The Sosarian Paradox

Looking at Today’s Modern Investor Outside of Traditional Investing Archetypes

It’s nice to fit in.  Fitting in is good.  It’s nice to be a face in the crowd sometimes.

In this way, real estate investors tend to define themselves according to very specific and clean – cut niches – niches that are almost, at times, surgical in their precision.  “I’m a landlord“, says the 60 year old retiree who has owned and managed rental properties for 35 years, when you get a chance to ask him what he does in between war stories at the local REIA meeting about landlord/tenant nightmares.

“I’m a ‘flipper’“, says the young business professional working his way up the corporate ladder, who dabbles in the rehab to retail vertical of the real estate industry, no doubt having been inspired by television shows like ‘Flip This House.”

“I’m a wholesaler“, says the bright eyed says the young teacher who knows that consistently selling one deal a month means he could leave his job permanently.
Everybody has an identity,  or the need for one it seems, which stems from real estate archetypes.  It is clean, precise, and clearly defined.  Go and ask at your next REIA meeting what someone’s interest in real estate is, and chances are, you will get a very similar answer to the ones quoted above  “I want to become a …[insert real estate acquisition technique here]“, they say.  And then, the story progresses in exactly the same way you have heard it all before.  “All I need to do is to buy home study course ‘x’. learn technique ‘y’, and then I can realize all of my dreams while eliminating the problems which plague me known as ‘z’.”

If only it was that simple.  If only money was the answer to all of our problems.

The problem with real estate investing is that, truth be told, the money one can earn can be very substantial.  VERY SUBSTANTIAL.  And, while he substantive size of real estate paydays tend to attract individuals who have dreams and aspirations to change their circumstances for the better, the size of potential paydays, as well as the low barrier of entry(you really don’t need a formal license to become a real estate investor, or prove your “financial qualifications” to some certification board) can attract some unscrupulous people as well.  The lure of big money tends to draw all kinds,

The issue I run into  these days is that my life is not as much about making money as it is actually trying to help other people not to lose money – either by helping them use a system of professionals who will help guard them vigilantly against failure in the world of real estate, or because people come to me to get ‘bailed out’ from some investment they made through another ‘investor’, who basically railroaded them and ran off with their wallet, leaving with them an overleveraged house in a war zone they can never hope to escape from.

With so many straight forward archetypes for us to fit into in the world of real estate investing, it becomes difficult then for me to identify myself outside of these things we become so accustomed to at our REIA meetings.  It gets to a point where you can no longer proudly fit in.

“What do you do for a living?”, I’ll get asked at the next party I am invited to.

“Well, I’m in real estate,” I’ll say.

“Like, a Realtor®?”

“Um, not exactly…”

Enter awkward pause…
Why is it so hard, you ask, for me to answer this question?  Because, simply stated, I no longer fit into one of these stereotypical real estate investing archetypes.  Don’t get me wrong, I’d like to fit in – I really would.  I’d like to be the guy who is just INCREDIBLE at rehabbing.  I would love to be the head of the firm that IS THE TURNKEY, WHITE GLOVE SERVICE ANSWER TO ALL OF YOUR QUESTIONS that sells ‘discounted’ real estate.  I’d love to have a cool name, or some type of cool resume.  But, much like my elementary school upbringing, I won’t ever fit into such things.  It just won’t happen.

To this end, lately I find many people calling me and telling me how the market has dried up.  When I ask them why the market has dried up, they tell me that they simply can’t find ‘buyers’.  ‘All the buyers are gone’, they say.  ‘With this credit environment, no one can get loans, and so our niche is getting killed.  In a year we’ll be gone.  Us [insert key term here – wholesalers, retailers, rehabbers, lease option sellers, etc.] will just be a distant memory.”

As if the ‘buyers’ are suddenly an endangered species, a precious resource drying up.

As if…there is a new real estate acquisition technique called ‘finding buyers.”  As in, “what do you do for a living”, “oh I find buyers”, “oh ok great, I saw that on an ITT Tech commercial once” etc..  Like, real estate investing is just like hunting an animal, and trying to take it down.  Go west young man, and find buyers!  Perseverance!!!

Now, I will agree, it does seem like the real estate approach of investing by finding a prospect to sell something to – well, maybe that is drying up.  But, lately it seems like there is a thriving market for actual real estate investors who are interested in helping people.  And, let me be clear here – ‘helping’ people is distinctly different from the nebulous term “creating ‘win – win’ situations”, and it is ALSO different from ‘hurting people’ which people often at times confuse with ‘helping people’.  These terms are NOT synonymous.  Ask your latest tenant buyer being thrown on the street due to the foreclosure of their landlord’s house, regardless of their on – time payments for the past 2 years,  how they feel about their ‘win win’ situation.  Not so synonymous, really.

Unfortunately, in this age of monetary worship and information sales, which seems to sell more promises than profitable results, families find themselves at the mercy of individuals who think of their pocketbook first, and the fate of the family who has come to trust them long afterwards.  And the sad truth is, every time a foreclosure happens, or every time a hard money loan defaults – there are families experiencing pain behind these events, pain that could have been, through a series of honest assessments and due diligence, avoided.

No one thinks of that these days.  Often times, today’s investors meet people and wonder if they can sell some real estate item to them.  It has become a twisted tale of ethical muddiness, steeped in grey areas that are truly ambiguous.  Real estate investing forces us to define an individual’s identity by having them relate to some arbitrary archetype, because to start to define people in the profession as ‘ethical’ or ‘highly unethical’ is JUST TOO HARD.   Too emotional.  To hard to do anything except try to create ‘win wins’.  Let’s just focus on ‘win – wins’ people – the ‘win – lose’ scenario is too hard to fathom, anyway.  That’s level II thinking, anyway.

Just too hard to think of the distressed seller first – for most investors, anyway.

My question for you is this – which category do YOU fall in?  Are you truly willing to try to help people and put their needs ahead of your own, or are you the person who views everyone as having value only if they are a potential sale?  What kind of investor are you?  Do you fit easily into niches and archetypes easily, or is it difficult for you to answer the question “what is it you do?”

And now my point.

Back in the 80’s, long before the advent of the internet, kids born in the 1970’s played a game called Ultima IV: Quest for the Avatar, In this game, you started at the very beginning by going to see a gypsy who lived in a wagon, who foretold your fortune by asking you a series of difficult questions.  Your answers determined the type of character you would become.

To that end, in honor of this harvest and Holiday time where we are charged with thinking about things much greater than ourselves, I now share a re – imagined version of this rich tradition with you, and hope you enjoy it, – but with the understanding that each decision that you make, which results in a profit, may put another family at risk.  Can you accept this responsibility?

Remember, if your real estate investing strategy is to find someone to sell something to, are you really investing?

If not – what are you really doing?

Question 1: Honesty

You find a great deal where if you can get on title to the property, you can immediately resell it for a large markup. However, the deal is so good that you cannot market it without controlling it, or it will get snatched up by another investor. The only bank in town that will give you a loan for it requires you to provide a written and signed financial statement showing a certain minimum of cash reserves, demonstrating that you have the funds to support such a purchase.  You do not have the funds, but the banker tells you that no one is going to check to see if you have the funds anyway, so just fill out the statement and the loan can be processed.  The large profit you stand to make can allow you to leave the job you hate,  Will you:

1)       Falsify your financial statement, knowing that you will only be on title a short time and no harm can be done, insuring your large profit?

2)       Tell the banker thank you and move on, knowing that you did the right thing by not lying about something which you know to be true – that you do NOT have the funds?

Question 2: Compassion

An elderly couple comes to you and wants you to help them invest for their retirement.  They have a certain amount of cash, which you could use to provide ‘hard money loans’ for some of your other clients who want to invest in properties, but need short term funding.  The rates of return on ‘hard money loans’ are sky high, but involve substantial risk.  The couple says they do not want to assume a lot of risk, but also love the excellent potential returns.  You know that the homes your clients want to purchase are in an area where it is getting difficult to obtain appraisals high enough to refinance the hard money lenders capital into long term financing, but you stand to lose a lot of money if your clients don’t buy these homes.   It is difficult to discern if refinancing these homes will be possible – but that is part of the risk associated with such great yields on the hard money side.  The elderly couple asks you to make the decision for them.  Do you:

1)       Counsel them to make the loans, knowing your other clients can buy homes and you too can get paid, while offering a substantial yield to the couple – creating a ‘win – win’?

2)       Take a conservative route, knowing that no one is truly winning here and everyone is losing – but preventing risk exposure for the couple who, should something catastrophic happen, may not recover.

Question 3: Valor

At your local REIA meeting, you see a couple you know from work speaking with a wholesaler who you know to be highly unethical and who has admittedly said that he will try to take advantage of clients whenever possible, because real estate is a ‘dog eat dog’ business.  Overhearing their conversation, you realize they are about to overpay for a house by about 30%, which will eliminate the possibility of any exit strategy other than them holding it forever.  You know the wholesaler plans to make about a 40% margin on this sale. Yet, he has also been very intimidating to other investors who you respect, threatening to ‘shut them down’ if they get involved in his work at the meeting.  What do you do?

1)       Approach the couple before they sign the contract and tell them that the wholesaler is an unethical cheat, and they need to rethink the decision before they execute the contract?

2)       Avoid he situation, knowing that business is business and it is their responsibility to do their own due diligence.  Buyer Beware, after all!

Question 4: Justice

You are asked to be the key witness at a trial where a former mentor of yours was caught selling properties to investors at substantially inflated prices, that forced the families of the investors to go bankrupt.  When asked if he had did this intentionally, your mentor states that he knew nothing about inflated values, and thought they would appraise for the prices he sold them at.  You know him to be a very astute investor, and cannot believe he would not be aware of the values of every home he sells.  It is clear that he is being deceptive.  The judge asks you to state to the jury if you believe this was an honest mistake or if he was being deceptive.  Do you:

1)       Tell the jury that he is one of the best investors you have ever met, and this was a critical part of his teaching, to know at all times the appraised value – knowing that such a statement, while true, will put him in jail for fraud?

2)       Lie and say that this was most certainly an oversight, liberating him, knowing that he will continue to deceive people and threaten the safety and integrity of other investors and their families who do not know any better?

Question 5: Sacrifice

While rehabbing a home during the winter in a very dangerous part of town, a small blonde dog who you have seen around the house walks into the home on a winter day and pulls a steel wood pad out of the box and starts shaking it like a toy.  You realize that this homeless dog has no toys, and you feel sad because the dog is really nice and has a wonderful temperament.  A few days later, you hear a whimpering in the crawlspace of the house while repairing the floor furnace.  Peering into the blackness, you realize the blonde dog has had a litter of puppies under the house.  Soon, the renovation will end and you will have to board up the crawlspace for the appraisal.  The dog has been using the crawlspace as a shelter. If you board up the crawlspace, the puppies will be too young to survive in the cold, and will almost certainly die.  Yet you know if you take the pups and mom dog home, it will be difficult to find good homes for them You can tell that there are some medical issues with the mom, and most likely the puppies. Chances are, you will have 6 new dogs for life if you remove them from the crawlspace and care for them.  What do you do?

1)       Board up the crawlspace and remove the mom and puppies, letting them stumble off into the bitter cold – after all, you are here on business and not a mission of mercy.  Only the strongest survive.

2)       Remove the pups and the mom, and take them home, explaining to your spouse that you had been looking for 6 new dogs and as luck would have it, you found them!! They do have a skin disease, but are cute after all.  Can they sleep in your bed?

Question 6: Honor

You are a new real estate investor who desperately wants to get out of debt and stay home with your family, which desperately needs you because your newborn twins are premature and require constant care.  Sadly, your health insurance does not cover this extended care.  Recently, your father passed away and left you a house, with a large loan on it.  An inexperienced real estate investor comes to you and says he wants to buy his first discounted rental property and get started.  You know your friend has the credit to obtain a loan to buy an investment home, but has no cash reserves and very limited resources in case of emergency.  For him to make such a purchase puts him on tenuous ground, and could result in failure. Do you:

1)       Sell your friend your father’s property at 105% of appraised value, where you make about 25k, allowing you to obtain health insurance?  Your investor/friend can rent the house and will break even on cash flow, at best.  The home may appreciate over time.

2)       Tell your friend to pass on a purchase right now until their financials are strengthened.  You make zero, which will jeopardize the possibility of your twins making a full recovery.

Question 7: Spirituality

You work at a property management company, where the owner of the company tends to collect rent in cash.  The owner, your boss, accepts a rent payment from a tenant who is on parole and close to being evicted due to struggling to find work and consistent late payments.  On rent day, the tenant faithfully brings their full payment in cash.  Then, when the tenant looks away, the landlord pockets some money, stating the tenant is short.  The tenant has been known to cause damage to the house they live in and not pay for it, much to the owner’s chagrin.  Do you:

1)       Call the police, because your boss is taking advantage of a tenant who has no recourse by himself to fight such an injustice?

2)       Let the act go unattended to, hoping to sway your boss back to the idea of doing ‘the right thing.’

Question 8: Humility

You and a real estate partner spent over 3 years building a very successful real estate company.  You have been loyal to your partner, although your partner’s actions and behavior have been questionable at times.  After your most successful and profitable year, your partner takes you to lunch and announces that he has received a ‘substantial’ payment from an employee of the company, and you are no longer welcome, since the employee, recently hired, is going to be his ‘new’ partner.  You will receive nothing, even though you are a 50% principal. You know for a fact that the employee owns no real estate and that greed is at work here, which will be devastating for the clients who have come to trust you and who will continue to buy from the company, even after you are gone.  Your income will instantly go to zero if this takes place.  Do you:

1)       Retain a lawyer and get an injunction while pressing for a criminal lawsuit, knowing that you have been betrayed and that you deserve your rightful share of the company’s equity?

2)       Leave quietly, realizing that if this is the behavior of a principal and employee of the company who have actively conspired to defraud you, then no amount of legal wrangling will recoup the shattered pieces of your work – realizing that your time is better spent elsewhere?

Are these answers all clear cut for you?  Did you have to think for a moment to find a comfortable spot where you could fit in?

Or are you getting to the point where your investing career just isn’t black and white anymore?

Robert Feol is an author, speaker, and passionate real estate investor. To learn more about real estate investing, visit Robert Feol online at DiscountPropertyWarehouse.net