We’ve all ran into the person who was taken advantage of in a bad real estate deal, but why does it seem to happen so often? Maybe, some real estate investors are just shady to begin with. Or, they just tell us what we want to hear, and the deal is too good to be true.
Unfortunately, real estate investing is one of those things in life that can go downhill pretty quickly. There are unscrupulous people out there who scam people out of their money. And, at the same time, there are real estate deals that can go south from other outside forces, like market conditions, changes in lending guidelines, lawsuits, zoning or township requirements, or environmental issues.
There are many other factors as well—probably more than I could mention here. But these types of situations can compound the negative real estate deals even more so because the shady investor can hide behind the same reasons.
“Why don’t they do what they say, say what they mean, one thing leads to another…” – The Fixx
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Bad Deals Happen
The dishonesty represented in the The Fixx’s lyrics is an all too common thing in real estate. People are always trying to pitch their great deal or real estate investment opportunity; they get the money, and then mysteriously you never hear from them again. Personally, I’ve been in real estate deals that were mismanaged and went bad, and I’ve also been involved in others that went bad from unpredictable outside forces. Regardless of the reason, I’ve seen some very big differences in how they were handled.
A Failure to Communicate
For example, I’ve seen the scenario where there was a total lack of communication. As Les Brown says, “Honor your commitments with integrity.” I’m not saying that you should never exit a deal.
Sometimes it is better to get out, but you want to make sure you’re exiting the right way. The level of commitment and communication in a transaction is paramount. Once, I was involved in a commercial deal that went bad due to egotistical partners suing each other, on a perfectly good project (with plenty of cash flow), and the project finally went bankrupt over people vying for control. That being said, I was still committed to representing my investors, so I took it upon myself to eat the legal and accounting bills. I spent a lot of time trying to protect our interests, while at the same time staying in constant communication with our investment group.
Although it didn’t end very well, many of those same investors are still with me today, I believe, because of the proactive communication and level of commitment.
Another commercial project I was involved in went down because of the market, and the folks running the project also failed, I believe, in their level of commitment and communication. These were very smart people, especially when it came to real estate investing, but they were very poor at communicating with investors and showing their commitment to the project.
Unfortunately, the investors, including myself, were left unaware of the negative state of the deal. Maybe if they were communicating with us about the measures they were taking against the challenges of the market, I would’ve felt better about their management. But, that was not the case. No one ever knew what was going on. Due to the lack of honest communication, I do predict that they will have issues raising capital in the future.
Now you’re probably thinking, this guy gets himself involved in a lot of bad deals, and you’re right that there are more than I care to admit. But if you’re doing enough deals, at some point a difficult real estate deal will creep in there. It’s really what you’ve learned that will make all the difference.
I believe one of the reasons that we’re so successful today is that we are totally committed to what we’re doing, in good or in bad times, and we always strive to have a consistent, honest level of communication with our investors. My partners and I believe in treating each investor’s capital as if it is our own. After all, staying true to your word also means promoting something that you would do yourself. So, I’m curious as to how others maintain integrity with their investors? Or, what actions and levels of communication/commitment have you, as an investor, dealt with that has made a real impact?
Photo Credit: PhotoJonny