Ethics Of Real Estate Investing

Many people have a wrong notion about real estate investors, considering them to be piranhas, sharks and vultures. Some people feel that the investors thrive by taking advantage of the people who are in distress.

Actually investors are a group of people who guide folks out of stressful conditions. These folks are people who have gotten into the stressful situation themselves, and the investor offers them solutions to their predicament.

However, like in every other industry, there are negative elements in the realm of real estate investment as well. When one investor tries to cheat another person out of a deal, it spoils the reputation of the whole industry. If you are the one selling property, you should never steal any other investor’s clients. All the investors should work as a team and inform everybody if such bad practices occur.

Dealing with clients
If you have a property and you plan to wholesale it, then you should call all the investors you know to do a drive-by. If you put a sign in your yard then the investors who were sent by others can contact you directly, and if they do so, then you must collect their information source details, and tell them to call the investor who sent them. Never cut other investors out of a deal, as each is trying to make a living, and is trying to sell your property. Stealing other investors’ clients is akin to a cardinal sin in the real estate investment business.

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Lying to Lenders
It’s a very common practice amongst mortgage brokers to make risky loans by getting appraisals to reflect a higher value of the property, than the real market value. Out-of- town lenders accept this appraised value, and make loans at 80% of the value to borrowers with marginal credit. As a result many lenders have been unknowingly making loans on property with no equity to homeowners who don’t have the credit to support such a mortgage. These kinds of dealings result in an increase of the number of foreclosures. In this kind of a deal both the lender and the borrower are losers, and the only winners are the mortgage brokers, who are paid to create these deals, and the unscrupulous sellers, who are, unfortunately, usually the investors, who sell properties at those high prices.

Buyer Beware
One of the heinous things is wholesaling of properties based on false figures. Wholesalers are supposed to leave a profit margin for the buyers, and not sell the properties at a price where the buyer cannot make any profits. Many wholesalers prey on newbie investors. Some wholesalers don’t work with experienced investors, as they know that they can charge inexperienced investors thousands of dollars more for the same property.

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Landlord’s ethics
People are sometimes concerned about the ways to tackle a neighborhood landlord. Their complaints generally are about how to make a landlord control, evict or talk to an unsavory tenant, or how to get him/her to maintain a property, which is in a bad condition.

While it may be true that a bad tenant is really not the landlord’s responsibility, as problems between neighbors are a part of life, and it is also very unfair to have different standards for landlords, about the condition of properties, than homeowners, but with the havoc that is caused by bad tenants and badly maintained properties, it is important for landlords to screen potential tenants carefully before renting them their property, and to see that the property is well-maintained.

However, these problems usually arise because owners who rent out their property generally do not have the skills, knowledge, or the proper connections to be able to solve such problems when they occur. And that most of them do not have the money to put aside to carry out the repairs that are inevitable. Hence, most of the conflicts between landlords and neighborhoods are caused by this lack of preparedness and the paucity of enough cash. But, no matter what the reason, it is true that it does end up in harming the business, and usually results in licensing, inspection, and occupancy laws being created to keep landlords under control.

Hence, as is evident, there is enough money to be made in this business if you take care of other people and deal with them ethically.