Monday, November 6, 2017

A Reassessment of Real Estate Guru Ronan McMahon: Real Math vs. "Ronan Math"


Almost 5 years ago I published a post that was critical of International Living magazine and their anointed real estate guru, Ronan McMahon, for the bad investment advice being presented. http://www.internationalappraiser.com/2013/02/ronan-mcmahons-real-estate-trend-alert.html . I also pointed out a conflict of interest, as IL must serve its advertisers, and certain problematic real estate markets were being continually touted despite declining real estate values. It seems that Ronan touts troubled real estate projects, almost as if he was being paid to do it. (In my own travels, I have observed that the foreign vacation home/retirement home market has not yet recovered from the global financial crisis 9 years ago, and the price of land has been declining for years.)


Each month, Ronan McMahon writes in IL of another “get rich quick” market, and I have to bite my tongue because I may not have been to that place recently or at all. Nevertheless, in the last 5 years I have received many e-mails about the blog post about him, plus more than 50 comments published on the post, and no one has ever disputed me, but many have thanked me. I’m still waiting for the comment, “Ronan and Real Estate Trend Alert made me rich!”


Which brings up his latest article in the November 2017 issue of International Living, “Gold in the Hills: Prime Ocean Views No One is Looking For”. The article mostly refers to Nicaragua, where I have not visited yet, but he also refers to Costa Rica as a real estate investment success story. As he specifically refers to “ocean view” land in Costa Rica, I feel the need to offer a dissenting opinion.


My first appraisal of Costa Rican ocean view land was in early 2009, before I started this blog. When I returned in 2012 I was surprised to find that asking prices on ocean view land had declined by 75%, and there were many “se vende” [for sale] signs around. Two years later the asking prices were even lower, and the only sale I could find was an ocean view parcel that sold at one third of its listing price.


Real Math vs. Ronan Math 

This brings to mind his constantly deceptive proofs of price appreciation of his previous buy recommendations.  The legitimate method of measuring price appreciation is to measure closed sales prices over a time period and establish a price index or compute percentage increases over a fixed time period. The big real estate brokerages do this in the U.S., and I saw the same process used in France. Although I do not always trust brokers, I have learned to rely on their data. Occasionally, I have seen a realtor enter a false comparable sale into the Multiple Listing Service or LoopNet, but that is not common, so it should not have much effect on price indexes.

"Ronan Math" involves taking the lowest closed sales price in a condominium complex, probably a smaller unit, at the beginning of the time period, and compare it to the highest asking price in the same complex (probably a larger unit) some time later. There is no discussion of today's closed sales. Then he tells the reader that if we had taken his advice, we could have achieved returns over 100%. This is so disingenuous that it mocks the field of Mathematics.


The truest statement McMahon made in the article was “There needs to be a finite amount of coast and beach.” My own observations of Costa Rica are that it has an almost infinite amount of ocean view land, owing to its topography and coastlines, and much of this land is for sale.


Magazine articles often use callouts (insets) to reinforce the key points of the article. McMahon uses two callouts in his latest article:


Make a killing in the medium to long term”


It’s been a long time since I’ve heard of an investor making a killing in Costa Rica. If this is happening, I would expect it be happening in a trendy neighborhood in San Jose, where the real land shortage is.


The better the views, the more you’ll sell for.”


A view is worth little, though, if it has no access nor building permits nor infrastructure nor water or the grade is too steep for development.


McMahon never discusses such things, though, suggesting that his knowledge of real estate investment is primitive at best. It's almost as if he has never taken a class in real estate. 


Each article also recommends buying in a “Path of Progress”. My own observation is that the moment an area is labeled as a “path of progress”, asking prices for land skyrocket and then gradually fall as reality sets in that progress takes longer than expected.

In 5 years, no one has e-mailed me or left a comment that my opinion of Ronan McMahon is wrong.  His real estate investment advice is consistently bad.  I have seen no testimonials to the contrary. Even his arithmetic is bad.

So why does International Living continue to employ him?  It is because IL is a sales organization and McMahon is a master bullshitter. 

Some of my friends in the real estate sales profession have a favorite film -- Glen Garry Glen Ross -- released in 1992 with such star actors as Al Pacino, Kevin Spacey, Alec Baldwin, Ed Harris and the late Jack Lemmon. All the characters are land salesmen at a Chicago real estate firm, relentlessly telemarketing land in the faraway states of Arizona and Florida using every sales trick in the book.

The management of the firm sends Alec Baldwin to motivate the salesmen into improving their sales or face termination, with lines such as:

"Only one thing counts in this life -- get them to sign on the line which is dotted."

and the oft-quoted "ABC -- Always Be Closing".

So remember that Ronan McMahon and International Living have an agenda that might be inimical to your interests -- to get you to sign on the line which is dotted.




"Wot? Are you accusing me of bad arithmetic, too?"






204 comments:

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These investors are running around like a chicken without a head, desperately trying to close real estate deals as they struggle to manage their existing portfolios.

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