While writing the Russ Dalbey's program Winning in the Cash Flow Business, I realize this is opening a big can of worms. It is based upon a legitimate businesses that can be run successfully if you know what you are doing. It claims to give you all the information you need at an outrageous price, BUT the materials are fluff, hype - not enough to get you started. That's what makes it a scam. It is a ripoff if you are expecting what was promised.
For those who don't know about the Russ Dalbey scam, it is about making a fortune flipping notes (note are IOUs for real estate, settlement, lottery winnings, ...) by find note owners, post it, collect money.
Is it legal and ethical? Yes, the cash flow note business is done all the time mostly by banks, investment firms, and real estate professionals, but the money is mostly made by those doing the investing in the notes and not by flipping them over to the investors.
On the surface Russ Dalbey cash flow note scam is offering a business idea in note flipping with the goal of turning you into a note investor. So, where's the scam?
By scam, I mean what is promised versus what is delivered for $150. The premise of the infomercial and the mailers in this system is all you need to get started in the business, but that is far from the truth. Here are some important clips from the promises made in writing:
These are excerpts from the sales brochure, a 70 page booklet to sell this course. These are the actual words used in the booklet.
The Russ Dalbey Cash Flow Ad
Winning in the Cash Flow Business has several other wonderful advantages -
- It's fast. You could get your first big check in just days.
- You Need Absolutely No Money To Do This. There's no buying, selling, or investing involved.
- It's Simple. Just follow 3 easy steps...there's nothing complicated to think about. You could make thousands of dollars, month after month -- even if you've never made money on your own before.
- It's Fun. No boring busywork. No employees, inventory, or complicated paperwork to hassle with. Just fun!
- It Gives You The Freedom to be your own boss -- but it's EASY and you can do it from home in addition to (or instead of) what you do now.
Plus...it only takes minutes a day to do -- depending on how "hard" you want to work!
And it has nothing to do with a new job, a risky investment, or the stress of starting your own business. It's just 3 simple steps anyone can learn to do at home.
In addition...this moneymaking opportunity will not require you to gamble your savings or risk your family's future. And you won't have to go into debt, or hit-up your family and friends for ANYTHING.
- It is NOT some MLM, Network Marketing or Pyramid Scheme where you have to harass your family and friends to give you money...
- It is NOT a program where you have to invest in a bunch of products that stacks-up in your garage while someone else gets rich.
- It is NOT a high-priced franchise. It does NOT require you spend a small fortune buying equipment and hiring employees before you ever make a dime...
- It does NOT require any special education or expertise -- all the information you need is in the course.
- It does NOT require any up-front investment to get started.
- Better still, there is NO selling involved -- this is not a system that trains you to become a super-duper-selling machine so you can promote some product that no one wants or needs.
"Winning in the Cash Flow Business" meets what I call...
The 8 Crucial "Must Have" Ingredients for the "Ideal Business"
- Ideal Business Ingredient #1: Demand.
- Ideal Business Ingredient #2: Low Maintenance.
- Ideal Business Ingredient #3: No Inventory.
- Ideal Business Ingredient #4: No Employees.
- Ideal Business Ingredient #5: No Cold Calling.
- Ideal Business Ingredient #6: Respectability.
- Ideal Business Ingredient #7: Low-Cost.
- Ideal Business Ingredient #8: My 100% 'I'll Prove It To You' Guarantee.
- You never have to buy a note.
- You never have to sell a note.
- You never even have to see a note!
All you do is...
- FIND a note...
- LIST it through my free Note Listing Service... and
- MAKE MONEY when the deal is done!
Winning in the Cash Flow Business includes all this:
- Step 1: The "Winning in the Cash Flow Business Manual ($99 value!)
- Finding Notes Easy -- Manual & CD ($152 value!)
- First Steps to Success Video ($99 value!)
- The Audio Companion Set ($99 value!)
- Step 2: The "Fast Cash" Manual ($69.95 value!)
- Step 3: The "Building Wealth" Manual ($69.95)
- Your own website ($397 value!)
- 250 Note Holder Leads ($250 value!)
- FREE Note Listing Service
- The Note Finder's Resource Kit
There are many misleading promises and claims in the advert. If you were planning to buy this system based on those promises, here is the real story.
A "note" is the heart of the system. A note is an IOU given to a "beneficiary" (one who will benefit with profits) from a "payor" (the one who pays the beneficiary according to a contract they signed).
You must find those note owners, contact them and ask them to let you sell it to an investor. Get the required information and analyze the note. Present it to investors who consider the offer and present the figure to the owner. If they want it you process paperwork and if it closes collect your money.
Is it in demand? Yes, there are many of these buying and selling note transactions happening everyday, mostly by banks and big financial institutes. Who would want to sell their investment? People who need money up front and will settle for less than the value of what the note is worth.
Is it ethical? It depends. If the person really needs the money, they might appreciate the opportunity or they may end up with seller's remorse. If they want to cash out for a better investment, they will be happy to cash out. It will all depend on the actual value of the note over the period of time the note is good versus how much they can get now. Sometimes it will be good for them and sometimes they will get the short end of the stick.
The bad news - Most banks and financial institutes already have a pulse on the industry and will contact the note holders directly without the need of a third party. The competition is fierce. There are so many independents out there playing against each other and stealing leads by pretending to be investors. Even investors will look for the new brokers and weasel out enough information to get your lead and cut you out of the deal.
Why would someone sell a note? Let's say someone sold their home and a promissory note was offered to make it possible for the sale to close. The person holding the note may not trust the buyer or wants cash up front or does not want to deal with the legal hassles should the home end in foreclosure. These are reasons one would sell their notes for less than its value.
Or someone just won the lottery or an injury settlement and there is a huge opportunity they could invest in if only they had a big sum of money that could make more money than the amount they would get from their notes.
No one will pay the full value of a note. All notes in this business are discounted depending on how old the note is, the value of the collateral behind the note, and the credit of the parties involved. Anything lacking in these areas will make the note more or less valuable than others, keep that in mind when you ask why no one wants to buy a note you found because some notes are worthless.
The true value depends on the overall interest of the property for the time it is good. If you had a note that had an original value of $100,000 that paid you $1000 a month for 100 months with an interest of 5% per month, that may sound great in the beginning. About a year passes and either you are not getting regular payments on it or you have a deal or event going on that requires a load of cash. After a year, you have already been paid $12,600. Over the rest of the 88 months, you could stand to get steady checks for $1050 meaning you could expect $92400 for the rest of that note term. The older the note, the lesser the value. If the note is too new, the value is questionable.
If you own a note, a broker or investor may contact you asking if you to consider selling the terms of your note without mentioning up front it would be at a discount. You would get immediate cash, but for less than the value of the note. In example above you would get less than $88,000 (value of note minus the interest). For the deal to appeal to an investor it has to give them a good percentage of money for their investment. They would also have to consider the broker fee involved for the tip. That note which could bring you $92,400 over the next 88 months might be sold for as low as $80,000 if secured by property equal in value. Without collateral to secure the note and if bad credit involved, investor's risk goes up and the note could be bought for lower than $50,000. The broker contacts the note holder with a bid and they must decide if this transaction is worth the loss before signing the note over. Many times the note holder will decide not to go through with it unless they really need the cash.
As a note broker, you must contact note holders and convince them to sell their note, figure out the market value for the investors, present investors with details of the notes and wait for an offer, if you get an offer then contact the note holder and if accepted handle all the paperwork directing it to the proper people and wait for escrow to send you the check.
How do you do it? Go to courthouses in person or online and find the names of the note holders, contact them and get information about the note. Present your note information to the investors (make sure they have signed an agreement to legally bind them to pay you before giving them the information) and wait for an appraisal (at your expense) and contact the note holder with that figure and ask if they wish to sell. If they decide to sell, get the seller's complete information and contracts sent to the buyer while making sure all contracts and facts are in order (because if you forget to have either the buyer or seller sign the right documents, they don't have to pay you for connecting them.) When the deal is closed, you will get paid in 1-3 weeks.
Several of the advertised promises are already broken.
Never have to sell a note? That is the heart of the flipping business, selling notes. You find the note holders and present a sales pitch to them to encourage them to let you handle the details of selling the note. You then SELL this note to investors. There are no two ways about it, this is a business of selling the notes that are in possession by the note holders. You don't have the notes in your hand, but you are still selling it. You are a middle person in this outright sales transaction. You are doing this with the note you found. It may never actually be in your hands, but make no mistake, you are selling the note from two ends - to the note holder and to the investor.
Your First Check In Days? For a few lucky ones who happen upon a desperate seller they contacted via cold calling in the same state where they lived with a really good note and an investor ready to buy it at hand... then yes, they got their first check in about a week. For the majority, it will never happen that quickly. Getting a note holder to consider selling their asset will require a good sales pitch and contracts to sign after collecting information, but the real trick is how long it will take to find an investor. Just because you have a note does not necessarily mean an investor wants it. And even if they do, the paperwork and transaction could take over 60 days in some cases after you find two willing parties.
If you do get an interested party to buy the note, the transaction details can be handled quickly by fax, unless there are documents that need a notary and to be mailed in your particular state which will add days to the process of completion that gives the note holder time to back out of the deal. When the deal is final, an escrow company (the neutral party which holds the money and documents) will send all parties what is rightfully theirs and depending on the company you use and the state you live, it will take 1-3 weeks before you see your check. But to get to that point can take weeks, months, years, or never.
You WILL have to become a super-duper salesperson. How else will you get the note holder to agree to have you sell an instrument that can pay them a steady stream of income? You can contact them by post card or have a web site, but the program itself and the online support will all strongly recommend one method that is most effective for getting a deal - COLD CALLING! It is even recommended you hire college students to do the calls for you...sounds like HAVING EMPLOYEES to me.
No Investment? Sure there are free ways to start up in finding note holders, but "free" is a loose term. Go to your local courthouse (how much will it cost you to get there?) and use their computers to find them (if they are kind enough to help you, know how to help you, and don't give you a hard time about your rights to access this public information) and write down the information (because they will charge you to print it.) In many transactions you have to pay for property evaluation before you present it to the investors, that is money out of your pocket.
Of course that is why they have the disclaimer that the stories you hear are unusual and you may make more or less than the people who post their testimonials claim. If you want to run this or any business, you have to invest money, time and effort and all business is run on sales.
The free software included to help you find leads online is worthless because the majority of links lead to dead sites, therefore you will have to do a search to find them yourself. Many note database online require a subscription fee to use it, but you are mostly on your own to find it.
It only takes minutes a day to do? It will take time to find valid leads to contact. You are investing a lot of time to find a handful of leads. To find about 10 valid leads going to a courthouse or even online will take about 2 hours. If you are cold calling, the telemarketing rate would suggest for every 1000 people (200 hours courthouse research/5-40hour work weeks) you contact, you should find 1-10 who will be your customer. In essence, you will need to build a large list of contact names.
Going to the courthouse is free, but it is far more effective and expensive to buy the names from a list broker (Dalbey will also sell you names). If you buy the names all you have to do is concentrate on contacting them, but chances are they have already been approached several times before or no longer have it available. This is why it is best done with real estate and financial institutions who have fresh leads come to them. To be successful in this, become a business partner with them.
If you have free local and long distance calling, you will not have to worry about the expense involved in contacting them by phone. You will have to worry about keeping track of calls you made because of the DO NOT CALL LIST. You could be fined up to $11,000 if you knowingly call someone on that list which means you will either have to purchase that list of DO NOT CALL names in advance or take a chance and call them and respect their request to be removed. If you call them a second time, you risk the fine.
Mail out postcards to let them know you will be contacting them by phone and put a number on there for them to contact you in case they want to opt out of your call. Right now, the rate to mail a post card is 24¢ each not to mention the printing cost of the card which can be up to $1 each. If you have a list of 250 note holders, a cheap mailing will cost you $85 ($60 postage + $25 for the cards). To mail to 1000, it will cost you $340. That is if you have compiled the names yourself.
A good list of 1000 names can cost anywhere from 25¢ to $1 each. Without your own names, the price of mailing 250 would be $60 for postage, $250 printing and $62.50 for cheap names or $372.50 for 1000 it would be $1490. Let's hope you NEVER HAVE TO HIT UP YOUR FAMILY OR FRIENDS FOR MONEY OR GO INTO DEBT.
You will probably also want to consider having a web site. The ad in the brochure claim to give you a free web site, but it will lead you to a site that will charge you $398 for a basic one that will automatically submit any information gained from your site to the ANN investor area (identical sites do poorly in search engines). Or create your own and develop your own forms to collect information and post them manually to ANN. If you know how to design your own site, it should cost you about $200 or less to DIY (and make it easier to be listed in search engine results).
And What Of The No Investing or Buying? In a Ponzi scam, the person creating the hype will speak about how much money can be made and make it so the first few who get involved make money and encourage them to find new people to join and/or invest their money into the program or submit testimonials of how great it is. As more people invest in the system, the ones at the top keep bragging about the big money they made which encourages more investors into the system. Sooner or later, there are too many new investors and not enough buyers to support the investors. The system collapses.
This is not a Ponzi scam, but it borders dangerously close to being one.
The ANN site is where you are encouraged to post your note unless you know where to find your own investors (something not even mentioned in the ad). The system encourages you to become an investor yourself because that is where the real money can be found. So guess who are the ANN site investors... people just like yourself who are mostly not qualified investors, but looking to get a cut off your note when you sell it. There are no hot investors looking for legitimate leads, you must find your own because that system collapsed already.
Their ad says you NEVER HAVE TO BUY A NOTE, yet all the materials in the course push the idea of flipping a few notes and become an investor.
If you are fortunate enough to have a hot note, the ad says all you do is post it to their site to have investors come calling you, but the reality is you must find your own investors and get them to sign legal agreements with you so they will pay you. No boring busywork or complicated paperwork indeed!
Speaking of complications, there are legal documents involved in these transactions. Depending on your state, you may have different laws to make a transaction complete that are not covered in the course. Some states require a brokers license. Other states require various other licenses. The standard contract forms in the course may not be legal in all 50 states and you need an attorney to verify what will work and have them draw up the proper documents to use. Different situations in these transactions may require different legal documents. It would be for your own good to become a Limited Liability Corporation to secure your assets in case something goes wrong. Also have a real estate lawyer and accountant on call for issues that will come up.
The ad claims you have plenty of free help. They have a trained staff on call whose main job is to get you to purchase an upgraded package, signing up for a seminar, or a personal coach for the real help you will need. They know nothing about the business and cannot really help you other than to sell you stuff to help. The sales material explicitly said this program contains EVERYTHING you need to get started and help by trained counselors. If it actually had everything you needed, why on earth do you need the extra help for the extra fees?
Is this fun?? They claimed it would be. No boring paperwork. Nothing complicated. No sales. No cold calling. If you actually like boring paperwork, complicated real estate and property laws, and hard, cold sales, then by all means this program will be a blast for you.
The biggest obstacle on why it is not as easy as it sounds - the majority of the note holders do not want to sell their notes because they realize the value of keeping the note. You will most likely have to contact about 1000 note holders before you find 1-10 who will consider selling if you use ethical tactics. If you use scare tactics they recommend on their web site you could get more, but your retraction rate will be higher.
About respectability issues? In the ANN forums, it is recommended you cold call people with a fear pitch to make them think they need to sell now. If you can sleep knowing you are cheating people out of assets in a high pressured sales maneuver, then I guess you could call it a respectable job. However, there are people who will appreciate the chance to sell out for cash and if you can reach them and disclose all the details they need to make an informed decision, you may have fewer sales, but you can feel more respectable.
This is a respectable business, but not the way Cash Flow puts it out. In the end, you can succeed at this business, but it will take more work than it sounds like in the pitch.
How To Really Do This Business
The following is a realistic approach of becoming a note broker. Follow these steps:
- Go to the library and look online for all the information you can obtain on the topic of real estate notes, property laws, contracts, and your state laws.
- Write out your goals of what you wish to accomplish with this business.
- Develop a preliminary business plan.
- Save up at least $15,000 to get started properly.
- Get a business license, better yet, get an LLC (cost will range from $50-$500+ depending on your state).
- Consult a real estate lawyer and let them know exactly what you have in mind for a note buying business and follow the advice given (consultation for a real estate lawyer can be $50-$150/hour).
- Create a business plan with the help of your lawyer and have them develop all the proper contracts you will need in this business.
- Find a reliable accountant with in depth knowledge of corporate tax laws to help you with bookkeeping, expenses and tax issues.
- Get a professional web site designed for your business using the information your lawyer tells you will be needed to process the applications.
- Create professional stationary you will use in contacting people.
- Place ads in classified sections of magazines and newspapers where your note holders are likely to see your offer (like a FSBO magazine.)
- Create a radio and television ad which can be used and get the best rate to air them.
- Start contacting potential investors and sell them on the idea to work with you when you find notes and have them sign a contract of non-disclosure and agreement to pay you if they agree to do business with you. Get at least 50 ready to buy from you. Line them up first before looking for notes.
- With all the legal issues and proper business facade in place, you can now start looking for notes.
- Pay a reputable list broker for a list of note holders (names, address and phone number) who are not on the DO NOT CALL list. Start with 1000 at a time. Expect to pay $1500 or more for a good list. Or befriend real estate brokers, pawn brokers and others who are likely to run into notes on a daily basis.
- Create a post card with a message telling them you are trying to reach them and to expect your call soon. Include a link to your web site and your phone number should they opt out of your call or want to reach you immediately.
- Wait 2-3 days after the mailing and call them with your sales pitch as to why they should consider selling their notes now. Keep a record of what is said on the call. Respect wishes to be taken off your list.
- If they do not request to be taken off the list and don't want to sell now, wait another month and call again.
- If they do want more information, get the details your lawyer tells you is essential in closing the deal and have them sign a contract of non-disclosure as well as an agreement that you are the one who is posting this information to the investors.
- Prepare for a professional assessment of the note which may require paying a professional third party.
- Present your note information to your pool of investors by contacting them on the phone or in person and try to get a commitment as quickly as possible on the amount they will pay. Have them sign a contract to commit.
- Get back to the note holder with the quote. If they agree to sell, have them sign a contract to commit, tell them that they are also agreeing to let you have the next payment due them on the note and get it in writing.
- Forward all the paperwork to your investor who should have an escrow company lined up already to process this transaction.
- When the deal is done, the escrow company will forward the money to your bank account.
