What I Believe About You

Are you as sick as I am of ONLY hearing about the bad guys in our industry? When you see something about real estate investors, landlords, ec in the news, it’s always “Slumlord gets his rightful comeuppance” or “Wholesaler makes too much money and doesn’t have a real estate license”. And what’s even worse is the pervasive attitude in our culture now that says that if you’re making a lot of money, you MUST be doing something wrong, ripping someone off, or otherwise cheating, rather than just working hard.

I for one am done with letting  the media, our elected officials, and even non-profit housing associations express their warped perception of who we are and what we do without response. Following a confrontation with one a do-gooder who insisted that everyone in my industry, including me, was a greedy, selfish bastard trying to get rich quick at the expense of buyers, tenants, and communities, I sat down and thought about the side if the business that I see, and wrote this.

I believe that, on the whole, people who get into real estate investing are among the nicest people around. They’re smart, sharing, positive and courageous. It takes courage to swim against the tide of a culture that says that getting a good job and letting the government be your safety net; anyone who’s ever let friends and family know that they intended to try it knows what I mean.

I believe that, as in any industry, there are a small number of bad guys in ours. At the same time, I think that these same people would be behaving badly no matter what their profession; their actions are about their ethics, not the real estate business itself.

I believe that all of us have—and will continue to be, without a major investment of time an effort—been tarred with the same brush as the bad guys. Lawmakers and the media are reactive. They don’t DO anything, but they are quick to try to right wrongs they see in the world. Sadly—and it’s our fault—they don’t understand the good most housing providers do, and so they assume that the worst among us is also typical.

I believe that each and every one of us—but especially the leadership of our real estate associations at the local, state, and national level—must take responsibility for separating ourselves from and ultimately stopping these bad operators. Talking about the problem is not enough—if we’re to be perceived as an ethical, contributing group of professionals, we must have the courage to create a code of conduct for all investors and landlords, and enforce it through removing offenders from our associations and reporting them to appropriate authorities. If we do not do this, we will continue to be subject to laws that are meant to curb the bad guys, but in fact make it impossible for us to buy and provide housing.

I believe that the #1 responsibility of the real estate entrepreneur is to become skilled enough to avoid getting themselves or their customers and clients into trouble. Meeting obligations to sellers, buyers, tenants, lenders, vendors, and so on is not just a matter of being WILLING to do so, but also having the education, support, and resources to do so. It’s your job to get and maintain those.

I believe that both real estate associations and, to a greater extent, the real estate education industry, must recognize our respective roles in this problem and take aggressive steps to correct them. Our associations are, by necessity, focused on increasing membership and adding money to the treasury for operating expenses (or, in the case of for-profit groups, for income), and have learned over the years that the programming that excites members and grows membership is programming that focuses on money-making.

We MUST carve out time to discuss the pitfalls, legalities, and ethical issues that come part and parcel with real estate investing EVEN THOUGH members don’t want to hear about these topics. It’s a group leader’s job to convey to members what they NEED to know, not just what they want to hear. Similarly, real estate speakers and educators must find a way to include in their seminars, bootcamps, and homestudy courses information about problems to avoid and traps to stay out of EVEN THOUGH these things are not “sexy” and don’t sell courses.

I believe that real estate investors who operate ethically and with full disclosure to clients and customers should be allowed to make as many deals and as much profit as they can without government interference of any kind. There’s a disturbing new trend in the political world aimed at limiting the profits a real estate investor can make on a deal. In an era where “regulation” of businesses has largely been determined to be a really bad idea (think airline regulation, for instance), ours is the only profession that I know of that’s being targeted for this kind of legislation.

In several states, an investor who buys a deal via a short sale is now obligated to give the seller 80% of the profits from the deal if he sells it within 2 years. In Michigan, anyone who sells more than 6 properties in a year must use a real estate agent to do so. In North Carolina, a law has passed the house that demands that any investor who sells more than 1 property per year on a lease/option is subject to an entire raft of requirements, including obtaining a mortgage broker’s license and a $20,000 bond. In Cincinnati, it’s illegal to collect more than 1 1/2 times the monthly rent as an option fee on a lease/option—even if the tenant/buyer wants to pay more to lower the monthly rent or to serve as a down payment.

These laws are clearly NOT aimed at protecting consumers, but at limiting profits. In what other businesses is there such thing as “unfair” profits? Why is it that I can buy a used car for $1 and sell it for $10,000 every day of the week, and be admired for my entrepreneurialism, but if I buy a house for $1 and sell it for $10,000, I’ll probably be held up as an example of everything that’s wrong with the real estate business? As long as my buyer and seller are both happy with the transaction—and if they weren’t, they wouldn’t do it—why does anyone get to say that I made too much money? These laws are literally, in the truest sense of the word, un-American.

I believe that real estate investors fill a vital role in our communities that literally no one else can. We—not the government, not homeowners, not developers—are the primary renovators of older, affordable housing. We—not large commercial property owner and certainly not the government—are the most successful providers of low-income rental housing. We—not real estate agents—are the ones with the skills, knowledge, and will to put together creative deals for over-financed sellers and short sale deals for pre-foreclosure sellers. If we all disappeared tomorrow, who would take our places? The answer is: new real estate investors. No one else can.

I believe that tenants have the right to demand and receive safe, sanitary housing—and that landlords who are unable or unwilling to provide it should sell to someone who is. When any business provides a product or service to a paying customer, that customer has the right to expect that product or service to operate in a way that is actually useful. In the case of a rental property, that means that the roof doesn’t leak, the furnace keeps the house warm in the winter, the electrical outlets work safely, there’s hot and cold running water all the time, and there are no other conditions present that are under the landlord’s control that severely adversely effect the livability of the property. This means that landlords must have both the capital and the will to fix problems as they arise…or they’re SLUMlords, not landlords.

 

I believe that tenants bear part of the responsibility to maintain their properties in a safe, sanitary, and livable condition, and that the penalties for NOT doing so should be much more severe. I have never in my life rented out a property that had a roach or rodent infestation—and yet, I’ve often gotten houses back that did.

I have never rented out a property with a broken window or door lock—both obvious safety issues—but I have spent thousands of dollars replacing these items when tenants move out.

I have never put a hole in the drywall in one of my homes; I have never ruined 6-month old carpeting with cigarette burns or through lack of simple vacuuming; I have never ruined my own plumbing by disposing of cat litter in the bathtub or flushing a leotard down the toilet; I have never destroyed brand-new kitchen cabinets by pulling doors off the hinges or removing drawer fronts.

Yet my tenants do these things with fair regularity—and why not? There’s not a thing I can do to them. Under the current laws, all I can hope to accomplish is to get a judgment for damages against a tenant who will quit his job as soon as I start garnisheeing his wages, and who has no bank accounts or other assets against which I can collect. There’s no real downside to a tenant to damaging or destroying my property.

Let’s call it what it is—theft—and do the same thing to these tenants as we do to all thieves—put them in jail. Oh, and while we’re at it, let’s add non-payment of rent to the mix. If tenants knew they could go to jail for intentionally or carelessly destroying property, maybe they’d think twice before letting their kids stand on the cabinet doors to reach their Doritos.

I believe that refusing to provide housing to anyone because of his race, color, sex, national origin, handicap, sexual orientation, funny accent, or number of children is human nature. There, I said it. We are all, every one of us, back, white, red, yellow, male, female, Christian, Jew, Moslem, Rastafarian, gay, straight, or bi-curious, naturally more comfortable with people who seem “like us”. We seek relationships, personal, business, or otherwise, with people that our animal brains perceive as “friendly”—which means that we are attracted to people who look, act, and believe the way we do.

And the politics of race, religion, and sexual orientation in this country lead us further down the wrong path. What is YOUR stereotype of a black woman with 5 kids? Of a Mexican in this county on a green card? Of a gay couple? Of a Mormon? What about these groups and others make you automatically think “good tenant” or “problem buyer”?

Because whatever you think, you’re wrong. The thing about stereotypes is that they don’t apply to individuals, and it’s individuals who need a roof over their heads. Are there single mothers who are irresponsible, let their kids run wild and destroy both your property and the neighbor’s peace, and ultimately end up moving their crack-dealing boyfriends into your house? Yep. And there are married professional addicted to crystal meth and can’t pay the rent, and childless couples who beat the heck out of each other and get the police called to your property on a regular basis, and single people who fill your apartment with 25 cats and no litter boxes.

People should be judged based on their prior individual behavior, not on what they look like or how they conduct their personal lives. Doing otherwise is ignorant and, let me add, bad, bad business.

I believe that those people on those late-night infomercials that claim to have ordered a $159 course that made them millionaires are telling the truth. I also believe that, like the disclaimer says, those results are atypical. I think that anyone CAN become wealthy—or at least financially secure—with real estate investing.

I also know from personal experience that the vast majority don’t.

We real estate speakers like to say that it’s because they didn’t try, because they left the course on the shelf and never used it, because they didn’t do what we told them to do…and that’s a lot of it.

But there’s a deeper level that we’re not addressing, and that’s WHY they didn’t do it. I wish I knew how to commission a study on the difference between those who do and those who don’t do, because I suspect there’s a wide variety of reasons, starting with it’s scary, it’s hard work (at least at first), it requires sacrifice of time, money, and psychological comfort that many people just can’t seem to make.

But for those who do, the rewards—in terms of money, lifestyle, job satisfaction, and personal happiness, are endless.