dude, open excel and put that crap on a graph. Your killing me with 12 ft of numbers, a simple graph would get your point across much easier.
hey Phu:
If you post a big chart like this, can you please explain what the data is?
This is no different than the endless stock scams during the late ’90s, preying on amateurs who didn’t know what they were doing.
What makes a jeweler think he’s a real estate genius? A bull market. What makes a cab driver think he a stock picking pro? A bull market.
Making money—whether in the stock market or real estate or any other business—takes experience, smarts, research and hard work.
Smart, experienced folks can make money in bear markets, bull markets, sideways markets.
But only in bull markets can PT Barnum’s favorite customers make any money. And they usually lose it just as fast.
It absolutely does. I still spend 12-15 hours a day on it, reading charts, fundamentals, etc. so I have a decent shot at winning the next day. And yet, there are still lots of people who think they can sit down, run a $50 scanning program from their guru of the month and beat professionals who make millions per year to take their money. Incredible. The minute you think you’re a genius in the stock market, it will take all of it back and more just to show you what an idiot you really are. The payback cycles are just hell on wheels.
The market top would not be complete without a number of these stories.
http://www.virginiamls.com
The inventory has grown higher each weekend since the beginning of the year in Northern Virginia. I’ve been recording the statements of the realtor at the “Virginia MLS” web site which tracks inventory. I thought his initial statements were a bit far-fetched and it looks like he’s revised them, but he’s still too hopeful.
January 3rd
“Inventory of available homes is at a five year high. Inventory is expect to dwindle through February. The buyer’s market continues, however the dwindling inventory will end the buyers opportunities. Buyers will have the most negotiating power for the next 6o days before the trend may switch back to a seller’s market.”
January 14th
“Inventory of available homes is at a five year high. Inventory is expect to dwindle through February. The buyer’s market continues, however the dwindling inventory will end the buyers opportunities. January inventory has grown. Buyers will have the most negotiating power for the next 6o-90 days before the trend may switch back towards a Seller’s market.”
February 19th
Inventory of available homes is at a five year high. Inventory is expected to dwindle through March. February inventory has grown slightly. Buyers will have the most negotiating power for the next 30 days before the trend may switch back towards a more neutral market.
He’s in a state of denial. It’s a shame these people earn a great living and give out crappy advice.
This article shows just how much of a religion RE investing has become. Nomatter how illogical, nomatter how much historical evidence is to the contrary, nomatter how many evangelical developers are prosecuted, investor keep faith not wanting to miss out on the ultimate reward. Think Jim baker level implosion.
Speaking of RE investing becoming a religion…I knew bubble-mania was getting riciculous when the associate Pastor at the Community Church in my South East San Diego County neighborhood was organizing groups of parishinors to speculate in Las Vegas and Phoenix real estate. I was flabbergasted…it seemed like “unholy” dirty money to me (this is a true story). Greed crosses all lines when you can justify it as being an “investment”. There will be hell to pay when this bubble crashes (i.e. Govt. inquiries, lawsuites, “My Realtor PROMISED it would go up 20% in one year, etc). The biggest fools always want to blame someone else for their ignorance and losses and there are plenty of lawyers who are willing to help them.
Religion itself is a scam, so I’m not that surprised.
OT: but today I drove from the gym(about 3 00EST) And saw 4 open house signs. (about a mile drive) I drove by one condo and i looked into the windo and saw the realtor on her cell phone with no cars around the condo. The second thing i started to see was all the posts in the ground with no signs on them. I wonder if when the housing panc is over that there will be one of these posts on every third house with no signs, some with just hooks, due to the selling frenzy, and people just walking away. Just a thought
Slightly OT but..
I finally saw it. The apartment turned condos at delreyterrace.com in MDR are officially being flipped. There are now realtor signs in front of the complex. These things went on sale july 2005…BTW, they are still not sold out…
Hey Johnny-
Yeah, I saw that too. I also answered a Craiglist add from someone trying to rent out a 1 bedroom. He was asking for $1800/mo. I countered at $1700. No reply yet. Let’s do the math on this one. Purchased for $475k, hoa dues $300, ah for get it. There is no way in hell he is even close to cash flow positive. But I’m positive it will be worth $600k next year.
Don’t sheep normally get fleeced?
Yeaaahh Baaaaby…
Anyone that can come up with an “Ointment” for all those razor nicks and gouges will really GET RICH!!!
after you are done with the ointment you better break out the proverbial “jar of vaseline”. These sheep are going to get the “full” treatment before getting set free.
Ahhhwww gee AUGER,
Your stage name suggests that you want to be first in line…
AND YOU DEFINITELY made me laugh out loud.
I wasn’t expecting this one…
I thought someone would re-butt with “The data suggests that FLEECING is too tame of an anal-ogy… it should be bypassed for “SHEEP DIRECTED TO SLAUGHTER”
oh oh… I hope I don’t get VAinVestor’s dander up on that one- he’s libel to chase me all up and down this thread like the MORALITY topic the other day
I think the guys highly leveraged into Real Estate will become less beligerant in direct proportion to equity losses being sustained. P.S. the screen name should in no way imply me wanting to be first in line, I normally call “caboose”.
Well said Auger,
Thanks for making me laugh, even while telling the truth.
Better throw some KY jelly in there while you’re at it.
Arwen U-
I also use Virginiamls.com as a convenient way to track inventory. Funny indeed how their “analysis” of inventory trends has changed over the last couple months.
Good crack numbs the mind…these poor people must have bought the best over here in SE DC!!! WHY would you give up hard earned money to someone you don’t even know to buy something you’ve never seen in a state you have never been????? I’m blonde but geez, this goes beyond the average blonde moment
Ummm, I don’t want to sound too negative, but people are harvesting money now? Since when did money grow on trees?
Cannot be happier for these morons who got “fleeced” as a rexsult of their own greed. People think they can become filthy rich by throwing 10 or 15 grand at some asset and doing nothing. I hope they all lose thir money and have zero recourse. Here’s hoping that the perpetrators of the pyramid schemed frittered the money away on lavish parties and hookers. More sheep to the slaughter!!!! This is great!!!!
…and private jets to get them to the parties and hookers. That’s what happened with Sunbelt Savings in the late 80s and this time the fraud, greed and saturation is so much worse. If anyone remembers the S&L crisis, this situation is exponentially worse and touches so many more lives. Maybe the government should be warning folks of the upcoming calamity instead of painting rosy pictures about the economy. I realize the government doesn’t want to panic folks, but this is too far along to hope for a soft landing.
yeh, should have heard some of the tapes I reviewed - although never admitted into evidence, unbelievable stuff - Bernie Ebbers, Ken Lay, Shilling-Skilling, all the same guy, just in a different package.
Reminds me of the S&L scandals. I worked on the Sunbelt cases, amazing at the arrogance of these guys. Same game, different name
So did I, along with several other S&L’s.
Didn’t McBirney and his buddies fly numerous times to California on a private jet, with hookers for flight attendant and the drugs flowing to stay at a mansion the S&L owned? I thought I remember something like that. I do know that he threw some lavish parties, and just recently was convicted of more fraud and money laundering charges when he was supposed to pay some restitution. And to think that they’ll throw the book at some poor schmuck for knocking off a 7/11 to feed his family. I was thinking during an episode of Cops last night that they didn’t throw Ken Lay to the ground and rough him up when he got arrested, but they sure manhandle the guys who sell an undercover cop a piece of crack and offer no resistance when they’re arrested. Great country we live in.
yep, McBirney was a gem! He always called me “love” I told him if he called me that again that I would make his possible prison sentence seem like a day at the spa after I got through with him!!!! Yeh, he didn’t call me that anymore and yep, they didn’t some definite partying - at the expense of others
Ken Lay and Skilling will get theirs, I think the jury in Texas will be brutal, remember, no matter WHERE the case is tried, there will always be enough folks for a jury to hang them…Texans don’t like money types making it off the backs of Joe Six Pack…Don’t Mess With Texas:)
On the old series, “The Awful Truth” (Michael Moore) they had a very funny segment called “Corporate COPS” It’s available on DVD.
Said Rick Dryer, “Our duplexes are appreciating like an avalanche.” Hmmmm. I’ve never seen an avalanche go up.
GREAT METAPHOR!!
Avalanches have similar effects on their victims as this bubble will have on assets. Both will end up frozen.
Avalanches don’t freeze, they crush.
I feel like I’m surrounded by idiots in this country!
You are!
Alas…I have the Orange County Dataquick numbers…
…for the ‘calendar month of January’, published in today’s OC Register.
Median Price OC Home - $582,000 - Down $39,000 from $621,000 (Dec)
Median Price New OC Home - $471,500 - Down $23,500 from $495,000
Median Price Used OC Home - $668,250 Up $3,250 from $6650,000
Overall Prices New OC Homes - -35.8% From Dec
Overall Prices Used OC Homes - +16.2% From Dec
Sales Volume New OC Homes - +16.2%
Sales Volume Used OC Homes - -19.6%
And in local news…
We’ve had a PRICE DECLINE in Huntington Beach.
Yes, a YEAR OVER YEAR PRICE DECLINE.
Zip Code 92649 - Median Price $657,000 - DOWN -24.5% From LAST YEAR.
Sales volumes for all zip codes in Huntington Beach are DOWN from last year, from -18% to -39%.
HEY DAVID DIALEREAH…I THOUGHT WE WERE ALL GOING TO APPRECIATE AT OR BETWEEN 5% AND 10% THIS YEAR?
WHAT HAPPENED?
(Did you LIE again, David?)
Auction Heaven:
I would prefer that you call out Gary Watts and publicize his soon to be realized lack of credibility.
After all housing and perma bull pundits are local, not national.
New homes are lower b/c builders are undercutting, right?
Well, how is that going to affect the USED homes scene??
…?
JF
Sunsetbeachguy…
I’m not sure they’re distinguishable.
They’ve all been saying BUY BUY BUY!
Did you see the poor schmuck they profiled in the OC Register today?
The young ‘Mortgage Consultant’ who bought the $548,000 house on an interest only loan in December?
I’m sure he reads the paper.
When he reads the Register, he has Lansner, Watts, and Lereah all telling him to buy.
So he buys.
And he might, or might not- keep his job- as the market turns.
And they put his picture in the paper.
Kinda reminds me of ‘Soilant Green’.
Who does the guy blame when he loses it all, and becomes a debt slave?
In Orange County, only 3 people come to mind.
You’re right, Watts is one of them.
But Lereah is Watts’ boss.
See?
Here in the OC on channel 9 news, they had a Leslie Appleton-Young segment where she said that “its impossible for a seller to lose more than what they paid for a house”.
I’m writing channel 9 to complain about this type of one-sided and irresponsible reporting.
Hmmm, “Impossible for a seller to lose more than what they paid for a house”…actually that’s a true statement. The can’t be worth less than 0 (Zero). So the most you can lose is how much you paid.
Unless, of course, you have a neg-am loan-
I would agree.
Ask folks in 92649 about that.
They just lost -24.5%, YOY.
Let’s see what Leslie has to say about that.
Zip 92649 is the Huntington Harbour area of west Huntington Beach with property ranging from entry level condos to waterfront homes ranging in price to several million dollars.
what happened per the MLS (Multiple Listing Service) is that in january 2005 31 sales took place with an average (mean) price of $833,475. 3 of the sales were in the $2,000,000 to $3,000,000 dollar range.
in January 2006 there were 21 sales with an average price of $623,633, but the highest sale price was $1,200,000. none of the expensive houses sold this january.
that explains the average price decrease from jan 2006 to jan 2005. if you remove the 3 sales in 2005 which sold in the mid two million dollar range, the average price decreases to $623,633.
one last thing. there are currently 5 homes in escrow in the 92649 zip code ranging in list price from $1.85 mil to $5.3 mil. once those close escrow the average price will increase again.
not saying there isn’t a bubble, especially here in the OC. you just have to look behind the numbers to see why the average price decreased so much from Jan 2005 to Jan 2006. when you have a real small sample size like in this zip code, a couple of high or low sales can greatly skew the average price.
You can also talk about the non-existence of multiple offers.
You can also attempt to say that condo sales were the culprit.
You can also show that multi-million dollar homes aren’t selling.
Or, you can show that the median price in 92649 dropped…
…because people weren’t buying.