Where to Draw the Line

Question

Hello,

My best friend's mother is currently going through a divorce and trying to sell her house. She just dropped a potential buyer after over a month of going back and forth with low-ball offers, inspections, negotiations and nit-picking about the property (Her home inspection was sound, the house is just a little outdated cosmetically). Her life has been turned upside-down enough by the termination of a 20somthing-year relationship, and now she is trying to get what is left of it back on track without being ruined financially.

This got me thinking, where do you draw the line? Obviously, no real estate investor would ever make money if they paid full/asking price all the time for everything as there is no room to build value (although you can generate passive income from rent I suppose). But at what point does the investor step back and say "Ok, I'm crossing the line from 'Getting a good deal' to 'Screwing someone literally our of house and home' "? I assume it's a mostly personal decision, but I am curious about how seasoned investors deal with this aspect of the industry.

Ryan Dossey · Answer

At the end of the day this is a people business. Not a property business.

Ryan Dossey · Answer

For most of us we have metrics that we try and hit. A certain APR or COC return. This is where having a good moral compass comes into play. As does understanding your market. A 75k profit on a flip may be the norm for your area. While that may be downright robbery in another. Ultimately real estate is an imperfect market and knowing how to capitalize on that is key to generating a profit.

Levi T. · Answer

Never cross the line from making some money to cutting even, you will lose one day, and not in some small way. There is a deference from helping someone with something that cost you nothing, and helping someone by taking on their loss.In this world there are always winners and losers in all transactions of life, you must understand this, that is what life is, and sometimes people get tossed a bad one because a choice or combination of choices over their life, but you should never ever take on that person's loss.My parents did the 20 some year marriage thing, and I watched my father burn his life to the ground when my mother left, if I had taken on that burden it would have cost me hundreds of thousands, if not millions, and who knows what else. The best thing I could do for them was to just step back, and let them reap what they sowed.I would never buy a property off someone I knew personally because of that, no matter how much money I would make, or how much I would lose helping them get out of their choices, it just makes for bad blood when the true winners and losers comes out in the wash.Good luck!

Megan Hirlehey · Answer

Thanks for the insight. I don't know the details of my friend's mom's story, she was just venting to me about it and it made me reflect on how I would treat a situation like that as an investor. I think having set metrics is a good place to start, that takes the emotion and subjectivity out of it. I also wouldn't buy or sell to family/close friends which I think is just g odd rule of thumb for all business endeavors in general. There are other ways to help your loved ones that don't jeopardize your relationship by involving money.

Kevin Moen · Answer

Like Ryan said you define your metrics, and when a deal hits those metrics you put it under contract and close. If she is not getting any other offers, and there is little demand for her house, then the investor is not really screwing anyone. Fair market value is what a buyer is willing to pay. Is she marketing it to owner occupants? If the work needed is only cosmetic, why not list on MLS and sell to an owner occupant? That will net her the biggest payday.

Where to Draw the Line

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