Real Estate Investing Morals

Last weekend the training arm of my Real Estate investing company, The Bird Dog Investor, teamed up with the crew at Hard Money Bankers for what we called the Ultimate Access Real Estate Blueprint. We had an excellent turnout and filled every available seat. The feedback from attendees was incredible. If you missed it, I’m sure we’ll be holding other events in the upcoming months.

As part of the event we spent a lot of time answering questions and giving examples of how investing strategies apply in real life. One topic came up during conversation that I think deserves some attention.

A moral obligation is attached to the profession of Real Estate investing. Whether we admit it, or not, our actions have consequences which impact the people we work with. That impact can be exceptionally positive or catastrophically devastating.

Several years ago I purchased a property from a woman who faced foreclosure on her only asset after dealing with an investor.

I met Elizabeth for the first time shortly after her husband passed away. With his death came the loss of his income. Consequently, she was unable to afford the monthly mortgage payments.  At the time of our meeting she was already a month behind, and had come to grips with the fact that she needed to sell.

Elizabeth’s future financial stability depended on the proceeds from the sale of her house. Understandably she wanted the highest price possible. But there were some problems.

The property was in disrepair, to say the least. The home’s condition excluded the house as a candidate for traditional financing. In addition, Elizabeth had already missed a mortgage payment. If she missed many more the bank would likely turn the loan over to a foreclosure attorney. When that happened, she’d see $10,000 of her proceeds from the sale eaten up by legal fees. She even faced the prospect of losing the house altogether. Finding an investor to buy her property quickly was Elizabeth’s only real option.

As I listened to her story, I was touched by her openness in sharing the turmoil she was feeling. I wanted to help her, but I could not pay more than I could afford. So I gave her my very best offer: highest price, quick close, and help with relocation.  Elizabeth told me she had a few other investors interested and that she would let me know in a few days.

That’s the last I heard from Elizabeth for 2 months. Then one morning I got a frantic call.

After excessive apologies for not calling me back, she went into a detailed recitation of what transpired over the past 8 weeks:

The day after our initial meeting she had another investor give her a higher offer. He told her he’d need more time than I did, but said he would make sure to close before the house went into foreclosure. She agreed to the price and signed a contract.

In the eight weeks following the contract signing the investor paraded a series of “business partners” through her house at all hours of the day and night. Once he showed up at her home unannounced and simply barged in with people she’d never met and whom he didn’t even seem familiar. She’d been contacted by the investor’s title company on 2 separate occasions with promises of a closing date. Unfortunately none had come.

Elizabeth finally confronted the investor when she received a final notice from her bank. When pressed, the investor stated he’d be unable to close on her property.

I’ve heard a handful of similar stories over the years. These types of situations give our industry a bad name. And unless we take our moral obligation to the people we work with seriously, all Real Estate investors end up painted with the same broad brush.

I do not know the other investor that was working with Elizabeth. But I know what probably happened in the scenario. He probably over estimated the property value or under estimated the repair costs. When he presented his offer, the numbers were skewed. Instead of being honest with Elizabeth after realizing his error, he grasped at straws to salvage the deal. The guy didn’t come clean until finally confronted by his seller.

I don’t want to demonize this investor. I have made my share of mistakes on offers and with sellers. But the most important part of any deal is transparency with those involved.

I ended up speaking with Elizabeth’s mortgage company and negotiating some extra time to get the sale to the settlement table. We closed on the house and she had the money she needed to move on with her life. Thankfully this story had a happy ending. Not all do.

At the end of the day, our success in this crazy business is more about solving people problems than it is about fixing bricks and mortar. Remember your obligations to the people first. The rest will take care of itself.