Recently a friend called to ask a very specific question. He wanted to know how well I knew a woman real estate agent. My response was that I had spoken with this agent several times and had just recently met her at a networking event. My friend was surprised that I was not better acquainted with this agent. In conversation with her, he was led to believe that we were great friends. I subsequently found out that she had told several new investors that we were “good friends”, and that I routinely called her for professional advice in investment matters. This agent appears to be a nice person but is not a bosom buddy, an advisor nor a confidant of mine. My friend did just what you should do when contemplating a business relationship with an individual. Check them out. Check references.
Ask people you know about the individual’s reputation. Talk to more than one reference. I seldom run into someone who gives bad references. I like to check with someone who is not on the reference list.
Some professional trade organizations have lists of members available to the public. You might check there. Attorneys subscribe to a service called Martindale Hubble which rates attorneys. They are rated by specialty and rated by their peers (other attorneys). All attorneys are not rated but established practitioners generally are.
As a real estate professional you are expected to do your own due diligence. I run into investors, usually beginners, who have purchased properties based on someone else’s numbers, only to find out that those numbers did not work for them. The seller may have flat out lied, may have a different idea of the degree of fix up, or may have a vastly different level of expertise. Get your own comparable sales data. Don’t be lazy-pull your own comps! If you plan to do any business as an investor you should know how to pull comps.
Develop relationships with realtors, appraisers, tax assessors, and other investors. In many markets you can subscribe to commercial data sources, or access the Board of Realtor’s sales data or the appraiser’s shared database. You should be familiar with repair costs and should learn to estimate what repairs are necessary. Develop relationships with people who will discuss a deal with you. Remember that people who do this for a living are generally busy, so respect their time constraints.
We are seeing the consequences of the hot market of the early to mid 2000′s we are operating in. We saw flip the flip, the flip, the flip, yes, 4 levels of wholesalers. Either the bottom guy was getting incredible deals or the last guy was paying too much. This reminds me of the land boom of the early 70′s where it didn’t matter what you paid because you could sell to the next person for more. This scenario is known as THE GREATER FOOL theory. What happened at the end of the 70′s land boom was a complete market collapse. Some of the acreage tracts did not sell again at boom prices for over 10 years. Even worse, some of those properties were highly leveraged and the speculators lost the property and had the IRS declare those transactions as sales. Because the speculators were writing off substantial interest deductions, there were significant negative tax consequences. We are again seeing the consequences of a super hot market. Properties are selling for a fraction of the top of the market prices we saw in the mid 70′s. With the glut of foreclosures and type credit there will be downward pressure for some time to come.
What’s the point in all of this rambling? Simply this, real estate is a great business, but you are expected to do your homework and check what people tell you. Remember the Latin phrase mot caveat emptor: let the buyer beware. Make it a habit to not take someone else’s opinion for gospel. Form your own opinions based on your own research. I recently met a young man who was mentored out of twenty thousand dollars by someone who was going to teach him the business. I think they gave him the business! There are good, honest mentors/consultants out there. If you are new it is good to have someone you can bounce things off of. The young man I spoke with had not done his homework. The individual who helped him sold him an overpriced property with substantial deferred maintenance and assured him that the necessary repairs could be done for several thousand dollars. It turned out to be closer to twenty thousand dollars. this sheep did not check out the individual or the deal. Don’t let this happen to you. GAREIA has comp services available to the members. (No, they will not pull your comps, that’s not their function.) You can and should learn all of the data systems available to members.
This article was written several years ago and has been published in investor newsletters in other markets. I chose to rerun this article because of a recent troubling event. A business acquaintance of mine hired a super salesman to join his organization. The individual told a compelling story about his production with his former employer. The individual appeared quite knowledgeable about the business and was very personable. After this individual came aboard, things didn’t ring true. His production was good, but nowhere near the super salesman level. The individual told amazing tales of his college athletic endeavors and even claimed to have played professional sports. In time his stories became questionable to the point that the employer did some checking. The stories did not check out. The individual claimed friendships and relationships that were either untrue or grossly exaggerated. By the time the individual left, he had created problems with several customers as well as taking proprietary information and computer software. He even tried to erase the personnel files. It was a tragedy. The individual was bright and personable. The exaggerated stories were not necessary.
The point: check references. People are not always who they appear to be.
