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Is It Worth Paying a Consulting Fee???

“It is not wise for a blind man, riding a blind horse, to approach the edge of a deep pond.” (Chinese proverb)

When I returned from Don Derosas’ and Pete Youngs’ Investor Bonanza in Atlanta last week, I checked my voicemail.  My cell phone provider has a strange way of not letting me know I missed calls or have voice mails, so even though I tried to return all of the calls that I missed, somehow I still ended up with 14 messages.  In my kitchen, after setting my bags down, I began to scribe the names and numbers of callers who left messages.  I had missed several calls from radio program listeners, and began returning those immediately.

Now, callers from the show tend to fall into one of three categories, as follows:

1)     People who want to invest in real estate and need a consultation to see if it is feasible for them

2)     People who heard something about a seminar and missed the information but wrote down the phone number

3)     People who want free stuff

This particular caller was of the first persuasion, someone who was interested in looking at the prospect of making real estate investments.  She was asking some good questions, the kind of questions that told me she could in fact purchase investment real estate and be successful at it.  After about 30 minutes on the phone, she then asked if she could come in for a consultation.  I told her that I would be glad to sit down with her for an hour, but that there would be a consulting fee that would apply for an hour of my time.  When she heard this, the tone of the conversation immediately changed and she seemed very put off…we ended up getting off the phone, but I knew that I wouldn’t hear from her again.  And so, the following questions floated through my mind:

If I had waived the consulting fee would she have come in and purchased an investment property?

Maybe.

Was the consulting fee the reason I haven’t heard from her?

Probably.

So, the question you wholesalers are saying is ‘Robert, if you had waived the $149 fee you could have made 30 – 50 times that in a wholesale commission.  ARE YOU INSANE?

Maybe.

You see, I have been working with a career coach who is insisting that I need to begin charging for my time.  He insists that my time is no less valuable than a doctor’s time.  The fact that what I do from a consulting standpoint is multifaceted and solves problems makes it even more valuable in some ways, he insists.  And, maybe it is the growth of the show on AM radio or just random events, but I find myself spending 10 – 15 hours each week doing consulting for clients who may or may not buy homes.  And that is alot of time to spend unpaid, for certain.

Now, selling homes is the least desirable part of what I do. Don’t get me wrong, it’s not that I don’t like it – I do.  But I have interests beyond being a wholesaler, and so that makes selling homes the least desirable of my daily activities. Still, at this point in my career it does pay the bills though, so I recognize that I need to continue doing it until I am able to get effective systems online and in place so that we can still provide the level of service people have come to expect from DiscountPropertyWarehouse.net, without me having to personally oversee it.  So, it is important to note that while I would rather NOT be selling homes and be doing things related to education and consulting, selling homes for now needs to be a mainstay of the workweek.  Clients coming in for consultations is part of that.  So why turn away a client over $149, you ask?

The answer lies in two simple words: ‘perceived value‘.

You see, if a client(let’s call them a prospect at this point, as they are not, technically, a ‘client’) at this point is interested in buying homes and recognizes that they do not have the knowledge necessary to mitigate risk and point themselves safely in the correct direction, they will naturally seek out an ‘expert’ in the field.  This is no different than a Doctor.  Suppose you have a compound fracture of your radius(forearm bone) and it is sticking out of your arm.  You recognize the bone is in fact broken, yes?  But you ALSO know that you do not have the knowledge necessary to fix it, even though you know what is wrong.  So you see a Doctor, who then gets paid for his experience.  The doctor spends 30 minutes with you(after you wait) setting the arm and placing a cast on it.  Then you get charged like $2000.  Nobody questions his $4000/hr rate.  It is understood he spent many years in school for such knowledge.

Now I want to be bold here and make a statement that some readers won’t agree with, but I am not trying to suggest that real estate investors and doctors provide the same level or type of service.  I am saying, however, that a real estate investor who is highly skilled and experienced(read: hundreds of transactions) who also is interested in their clients’ success is very hard to find, and if they help people make money through safe investments or can assist in preventing monetary loss by assisting families in foreclosure, etc., then their time is probably worth something.  Maybe not $4000/hour, certainly.  But $149/hour might then be of some  value.

The problem with this though is that, in the real estate world, the barrier of entry is so low and the level of competition for (insert real estate term here, i.e.m buyers/deals/investors/lenders/etc.) so high, that new real estate investors are so desperate to make sales that they offer ‘free’ consultations and glitzy sales advice. ‘We’ll mentor you‘, the local wholesale ‘guru’ says.  ‘We’ll teach you everything you need to know – no need to buy all those expensive books and tapes, that’s just a bunch of horseshit anyways.

It is the prevalence of this sales mentality that makes the radio listener who wants to invest but balks at the $149 consultation fee reveal the possibility(not I did not say certainty) that she may be, in fact, an undesirable client to work with if only because her expectations are so skewed.  Remember, real estate investing involves using cash, credit, or other people’s money, and all of those involve a certain level of expectation and responsibility.  The $149 consulting fee here is ancillary, by the way – it is irrelevant.

If I charge $20 or I charge $350 it doesn’t matter, as there is no threshold here where the consulting fee has value in her eyes, since the person who questions the fee would question the value of it at $20 even more than at $149.  “Can you just waive the $20 fee?“, they would say.  And the fee being negligible at $20 would not imply value to a client anyway, so at such a low price it is a no – win anyway.  The $149 fee is almost more of a litmus test if a client is worth working with, because many people who are unwilling to pay $149 to meet with someone who can not only help them purchase highly discounted property but who can also help them determine what investment strategy might be appropriate for them given their current situation, which may including counseling them against taking on risk due to inadequate reserves and in doing saving them a great deal of heartache later, probably doesn’t need an hour of an experienced investors time.  Including mine.  So, before the reader hate mails begin to pour in, what am I saying here?  Let me tell you a story.

Last week, a client(actual client) was referred to me by a close friend.  This client had a peculiar situation that he needed some help with and he wasn’t sure what to do.  My friend told him if anyone could help, it was me(I don’t know if that was true, but that sounds impressive!).

Anyway, here is the situation: he and his wife have been renting a home for 18 months, paying $1200/month in rent, and have an impeccable rent history.  2 months ago they started to get letters from the bank saying it was going to foreclose on the homeowners due to nonpayment.  My client(the renter) wanted to buy the house, but had poor credit and couldn’t qualify for a home loan, but they had a 5k payment to put down towards a lease purchase or owner financing on the home, and they wanted to stay if possible.  The current(delinquent) owners indicated they would cooperate however was necessary and would like to preserve their credit.  The bank indicated that it would allow a short sale to take place, for about 110k less than the home was bought for 2 years ago.  This would allow the renter to have a payment almost identical to the rent they were now paying.  Obviously, the short sale was conditional on the bank being cashed out, which couldn’t happen since the renters could not qualify for a loan.

The proverbial ‘catch 22’, naturally…or was it?

I knew, based on the renter(my client) describing the situation on the phone, exactly what needed to take place and how I could do it so the client became the homeowner, the bank got cashed out, the owners got out from the foreclosure without it hitting their credit, AND I could get paid at the same time. Without me revealing the technical answer here answer, though, let me say this – the client wanted, after the phone consultation, to come in for a personal appointment.  I told the client that for me to ‘take the case’, and there were no guarantees(meaning nothing could come of this, since there are a number of ‘known unknowns‘, if you will), that for me to work on this would require a fee of $350 upfront, and that did not guarantee any success.  I also told them that I would understand if they did not want my help, because obviously the fee is hefty.  What did they want to do?

They told me ‘the $350 was a non issue.  When can we meet?’

The fundamental difference here is that my client in this situation(the renter) understands that there is a complex series of skill sets involved to make what he perceives as impossible, possible.  The radio show listener sees the $149 fee as a waste of money, coming from the angle that ‘anyone’ can buy investment real estate. so why should she pay such a ‘junk’ fee?  Her assumption indicates that I must just be trying to ‘rip people off’.

Two critically different perspectives.  Neither is right or wrong, but certainly stark in contrast.

Now let me share with you one more tale.  A few months ago, a client came into my office and told me a story which involved him buying 2 investment properties from a local Memphis wholesaler, only to run into difficulty refinancing because he had overpaid significantly for the houses.  He had invested 2k earnest money already, and had carried some debt service payments as well.  He was at this point out about $5000, and the hard money lender was about to foreclose, which was troubling as well.  Now, with this story being told to you(and remember this guy knew NOTHING about investing in real estate before he bought from this particular wholesaler), do you think that, if given the opportunity, he would have rather:

a) Repeated his mistake and done things EXACTLY the same way

b) Pay the consulting fee to someone like me and avoid that situation by paying way below market values after getting prequalified with a competent lender so refinancing was not an issue?

And, the question within the question is, would the new investor who now is about to lose their first two investment properties have seen any value in the $149 consulting fee?

When you get down to it, money and the value of it becomes such an arbitrary distinction such that it is entirely circumstantial.  Would you save $5000 by paying $149?  Of course you would.  And so would I.  But if you had a doctor say “listen, I want you to come see me every week and for $60 I’ll give you a B12 shot that will extend your life by 10 years”, you maybe wouldn’t immediately go for that, because the value is, well…implied, and you don’t see results immediately.  It is perceived value – which is why 100% of people would pay $149 to save 5k but not everyone would go for the B12 shot.

Consulting is the same way.

I see this time and time again in my travels as an investor and educator.  People WANT to change their circumstances and financial situation, but they cannot justify investing the money in which to do so.  Take for example, Investor Bonanza (www.InvestorBonanza.com) which I just hosted.  Don Derosa and Pete Youngs are EXPERTS in their disciplines, and yet they didn’t sell out of courses even though there were more students at the workshop than courses.  Granted, maybe some students already owned certain courses, but my point is that at the end of each presentation where speakers had educational materials for sale, I saw some students come up to the table, rub their chins thoughtfully, and walk away empty handed.  And they hadn’t ever done a deal, which was why they had come to this incredible educational even in the first place!!!!  What, did they not need the courses?  Of course they did.  The question was assigning VALUE to such items, enough to justify its cost.  And teh students who walked away emty handed could not justify its cost.

Our society has this paradox I want to tell you about, and it is a paradox I call the ‘college degree‘ paradox.  It is really simple.  What it says is that, ‘if you don’t go to college, you relegate yourself to some entry level position with no hope of upward mobility‘, but, ‘if you DO go to college, then you can get a job for 40k – 60k a year, or maybe more, with benefits!‘  Now it may cost you 200k in total tuition, but you can get that kind of a job if you invest in your education.  And that is the paradox – that it costs you 200k a year to be ‘entitled‘ to a 40k a year position.

To become a real estate investor with the skills necessarry to succeed, since you can’t go to college and major in topics like ‘short sales’, you have to invest in your eduction through courses and seminars.  Now, course value and risk/reward ratios are beyond the scope of this article, but I will say that it costs MUCH less to become a real estate investor capable of earning a 7 figure income than it does to invest in a college education that costs 200k in tuition and gives you a 40 hour a week job at best(ask me how I know this).  The question is, why are people so willing to invest in college but real estate home study courses at times are assigned such little value?  And more importantly, if courses, which are tangible, have such little value, what value does preventative investment consulting cost?

For the family about to be forced to move because of the owners not paying their mortgage, consulting evidently has LOTS of value.  Yet, for the new investor who is exploring the possibility of doing their first deal, it has very little value.

My question to you, reader, is this:

If you were a new investor hoping to do a deal while mitigating as much risk as possible, would YOU pay a $149 consulting fee, or would you ‘save’ money by not paying it.

And why?