The conversation can get quite “lively” when you put Realtors in a room with a group of real estate investors, especially if those Realtors aren’t investors themselves. And, this is just exactly what happened to me on the 4th of July. Inevitably we end up discussing folks that get their real estate license and the “other group of people” that work in the business as real estate investors.
I went to a celebration on the 4th, and I had a long conversation with a longtime friend of mine who is a veteran real estate agent. I worked with Dave for many years when I owned and operated a home inspection company. Over the years we have talked a lot about ethics and the way people in real estate should conduct themselves. My friend is such a stickler where ethics are concerned, that he won’t even accept a gift certificate for a $7.00 car wash as a thank you. He has a strict no gifts policy.
As usual, my real estate investing business came up during the course of the conversation. I was trying to explain to one of the younger couples there exactly what I did and how that compared to what a Realtor does. They were fascinated to say the least, because they had no idea that you could make money in real estate other than being a Realtor or having rental property. I was explaining to them that there were many ways to make money in real estate.
Dollars and Cents and the Deal
Even my friends that are Realtors, don’t really “get it” when it comes to the way wholesalers are compensated.
The way that they make money is very cut and dry. If you are a Realtor, there are rules you must follow and laws in place that specify how and when you are compensated. Realtors make a percentage of the sales price as their commission which they may have to split with another agent, and possibly with the broker.
From my side of the table, what they make on a transaction can be considerably less than what a wholesaler would make on a typical deal. I happen to like my side of the table better. Real estate investors do things much differently. They put a deal together, attend a closing and pick up a check. In my area that closing is always with an attorney. In general, wholesalers use little or none of their own money to get that big check at closing. How much this check is for is determined by the spread between what they paid and what they sold the property for. If you are a good negotiator this spread can be much larger than the typical Realtor commission. What you earn is more or less up to you, not the Board of Realtors and your state laws.
Wholesalers VS Realtors; Your Business Structure
Does this mean you should go out there and conduct your business in an unethical manner? Absolutely not! Just because there aren’t any rules you must follow, that doesn’t mean you shouldn’t have good business practices and rules you choose to follow.
(This is where the conversation usually gets lively). In any market, there will be those people that just do things badly or are outright unethical investors. Unfortunately, those few people give the rest of us a bad name. My friend and I talked about another well-known investor in our town who is also a licensed real estate agent. He somehow manages to stay in business in spite of the fact he should be “run out of town” as my friend says. Neither one of us can figure out how he has managed to keep his real estate license.
The rest of our conversation was spent explaining to this young couple how real estate investors are able to help a lot of folks that end up in bad situations. Situations such as when someone inherits a house that needs tens of thousands of dollars-worth of repairs; repairs that they can’t afford on a house that is in such bad condition they can’t list it. In most cases, even if they could find a retail buyer, they couldn’t get a mortgage on it.
I have to say that I hate feeling like I have to defend what I do. But I have come to believe that at least for most people, it is just a lack of knowledge about our business that makes them question it at all.