Russ Whitney filed the first of four lawsuits against me on June 25, 2002. As a result, I investigated him far more thoroughly than I ever investigated any other guru.
During the litigation, my Web site had numerous pages about the litigation and about Whitney matters unrelated to real estate investment or only indirectly related to real estate investment. The litigation was an interesting ongoing story. Writing about it was also helping me gather evidence I needed to conduct my defense.
Now that I am back to a “peacetime footing” with regard to Whitney, my Website reverts to “peacetime” interest in him, that is, as he relates to real estate investment. The attorney Whitney used against me in that litigation, Scott Rothstein, now appears to have become more famous than Whitney. Check this out.
A couple of people have asked me what the settlement terms were. They are confidential.
I want to thank the many people who supported me either with direct help or just moral support. It was a very rewarding experience for me with regard to the support from the real estate investment and legal communities. I think the main effect of the whole affair was to define both me and Russ Whitney in much greater relief to the portions of the public, government, and media who were interested in such things.
One supporter felt he had been “left at the altar” by the confidential settlement. He is watching too much TV. About 90% of all civil litigations end in settlements—mostly confidential. If you are following a civil litigation, you can generally expect it will end in a confidential settlement.
Others have said the settlement is anticlimactic. Yup. I agree. But while I agree that the litigation had entertainment value as long as it continued, that was not my purpose. Litigation is expensive and dangerous to all involved. Continuing it to a dramatic climax is also expensive and dangerous. No one was paying me to put on such a show. I was just defending my home and life savings.
Some have offered congratulations. I appreciate the thought, but I cannot accept them. Why? Because to do so would be to imply that I won or that the settlement terms were favorable to me. They are confidential, period. That is the truth. That is what I promised Russ Whitney. And that is how I want him to handle it in the other direction.
If you want information about the past litigation I had with him, you can get most of it from the various courts. Some, like the federal courts, offer the information online. See my Web page about various litigations Russ Whitney and his companies have been involved in. If you want information about Russ Whitney that is unrelated to his real estate investment activities, check the public records in the states where he has lived: NY, NJ, NV, and FL.
Among other things, I learned that he has an unsatisfactory rating from the Better Business Bureau. His claims that he made his “first fortune” in real estate in upstate New York are apparently false. For details on those facts and much more that you will not find at Whitney’s own Web site, read on.
I have already done extensive research on Whitney since he sued me. To my surprise, I like some of what he says. I agree with most of his advice on entrepreneurship and property management. I think he is first and foremost a salesman and knows what he is talking about on that score—although I find him much too manipulative—to the point of being creepy.
However, I think what he calls “overfinancing” is so off base it’s comical. You can literally go to jail for borrowing more than you need to buy or renovate a property if all the pertinent facts are not fully disclosed to the lenders.
His depictions of the operating expenses and cash flow in his various properties are similarly comical because of their grotesque inaccuracy. Residential rental property is nowhere near as profitable as he depicts. That’s not my opinion. It’s well-established fact. There are a number of organizations that do annual surveys on rental property income and expenses. You can read about them in my positive cash flow article.
He claims to have achieved great bargains from “motivated sellers,” but the situations he tells of do not strike me as sufficiently extreme to generate such bargains. All sellers are motivated. Actually, most bargains stem from unmotivated sellers, like bankruptcy trustees and foreclosure auctioneers. I wrote a book on the subject based on over 166 actual case histories from investors who made one or more bargain purchases. (How to Buy Real Estate for at Least 20% Below Market Value, volumes 1 and 2)
He also describes value increases from renovation that I believe are greatly exaggerated. In general, to make the fixer strategy work, you need to buy buildings that are in such disastrous bad condition that newlyweds won’t buy them, e.g., fire damaged, flood damaged, tilted foundation, condemned by the board of health. If you are outbidding newlyweds to get fixer properties, you cannot make a profit renovating them. Get my book Fixers for more details on the how you really make money in that strategy. Whitney claims huge value increases from minor fix-up expenditures. I don’t believe it and there are industry studies showing costs and value increases that I believe back me up.
A reader says one Whitney idea is to start a property-management firm for extra income and great leads. That’s a dumb idea. Running a property-management company is extremely time-consuming and not very lucrative. Property-management companies are also lawsuit magnets. You will spend your whole life giving depositions and you will lose most of the cases. I used to work for a property-management company. I never got any leads, let alone any “great” ones. Also property managers have a fiduciary relationship and duty to their clients. Profiting from the relationship above and beyond the agreed-upon property-management fee would be a questionable behavior pattern and might be illegal.
Copyright 2002, 2003, 2005 by John T. Reed
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