Consulting or Service for buying and selling?

Question

Hi all, 
As real estate investors we go out and find motivated sellers and buyers. How should we talk to them without crossing the line between being a consultant and being an investor that is providing a service?

I know being fresh into real estate investing, I am not licensed to give any advice about how to sell or buy property. If I was, I'd be an agent. How should we approach people and let them know about creative financing so that  we don't put ourselves into appearing like consultants and getting into possible litigation? -Ray

Bill Gulley · Answer

Hi Ray, very good question! It depends on what you are doing Ray. It sounds like you want to charge for advice, I'll touch on that later. If you are just talking to someone and sharing what you do and what you have done, keeping it personal, you probably don't have a problem. If you are giving financial advice, and you are qualified to do so, you won't have much trouble so long as you don't get into SEC requirements. State laws may cover real estate investment advice under mortgage broker laws, check there. So long as you don't give specific advice on a certain property and keep the conversation in general terms you won't need a license.
          
           If, on the other hand you charge for advice, you will be considered an expert as far as liabilty is concerned. This really needs to be closely and subjectively viewed.
          
           The question is, does the advisor really have the experience, knowledge and legal capacity to advise the public?
          And, even if you hold yourself out as an expert and don't charge anything, if you advise someone to act in a certain manner you may have a real liabilty if your advice caused a financial loss!
          
          I know there are attorneys on BP, they should really jump in with their 2 cents worth here! I hope they contribute to this thread.
          
          This is a real problem in my opinion as advice is the basis of the guru industry, it's all in how specific the advice is given. Gurus seem to provide general information and examples of how something is possible. It's my understanding that they use detailed disclaimers to avoid giving specific advice. The claims seem to fall into the category of marketing hype to sell a product, even though most that I have seen include deceptive (IMO) implications and faulty accounting to illustrate their position. Then there are those that have "training programs" or "mentoring". This becomes another issue.
          
          Being an "expert" in any field is not something that should be self- proclaimed. There are people on internet sites that have been "in the business" for only 3, 5 maybe 7 years who proclaim themselves as experts in a certain investment strategies.
          
          The number of deals that someone has done is not an indicator of expert knowledge. The amount of money made is not an indicator of expert knowledge. There is no formal education alone that establishes one of being an expert in real estate. And, there is no threshold of time in the business that makes anyone an expert. Being considered an expert is a combination of all of these functions together. Not only that, but no one can really claim to be an expert in any field unless they also have some expertise in related areas as well. 
          
          Real estate takes in many other aspects of social, economic, financial, legal and engineering disiplines as well. This is where gurus and wannabe gurus really fail in serving the public good. For example, if I have a client who tells me that they have everything they own in a business entity and I advise that we buy an apartment complex and place it in that entity, I have probably given very bad advice exposing all of their assets to tenant claims. There are thousands of examples where giving advice could be damaging. 
          
          Another point, you may go to an attorney who advertises in the yellow pages as providing services related to divorce, bankruptcy and real estate. If you go to that attorney and ask them to close a real estate transaction, they may say they don't do that. All attorneys are aware of professional liabilty and they will quickly admit limitations to their practice of law. They recoginize that real estate is a highly specialized area.
          
          It's all about the money with gurus and wannabe gurus. Many "investors" see writing a book or selling their program as a way to supplement their income, in fact some see advising as their main business. Many will claim that by meeting any one or two of the functons mentioned above is sufficient to proclaim their expert knowledge in order to advance their guru or consultation business. That is a pitiful assumption. If that is held to be true, then the threshold of being an expert is extremly low. There is an old joke about experts being anyone who is more than a hundred miles away from home. Claims of being an expert is evidence of their limited knowledge.
          
          No one has ever heard me declare that I am an expert in anything! Wearing that badge is really not one that can be by self appointment. That award should be made by others and by those who have a great deal of knowledge in the subject at hand, and certainly not by others with limited knowledge.
          
          The functions to be considered in ascertainig a level of expertise as mentioned above is subjective. A Phd. in Finance, Real Estate or Economics does not make one an expert in real estate investing per se. Having 50 years of experience as a Realtor is not in itself sufficient either. Being a lawyer or an engineer won't cut the mark nor will having made several million dollars in doing any aspect of the industry!
          Being in a position to provide advice or consultation must come from a blend of these functions, an averaging result of specific and general education, success in the real world, experience gained over the years in being exposed to many aspects relating to the subject as well as a command of other specialities that influence the subject matter.
          
          Perhaps my view of an expert is holding one to a standard higher than those having sufficient knowledge, but I think it is a reasonable one. A definition of expert is "a person who has special skill or knowledge in some particular field". With that definition,  a semi-truck driver who has driven ten million miles without an incident might be viewed as an expert driver, but would he be if viewed with Dale Earnhart or Graham Hill, I don't think so. So there is an element of specialization that would apply. However, in my opinion, those functions mentioned still apply to any specialized area. Someone with a few years of specialized investing activities and who has made some money at it still does not really clear the hurdles of being an expert or of being in a position to offer advice in that or other areas of real estate, in my opinion. Sharing information is not advising.
          
          So, clearly offering advice should depend on the degree of expertise one commands in the subject, how such advice is reasonably expected to be relied upon and how it is valued by others. IMO, see there, it's a disclaimer.
          
          So, for those who have a "few years" of experience and consider themselves to be an expert, due dilligence in a self assessment would be prudent. Offering advice as a consultant and being paid for it better be carefully considered. A consultant is held to a higher standard of care and duty, much higher than a guru or to those who offer advice on an internet site as a social interaction.
          
          As to the initial question, maybe you could tactfully state your position, that your personal experience in creative financing deals has had success. You can pretty well say things like, "I have studied this and I see this as...." or "I'm not an expert, but this is what I know..."!
          So long as you keep it as your opinion I would think you would be fairly safe in voicing that, so long as that is clear.
          
          Which leads me to another aspect of opinions.
          
          Many "advisors" on internet sites address questions that are inevitably contrary to other opinions. There are differences that arise that can sometimes, if not most of the time, be attributed to other agendas. There seems sometimes to be a battle for the alpha investor, or the tone of a response, as credibility may well translate into money for contibutors. There are so many aspects to consider In answering questions in a forum that there is no way to really "drill down" to provide clear, complete or allencompassing answers to many questions. No one is always right all of the time. When there appears to be some sharp shooting of an answer by anyone, perhaps the reader should consider the source, not on the popularity of a contributor, but to their degree of "expertise". Lately, I have seen some excellent comments from new members, and I have also seen some very questionable issues from some with greater influence as it is assessed here. Consider the source and the agenda at hand and perform due dilligence, keeping in mind the opinions shared. That should follow through with advice received not only on internet sites, but from all other sources, including personal consultation. If you are going to advise an investor in a specific deal, be very careful in what you advise. Your success may not work with another personality or in another region.
          BP is the best site I know of for investors to communicate ideas and develop business relationships. But I would like to see less commercialization by some attempting to sell their opinion.
          Good Luck, Bill