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Old 02-26-2006, 12:49 PM
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Post Investor and Landlords Must Self-Regulate–or Else!

In light of the recent media brouhaha regarding certain unscrupulous investors and their activities in the Cincinnati area, it seems like the right time to talk about what we can all do to minimize the current damage and future fallout caused by this sort of press attention.

Unfortunately, none of us can control the actions of our crooked colleagues. All we can do is to try to educate the ones who don’t know any better and distance ourselves from those who do--but act unethically anyway. REIA, of course, serves assists us in both of these functions by providing quality education to those who want it and by having a complaint-driven ethics committee which has the power to revoke the membership of any member who is found to have acted in a way not consistent with the ethics of the association.

And, again unfortunately, it’s difficult to convince the media that there’s a story in a bunch of people who are going around doing the right thing for buyers, sellers, tenants, and the community–although again, REIA has a publicity committee that works constantly with the local and national media, and which has scored some wonderful, positive press in publications from the Enquirer to Smart Money to Reader’s Digest.

So the only thing that most of us can do on a day-to-day basis to uphold the reputation of our industry is simply to do the right thing the right way each and every day. But what does that mean, exactly?

It meanssdeciding on a code of ethics for our businesses, and then sticking to it even when it costs us money.

The Definition of "Ethics". Webster's defines Ethics as

1) a system of moral principals.

2) the rules of conduct governing a particular group, culture, etc..." Most people think of ethics as relating to “fairness”, which is only a partial understanding and leads to the kind of thinking that goes, “whenever I buy a property at less than full price, the seller loses and I win, and that’s not fair.” Or “My tenant is having a real problem, and really can’t pay his rent, so it’s not fair to evict him.” I think that this is the kind of thinking that causes some members of the media, the public, elected officials, bureaucrats, and court officials take the stance that real estate investors are all “bottom feeders” who take advantage of others for a living. The basic fallacy of this argument is that it assumes that the world is a fair place in which everyone has time and options.

People in the investing business know that sellers who sell their properties cheap–and, for that matter, buyers who buy at above-market interest rates, don’t generally do so because they don't understand their options, but because they understand them all too well. I bought a property a few weeks ago from a woman who had lived in it for 20 year, but eventually moved 3 hours away and rented it. Her tenants stopped paying and trashed the house; she got behind in her mortgage payments; vandals broke in a damaged the property further; and her husband got lung cancer and is in chemo 4 times a week. When she called, she informed by what she’d paid for the home (over $20,000 10 years ago), what she still owed (about $7,000), what her realtor friend told her he could sell it for ($18,000), and what she hoped to get ($12,000). She agreed to a sale price of $7,000 if I could convince the mortgagee to take a payoff of $5,000 and get $2,000 to her.
Was this woman stupid? Nope. Unsophisticated? Well, she had the sense to talk to a Realtor about her home’s value before approaching buyers. No, her problem was simple: she wanted to sell the house quickly and easily more than she wanted full price. I provided what she needed–we closed in 1 week with private money and did everything by mail–and in return, I got the deal I needed to make a profit.

In a perfect world, this woman’s tenants would have been good people and would have fulfilled their contractual obligation to her. And she would have been solvent enough to stay on top of her mortgage payments even if they didn’t. And if life were fair, her husband would never have gotten so sick that all of her time was absorbed with his care. Did I create the events in her life that led her to this situation? No. Is it "fair" that bad things happen to people? No. Is it unethical of me to use my expertise to make money solving her problem, when her other "choice" is foreclosure? You decide.

So although I disagree with premise that doing business as a real estate investor is, at its roots, unethical, I do see a number of things that some investors do–unthinkingly, rather than maliciously, I hope–that fit my definition of unethical. Here are a few.

Reprinted from the Real Deal, a monthly newsletter for Real Life Real Estate Investors with permission of Vena Jones-Cox. Get a free 3-month trial subscription by logging onto regoddess.com
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