If you are going to refer to yourself as an investor, your job is to buy low and sell high. That is your job, that is how investors make money. It’s “Real Estate Investing 101.” If you’re not prepared to do that, or if you’re opposed to profits, then you need to consider another line of work. Seriously.
Because it is work. I’ll never kid you about that. Real estate investing is hard work. It takes education, training, and practice. Sometimes it’s downright grueling, but, for me, the alternative of a $40,000 a year salary working for someone else simply isn’t an option.
So, back to the question of ethics: Is it unethical to buy low from a distressed seller so that you can turn a profit?
The simple answer is No.
Let me ask you this. Would you label a professional athlete unethical for being awarded a multi-million dollar contract when he’s trained his butt off to get there?
Would you call the new CEO of a large company a fraud or a cheat because they’ve made the effort to get their MBA and put in excruciating hours to climb the corporate ladder?
No, you wouldn’t.
So why would you label the negotiating power of a real estate investor unethical when they have educated themselves, put the time in, and worked hard to be good at what they do?
The most common negotiating mistake I see beginning investors make is they think they assume they know what the seller wants, they take ownership of the seller’s problem as if it were their own, and then they feel guilty for offering a price that they need to make a profit and instead offer a price they think will make the seller happy. That’s not investing. That’s social work. There’s nothing wrong with social work, but that’s not what you do.
Don’t misunderstand; you will never hear me say, “Take advantage of that poor seller’s misfortune,” or “Kick ‘em while they’re down.” That mentality won’t get you far in ANY business; I certainly don’t condone it in real estate either.
The goal is to create a win-win situation. But stop assuming you know what a ‘win’ for the seller is.
Most buyers assume the seller wants as much money for their property as is humanly possible, but that’s frequently not the case.
Sometimes the seller only wants enough money to cover the cost of a moving truck and first and last month’s rent for their next residence.
Sometimes the seller only wants their debtor’s phone calls to stop.
Sometimes the seller only wants to get rid of the house (along with its mortgage) so that they can get on with their life in the new house that they already own.
Sometimes the seller only wants to avoid working with a Realtor and doesn’t care how much money they give up to do it.
[Yes, these are all actual “real life” situations that I’ve encountered]
Most of the time the seller just wants to feel relief – relief from the financial burden, relief from losing sleep over paying the bills, relief from the stress of owning their property.
How can you put a dollar amount on their good night’s sleep? You can’t.
More times than most people can imagine, maximum profit for the seller on the sale of their property is not their first priority.
Don’t presume you know what the seller needs – ask them. And don’t feel guilty for knowing what YOU need.
A huge part of being a successful real estate investor is negotiation. It’s knowing how to use the right timing, wording, and approach. It’s knowing how to solve problems without using money.
Those are SKILLS that demand education, effort and experience to acquire. Don’t undervalue yourself.
The best tip I can give when it comes to feeling unethical about negotiating is to realize that your win (which is a profit) is not necessarily the seller’s win (which you won’t know until you ask them, sometimes repeatedly).
More Real Estate Investing 101 – “People will trade equity for peace of mind all day long.”
Never forget, win-win does not mean equal-equal. In other words, win-win doesn’t mean both the you and the seller get an apple at the end of the deal. You getting an apple and the seller getting an orange can just as easily be a win-win.
So stop thinking what you want is what they want, and go figure out how to bring everyone across the finish line feeling like they’ve won what they needed.