Many times real estate investing is very straightforward and simple to understand. However, just as often, it can be counter-intuitive and confusing to the novice investor. Below are three examples of when being 100% honest with people has come back to bite me. I am happy to say that none of these events were fatal to my business; however, I wish I had known about them prior to making these silly mistakes.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
3 Examples of When “Keeping It Real” Comes Back to Bite Investors
1. Insulting Sellers
When I first started investing in real estate in the early 2000s, the market was extremely hot. If you purchased a home, you could clean the windows and resell it for profit. The market was appreciating like mad.
In my area, I was a small fish in a very big pond and I rarely found a seller before anyone else. Typically, I would show up to a seller’s home on the heels of two or three other real estate investors who had already seen the home, talked with the seller, and presented their offers. Needless to say, the homes were still for sale and the sellers were open to offers.
Most of my “first appointments” with a seller lasted over 30 minutes, sometimes more than an hour or two. During this time the seller and I would get to know each other, step into each other’s shoes, figure out what the other wanted, think out loud and work together to come to a win-win solution to help sell their unwanted properties.
During these conversations, I learned a lot about the real estate investors who were there before me. I quickly discovered that nearly every seller I talked to had been belittled, insulted and made to felt like a dollar-sign when interacting with these other investors. The investors I was on the heels of would often times point out every flaw in the seller’s home, be disgusted by the way some sellers live, and only present one take-it-or-leave-it purchase offer.
In short these previous investors had insulted the sellers and therefore killed their chances of ever structuring a deal to purchase the properties. These investors kept it too real by saying everything that was on their mind and degrading the seller’s home, the seller’s most prized and valuable possession.
The Lesson: In order to help you avoid the same mistakes made by these other investors, please start thinking of every seller as a real person with real needs — because they are. You will never close every deal; however, you can educate and help every seller in some way. Provide multiple purchase offers and solutions to help each seller based on their needs, their homes, and the current market environment.
2. Giving Too Much Away
It did not take me long to realize the value in always having a real estate partner or boss, whether real or perceived. While this may seem like common knowledge now, in my late teens when getting started in real estate, it felt great to flex the little power I had and tell every buyer and seller that I was the boss, that I was the man in charge.
Many negotiation books will teach investors and salesmen to always have a partner, boss, or committee of people outside of their control that make decisions. One of the reasons for this is to allow the investor or salesman the ability to defer decision-making to a real or imagined third-party figure. When you are the boss, the one making decisions, people know they can put pressure on you to give a final word of judgment one way or another.
In the beginning of my career, I lacked the business and social boundaries to keep my tenants in a landlord-tenant relationship. Often times I would brag about what I was doing, that I was the sole homeowner, and if they needed anything, to call me personally.
In short, I kept it too real. Tenants began taking advantage of me, my greenness, and my niceness. Over my first few months, I gave in on many concessions, waived late fees, added fences to properties with no compensation, lowered prices for no reason, and made other simple mistakes by not setting firm boundaries with both buyers and sellers.
The Lesson: Start convincing yourself you work for a small to medium-sized company. Many investors start their own corporations or LLCs, so this should not be too far of a stretch. Begin saying “We” instead of “I.” Start immediately deferring all decision-making to a third-party entity; you are the middleman, the face of the company, but you are not the boss. Got it?
3. Getting Involved in Personal Matters
Family dynamics are certainly very interesting. I recently purchased a mobile home from a gentleman who was renting the home to his younger brother. His younger brother had stopped paying him any rent for more than a year, and the owner as ready to be done with the home. The seller refused to evict the brother because he was family and therefore felt compelled to sell the home in order to make any money possible.
The seller knew full well that I planned to evict his brother, and he was fine with that. He just could not come to terms with personally evicting his own flesh and blood. While this did not make sense to me at the time, I did agree to purchase the seller’s home for a very win-win price and terms.
While walking through the home, the younger brother told me he was not leaving the home without a fight; he was keeping it real. I assumed the worst and figured he would also damage the home a bit before leaving after the eviction was finalized.
Just over one month later, the sheriff had my writ of possession in hand and we were headed over to the property to change locks, move all of the brother’s possessions to the front yard, and personally escort the brother off the premises. Which we did.
To this day this has been my only eviction, and I am grateful for that. The younger brother did leave the home and did punch a few holes in various walls. Not only did the brother leave the home with the help of the sheriff, I was also able to collect a small judgment for the damages by garnishing his wages from his local employer in town. The younger brother was keeping it real; however, I kept it realer.
The Lesson: Make sure the law is always on your side. Going into this deal, I triple-checked with my eviction specialist, the state and county government, and my mentor that I was in the right. I knew that as the owner I would have full control and that the younger brother would have no legs to stand on. Additionally the purchase price and terms were very much in my favor, even if the home was beaten up a bit.
Investors: Have there ever been times when 100% honesty has led you into a sticky situation?
Leave your comments below!