The Preachers of Easy Pickings

By Stephen Koepp

At the airport Hyatt Hotel in Oakland, the crowd's mood is akin to that of an audience waiting for the big fight scene in a Rocky movie. More than 400 people are squirming excitedly on their folding chairs as adrenaline-pumping music blares from four giant speakers. Suddenly the room breaks into applause as a handsome man in a well-tailored suit jogs down the center aisle. The star of this show, however, is not Sylvester Stallone but an Italian Stallion of another breed: Dave Del Dotto, 35, a self-made real estate millionaire. "How many people want to get rich?" he shouts to the throng, and several hundred hands shoot into the air. For three hours Del Dotto drums the promise of prosperity into the crowd. He tells them they can become millionaires by investing in real estate, even if they currently have no credit, no money and no job.

Del Dotto and dozens of pitchmen like him are inundating television airwaves and packing conference halls across the U.S. with their gospel of "no money down." The seminars and TV programs are teasers for the real product: packages of booklets and tape cassettes that explain in more detail how to start from scratch in real estate. At about $300 and up, these home-study courses have earned millions of dollars for the gurus and probably started a few graduates on the path to success. But many mortgage lenders and real estate brokers, irritated by shaky financing schemes proposed to them by the no-money-down graduates, think the preachers make it look much too easy. Says Mary Burton, owner of a Chicago real estate agency: "People who call in after these seminars want everything. They want a cheap price, a good location and terrific terms. I see it as a waste of time."

Perhaps so, but the no-money-down concept has created an industry in which it is often more profitable to preach real estate investing than to practice it. The pioneers were Robert G. Allen, 37, and Albert Lowry, 58, who wrote rival best-selling books on the subject during the 1970s and early 1980s. An updated edition of Allen's Nothing Down zoomed back onto the best-seller lists last year. Offering dozens of financing tactics, Allen and Lowry were soon so much in demand that they formed companies and hired dozens of disciples to go out and preach the gospel in their place.

The gurus aim their advice at neophyte investors who lack the 10% to 20% down payments required for conventional mortgages. The no-money-down advocates tell their students to look for so-called motivated sellers, people who are so desperate to unload their property that they will go along with a highly leveraged financing deal. One such scheme is what Allen calls the Second Mortgage Crank, in which the buyer of a $100,000 house persuades the seller to take out a new bank mortgage of $75,000. The no-money-down buyer then assumes that mortgage and gives the seller an installment IOU for the remaining $25,000. Persuading sellers to accept this kind of deal is not easy, since many of them would be hesitant to extend so much credit.

Yet some students succeeded and even became no-money-down gurus in their own right. Ten years ago, Ed Beckley of Fairfield, Iowa, was a high school business teacher earning $8,700 a year when he decided to borrow a few hundred dollars from friends for a real estate course. Beckley went on to earn a small fortune from his investments and then took to the airwaves to spread the word. Shows like Beckley's The Millionaire Maker have become ubiquitous during late-night and weekend hours, when the real estate experts can often buy TV time at heavy discounts. The programs, which are actually 30- or 60-minute commercials, are made to resemble short documentaries.

Many of the no-money-down preachers flaunt their new riches as if to convince their audiences that the formulas really work. They pose for pictures in front of their spoils: Rolls-Royces, swimming pools and palatial Sunbelt homes. On his wrist Del Dotto sports a solid gold Roman coin surrounded by a halo of diamonds, and a rival named Tony Hoffman wears a dollar-sign-shaped diamond ring.

The gurus generally offer money-back guarantees on their information packages, and their financing schemes apparently remain within the law. But in at least one state, California, the department of real estate has issued warnings to brokers, advising them to avoid such deals. Reason: authorities think no-money-down arrangements can pose hazards to the seller, who could face foreclosure if an overextended buyer fails to keep up with payments.

Some no-money-down students get frustrated and give up. Says Andrew Doner, a 39-year-old Los Angeles mechanic: "I wasted eight months and hundreds of dollars trying to make a no-money-down deal. With all the tapes I listened to, I could have learned a foreign language." But others have an almost religious faith in their teachers. Says Ronald Leach, a burly 34-year-old San Francisco carpenter: "This is my third seminar, and I'm about to close my first deal. Give me a few years, and I'll be selling these cassettes myself." Look out, world: here comes another get-rich guru. --By Stephen Koepp. Reported by Jon D. Hull/Los Angeles and Arturo Yanez/Chicago

With reporting by Jon D. Hull/Los Angeles, Arturo Yanez/Chicago