Ray Lucia Is Wrong on REITs

Ray Lucia speaking at Sean Hannity’s Freedom Concert in San Diego. Photo by Andi Hazelwood.

For more visit: A Professional’s View of Ray Lucia’s Non-Trade REITs

 

In 2010, radio talk show host Ray “Buckets of Money” Lucia threatened to sue me for $300,000 for defamation over a blog post on this website. My post pointed out Lucia’s relationship to a securities firm that paid $2 million to settle U.S. Securities and Exchange Commission charges.

Nothing ever came of the threats and, coincidentally, (or not?), Lucia shortly thereafter told the SEC that he would no longer register with them as investment adviser. Lucia still hosts his radio show and rounds up new clients at his free seminars with actor Ben Stein.

I was content to leave things alone until last week when I heard from a client of Lucia’s son, Ray Jr., who now runs the investment business started by his illustrious father.

This person, whom I’ll call Joe, is, runs a small home repair based business and is approaching retirement age. Joe attended one of Lucia Sr.’s “Buckets of Money” seminars 18 months ago and entrusted his money to Lucia Jr.  He wishes he had read this blog beforehand.

Today, they are illiquid. About $80,000 of Joe’s money — 30 percent of his net worth — is locked away in real estate investment trusts (REITs) that aren’t traded on any exchange and therefore can’t be sold for years.

Joe’s wife is ill and may need to take early retirement, which leaves Joe wondering how he’s going to pay the bills.

For some retirees, REITs can be a good investment. REITs are required to repay at least 90 percent of taxable income to investors or the forfeit their tax exempt status. So, they are sort of function like bonds but with much better rates, something like 6 percent.

So what’s the catch? The REITs Joe is invested are non-traded REITs. This is an investment that can’t be sold for years — at least not without taking a big loss. FINRA, the financial industry self-regulatory body, last year issued an investor alert warning about the dangers of these non-traded REITs.

Both Ray Lucia Sr. and Jr. are big believers in these non-traded REITs. What they don’t tell you is that it’s a great deal for the folks at RJL Wealth Management. Brokers love non-traded REITs for the whopping commission a sale generates, which can range between 10 percent and 15 percent (!). If you really feel that you need a REIT in your portfolio, then buy a publicly traded one on Charles Schwab or some other online broker where the commissions run $8.95.

Joe never found out what the commissions were on his non-traded REITs including Behringer Harvard Multifamily I, which for years has combined high fees with poor performance. (For more, see reitwrecks.com’s Non-Traded REIT Forum.)

But that’s not all! For getting Joe in this predicament, RJL Wealth Management, Lucia Jr.’s company, collects a 1.9 percent fee — more salt on the wound. Buyer beware.

 

14 comments

    • Rich K

      If his advice was any good, he’d be following it to increase his own wealth rather than earning a supplemental income by running seminars and hosting radio shows. This sound analysis applies to more than poor RJL and has served me well as I have been self taught to avoid scammers and do my own howework.

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  1. Pingback: The Ben Stein-Ray Lucia Mutual Admiration Society › Seth Hettena
  2. Barry Heifetz

    I have an appointment with Joe Lucia, Ray’s Brother to “bucketize” my portfolio? Should I be concerned about one of the “bucket” strategies, namely, non-traded REIT’s?

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    • AJ

      The “Buckets of Money” strategy is a way to organize your investments so that money you need in the near term (1-7 yrs) is kept safe and liquid (Buckets 1 & 2) while money not needed until much later (15 yrs or more)is invested in less liquid and/or potentially riskier vehicles that can produce higher returns for long term growth (Bucket 3).

      REIT’s (traded or non-traded) are just one asset class that you may or may not want to invest in. A non-traded REIT would be put in “Bucket 3”, which is for money not needed for a long time (15+ years)and doesn’t need the liquidity as a Bucket 1 or 2 investment does.

      In his book “The Buckets of Money Retirement Solution”, Ray Lucia Sr. advocates owning a few nontraded REITs as well as public REITs and talks about how both types together give the investor diversification, income and growth. He discusses the pros and cons of each type, their risks, liquidity and suitablility. He also fully discusses commissions, loads, investor costs in both nontraded and public REITs. You didn’t mention any of this. Why?

      As Mr. Sapp states in A Professional’s View…, “I should also add that nontraded REITS are not unsuitable for every retail investor, just most of them.”

      So if you think an investment is not suitable for you, don’t buy it. If you don’t understand it, don’t buy it. If your advisor tries to sell you something you are not comfortable with, get a new advisor.

      If “Joe” is approaching retirement, the “Buckets” strategy would have him put most or all of the remaining 70% of his portfolio ($186,000) invested in safe, liquid vehicles for at least the next 14 year period. Why didn’t you mention this and why does Joe think he needs to sell the REIT’s now (which aren’t intended to be sold for 15 years) instead of his more liquid investments?

      As for Joe’s wife, she should’ve protected her income with a disability insurance policy so she wouldn’t need to tap into their retirement funds prematurely if fallen ill. Was this recommended by the advisor and the advice ignored? My advisor (not RJL!) recommended adequate disability insurance during my very first meeting with him and I believe this is standard for any financial plan. In fact, I’ve never seen a financial plan checklist by any advisor that omits it.

      I’m not trying to defend RJL here, but think there is way more to this story that was purposely not disclosed and wonder why so much of it was left out. Stinks of an ulterior motive.

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      • Bucket Head

        The guy puts little old ladies in double digit digit commissioned, thinly traded REIT’s that are run by? likely someone that is a buddy of RJL. Sounds like a scam to me. The major brokerage houses did it in the 80’s and 90’s, they actually valued things at $10 forever also. It was a scam then and it is a scam now. The kid is just following in the footsteps of dear old dad. I would love to hear how many times someone at Lucia’s Bucket Shop talked to prospects about the term return of capital. Logic will tell you that if you invest your money in vehicles that return squat, have high fees and are iliquid that his projections about growth of principle and income payments are nonsense. Go to the guys website he refutes the SEC charges with a bunch of nonsense. He is being charged with using bogus numbers to calculate how much your original pool of assets would be worth down the road. Instead of using actual past inflation numbers for the 1970’s, numbers that are readily available, he used 3%! In 1973 inflation was 8.8% and went to 12% later in the decade. By 1980 inflation was 14%. It took me less than one minute to get those figures. For someone that professes to be a financail expert to not realize how fradulent his figures are they would have to be as dumb as dirt. So, if you are a supporter of RJL you have to believe he is either stupid or a crook. If he is stupid you can’t be too bright for listening to him, if he is a crook, God help the both of you. Do some reading on these non traded REITs and the return figures of annuitites. See how much of your cash flow from your annuity is just the return of your principle. The answer on long term anuities is over 95%. So, this guy goes on the radio and answers a ton of questions and then bangs people for 10% of their net worth after meeting with them for an hour, or actually meeting with some other mouth breathing rep, sounds like a hell of a way to make a living to me. If you are a scum bag!!!!

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  3. CallMeIshmael

    They don’t call this a “Bucket Strategy” for nothing. These scams often give the game away right in their name. This is a “Bucket Shop” which means there’s no market in the securities they’re touting. You’re betting against your broker since he’s the only market maker in the stock. That’s why Ray Lucia is not a Registered Representative. He doesn’t want the possible criminal liabilty he’d face if he were. Anyone stupid enough, ignorant enough, or negligent enough not to do their homework is a sucker. Caveat Emptor.

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    • Bucket Head

      Irony is lost on most. It is a Bucket Shop. 99% of people ar not familiar with the term. That is why these things work. Nothing is new. It is just new to the biggest sucker. The guy should go to jail. He says hey here is all you have to do to become really rich with no risk, here are the numbers to back me up. Based on invalid inputs that prove he is either a crook or really dumb. Your comment about the Bucket Shop makes me want to go read Reminiscences again. The guy is just selling snake oil. The fact that a small portion of the peoplein the country believe him does not change the fact he is a con man, in my humble opinion.

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  4. "dolly"

    I knew one of Lucia’s key employees. The guy made a decent salary, had some decent skills, took an interest in building wealth, but his personal finances and his own financial situation were a mess despite trying to turn it around. hmmmm.

    I guess some people will say, “so what: my doctor smokes like a chimney.”

    …still.

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  5. Randy

    If the term “non-traded REIT” is not enough to raise questions in the heads of anyone thinking of investing in them – they deserve to learn the hard way. Any anyone considering making ANY investment of a material percentage of net worth – without consulting a second financial adviser (or especially even a non-CFP CPA for example) – has s… for brains. The problem is that such investors are greedy and want to think only of bucks down the road.
    I have never heard his radio show fail to comment about the lack of liquidity when he speaks about them…

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    • Ron Ak.

      Good. For some truly good advice, see accountant Sapp’s Q&A with Hettena – his 8 points of advice re: REIT’s. These are excellent points for ANY investment too.

      Like

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