Epic Real Estate Investing - EPREI 011 : Ethics! What the Gurus Aren't Telling You

Episode Date: August 9, 2011

What is ethical and what is not has been debated for centuries. Matt puts it all out there... you decide. Get your free real estate investing course at http://FreeRealEstateInvestingCourse.com Learn more about your ad choices. Visit megaphone.fm/adchoices

Epic Real Estate Investing Podcast Episode 11. You're about to meet a man that can show you how he took control of his life and financial future and how you can do the same. He's never been on TV. He's not a millionaire, and he does not know Donald Trump. He is a full-time real estate investor, newly discovered offer, and family man. He does not report to a boss. He creates his own schedule and takes his family on a few vacations every year.

He got started investing in real estate with almost no money in a really crummy credit score, and he's going to show you exactly how he did it and how he continues to do it. You will have to work. You will have to be responsible. However, laying by the beach sipping fruity drinks is a reasonable goal without further delay. Your guru. Sorry. Your guide to a better life through real estate investing. Matt Terrio.

Hello, and greetings from the epic real estate investing podcast, the podcast that will show you how to create wealth through conventional and creative real estate investing, so you'll have the option to realistically retire in the next 10 years or less and enjoy the good life while you're still young enough to do so. My name is Matt Terrio, author, full-time real estate investor and family. family man. If this is your first time listening to the show, welcome. You're going to want to do two things. One, you're going to want to go back and listen to episode one to get the gist of what the show is about and why it's here. I mean, everything that we discuss from this point forward is going to make a whole lot more sense to you.

And two, you're going to want to go download the free real estate investing course. How to do deals, no money required at free real estate investing course.com. It's a step-by-step course of which I reveal everything that I do, everything that I say, everything that I use, including the documents and the contracts, to invest in real estate using no money or credit. And that's yours for free at free real estate investing course.com. Okay, sorry, I'm going to have to break another promise to you again. Today's episode is not going to be about what I said it would be at the end of the last episode. I'll definitely keep my word and I will cover it on the next episode, episode.

You know, something has come up regarding the last episode that I believe is much more important to discuss first. You see, I was listening to another real estate investing podcast today, and the host received a rather critical comment on iTunes, and that comment was accusing him of being unethical in some of his practices and negotiating strategies. And as the host read his critic's comments on the air, I noticed that the critic could have just as easily been talking about my last episode, episode 10, as they were about this other show. I mean, maybe even more so. Now, although I didn't receive the comment on my show, nor did I receive an email or a phone call, after listening to this other show, And just knowing the nature of the internet, it's probably only a matter of time before a comment like that finds its way to me. So I just want to discuss in greater detail negotiating and specifically negotiating with regard to what is ethical and what is not. You know, when I said to put out this podcast together, I wanted to do something very different, something different than anything that I had ever heard.

I wanted to deliver the truth. and I'm not insinuating that everybody that discusses or teaches real estate investing is lying about it, not at all. I mean, there are a lot of great people in the industry that do good work, but I wanted to go out of the way to reveal the entire truth, meaning I've never heard anyone teach and or inform about some of the harsher realities of what I've experienced out there in the world of real estate investing. I wanted this to be an honest podcast and one that would be completely transparent, one that would let you the listener know what it's like to put deals together day in, and day out, the reality of a real estate investor's daily life experiences and show you how the real world of real estate investing really works. And then I wanted to create an audience, a community,

a network of people serious about their real estate investing that have realistic real world expectations. And I wanted to stay far away from the guru style delivery of how wonderful and easy real estate investing is. I mean, the typical guru message can get so sugarcoded, fluffy and warm and fuzzy that it makes me wonder if they're really out there in the game and on the field doing deals? Or did they just read some books and manage to package up the information and sell it better than anyone else? I don't know.

Real estate investing. It's hard work. It has its moments of warm and fuzzy. It has its moments of exhilaration. But for the most part, it's tough. It's frustrating. It's stressful. Now, certainly, the more experience you get under your belt, the less you're going to

experience these ugly emotions, but they really never go away. I mean, it's just part of the business. I mean, I frequently contemplate is this real estate thing really worth it? I mean, life can really suck sometimes as a real estate investor, but the thing that keeps me going, I think of the alternatives. Meaning, do I quit and go get a job at $40,000 a year working 40 to 50 hours a week and start reporting to a boss? Or do I just endure all the crap and flip another house, put $40,000 in my pocket, and take the rest of the week off? I mean, it's never really a difficult decision.

when pondering the alternatives. So I continue to do what I do. Now, after re-listening to my last episode, episode 10, I realized that I might have left some holes in there, holes of which I should probably fill up. There are likely some dots that need connecting, especially considering that if you don't know me personally, that if you only know me from this podcast

and from the content that I share here, there are probably a wide array of inaccurate opinions you could form of me and my approach to real estate investing. So real quickly, just to bring you up to speed, I want to share what the critic of the other show had to say, what their observations were. It was a concern for the critic that the buyer can go back to the seller for a deeper discount after the contract was accepted by the seller.

He thought that was unethical. And it was a concern for this critic about the timing of which the discount can be asked for. He thought that was unethical as well. It was likened to holding the seller's feet to the fire. And it was a concern that this type of strategy is akin to taking advantage of a seller's ignorance just to maximize profits. Now, this critic, they acknowledge that these practices are legal, although he feels they are not ethical.

Now, as I mentioned earlier, these concerns could very easily have been raised around my last episode. So before he finds his way here, or anyone that may happen to agree with them, and I'm sure there are many because this critic's concerns, in all fairness, they are not uncommon concerns. And quite honestly, they could be very legitimately supported with a logical debate. So I just want to fill in the holes that I left in the last episode the very best that I can. You see, I've been in the real estate game for a long time, but I haven't been in the teaching game very long. So sometimes I recognize that I assume you have more information than you have.

So I'm working on that. Okay, so to begin, let's establish something. This is the epic real estate investing podcast. The operative word that I'd like to draw your attention to is invest. If you're going to refer to yourself as an investor, it is your job to buy, low, and sell high. That's what investors do. You might sell fast through wholesaling or fix and flip, or you might sell over time by holding and renting. But either way, you know, follow the rules for sure and don't break any laws or ethics, but buy low and sell high. That's your job. That's what investors do.

And as an investor, it is your job to turn a profit. If you don't, you're not an investor. You know, I was asked the other day, is real estate a good investment right now? And I answered, it depends. Are you a good real estate investor? I mean, it's very simple. The better you are at investing, the more money you will make. That's the whole intention.

If you are a good real estate investor, yes, real estate is a good investment, of which means you know enough about real estate investing to make profits. You know Warren Buffett. He's considered by many as the world's greatest investor. And why? Because he makes big profits. Bigger profits than anybody else. In fact, he's revered, respected, and celebrated because he has done so.

So if you want to be an investor, this is probably a good show for you to listen to. You know, on episode one, I established who this podcast is likely for and who it's likely not for. Now, if you just want to go help people by helping them buy and sell houses and in result, you earn a commission, you should probably look into becoming a real estate agent. And that would be another show entirely, not this one. This is the epic real estate investing show. Second, to earn a profit, profits big enough to enable real estate investing to be a full-time gig for you, a gig of which you can provide for yourself and your family, you're going to

want to focus on, as we've discussed, working with people that need to sell. You want to work with people that need to sell as opposed to people that want to sell. I mean, certainly you can find some deals among people that want to sell, but they really are few and far between. Well, at least by my definition of what a deal is, your big deals, your big profits, the types of profits that will make you a good real estate investor will come by working with sellers that need to sell. More commonly referred to as motivated sellers. Now, that word motivated, it's a funny word in this context. I mean, it's a guru word, really. The word motivated, it really dilutes the reality of what you're going to be dealing with

by working with people that need to sell, by working with motivated sellers. I mean, the word motivated, it has a positive error about it, doesn't it? I mean, being motivated is typically a good thing. I mean, you need motivation to get out of bed every morning. You need motivation to go to work every day. You need motivation to pursue your dreams. I mean, in that sense, motivation is a good thing. It's a tool.

It's an asset. It's a state of mind that enables and empowers you to get more out of life. In the context, however, of motivated seller, it's really not so positive, although it might sound like it. I mean, it might be positive for you, the buyer, but not so much so for the seller. And what I mean by that is, what causes a seller to be motivated? What would cause a seller to be motivated to sell their real estate? In a nutshell, their real estate is a problem for them, and they don't want the problem anymore. That's why they're motivated.

They don't want the problem anymore. Get rid of this headache, please. You know, whether they just lost their job, they just got divorced, they just inherited the property and don't have the means or resources to hold on to it, or they were just downsized at work, or they're being relocated for their work, they're tired of being a landlord, their own fix-and-flip plans,

maybe they didn't pan out, and they're hemorrhaging money every month that they can't sell their property. I mean, life happens to all of us. And whatever the situation, their real estate is a problem. That's what makes them a motivated seller. A significant problem has them motivated.

They need to sell because it's a problem. Now, you are an investor, right? You are not a service provider. You are a buyer and seller of real estate, one of which makes a living by buying low and selling high. Now, you look for sellers with problems. Motivated sellers. That's what everyone teaches.

Look for motivated sellers. And it sounds all warm and fuzzy. You're just looking for motivated sellers. No, you're looking for sellers with problems. And you're looking for sellers with problems because it's predominantly the place where you can buy low. And by way of you purchasing their real estate that they need to sell, you solve their problem.

And please know this. It is their problem. It is not your problem. You have no obligation to their problem. I mean, whatever they did or whatever happened to them prior to you meeting them, it's not your responsibility. Don't assume it. And I'm not asking you to be a cold-hearted jerk by no means.

I mean, you can certainly have empathy for them. I mean, none of us want bad things to happen to people, but don't take responsibility for their misfortune. I mean, unless you want to, of course, but just because you are buying a piece of real estate from someone that's experiencing a bad time in life doesn't make it your obligation to fix their life. That's not what you do. You buy and sell houses.

That's your job. You are an investor. Now, indirectly, you can solve their problem. Indirectly, they'll benefit from what you do, but it's indirectly that you solve their problem. It's indirectly that you do that. It's not directly. Directly, you do what you do to turn a profit to feed your family

so that you don't end up being a motivated seller yourself someday. I hope this is making sense. Now, having said that, you can certainly introduce solutions into your real estate transactions that will help sellers with areas of their life, life that might not be real estate related. I mean, I do that all the time. But the reason to do that is to help you get the deal done.

You are not there to clean up their mess. You are there to alleviate them from their mess. Their real estate mess specifically. There's a subtle difference there, but there is a difference. And it is significant. It is profound. And it is distinct. Now, I can somewhat hear it rolling around in some of your minds.

Yes, I can hear your minds rolling around through the podcast. and I just want to clarify, never did I say to take advantage of people in their time of need. That's not what I'm suggesting. Not once did I say cheat someone in dire straits. I don't endorse that, and I've never done that. I do not work that way. My intention is to always achieve a win-win outcome, always.

That being said, let's define what win-win is. This is where the end result frequently gets misconstrued, especially from the outside looking in, especially from the bystanders watching a real estate deal or hearing about a real estate deal. You see, win-win is when both sides, the buyer and the seller, get what they want out of the deal.

Very simple. So how do you do that? How do you help the seller get what they want? Well, you ask the seller what they want. You know, too many people assume they know what the other side wants. if you do this, you would be surprised how many times you would be wrong. So, for example, what are some of the things that a motivated seller might want? A motivated seller might want as much money as they can get as fast as they can get it.

And that's very common. And that's what most people's idea of what a motivated seller really wants. Actually, let me clarify that. That's what most buyers assume the seller wants. But although it's a common want, it's not always the case. I would say in my experience, that's not even the case 50% of the time. Using the seller information sheet we discussed a few episodes ago, you'll discover what the motivated seller really wants.

Many don't want money at all. Many just want out from underneath their monetary liability. Out from underneath their headache. They want the pain to go away. Many just want out of the situation so they can get on with their lives. Many don't care what happens to the property as long as they don't get a foreclosure on their credit report. Some just want a moving truck in first and last month's rent for their next residence.

Or as an example this week, through a lead that came to me from a yellow letter, I talked to this guy and his loan had adjusted, and his property no longer cash flowed after that adjustment. And he'd been carrying a negative cash flow for the last few months, and he just couldn't afford to do it anymore. And he just wanted to get rid of the property. He didn't care what happened to it as long as it didn't get foreclosed on. All he wanted to do was preserve his credit. credit score, and preserving his credit score had an extremely high value to him, more than the real estate itself.

So, I took the property off his hands and have successfully preserved his credit score, and not a dime came out of my pocket to do so. I don't know what else was going on in his life that had him just signed the property over to me, but he got what he wanted. He got exactly what he asked for. Did he win? Yes, absolutely. He got rid of the property, and I structured the deal so that it won't get foreclared

closed on, and it will not impact his credit score. Now, did I win? Yes. I got a property for free, of which all I had to do was make a few phone calls and negotiate a couple of liens that were attached to the property, and then I wholesaled the property in 24 hours and put $16,000 in my pocket. Is that a win-win? Yes, he got what he wanted, and I got what I wanted. Here's the distinction. This is where a lot of people get confused. Win-win does not mean equal-equal. I mean, how do you buy low and sell high with equal-equal-equ? You can't, but you can buy low and sell high with win-win all day long. Win-win means both sides getting what they want. If the seller just wants a good night's sleep

and you want $16,000 and you both get it after the transaction is complete, that's win-win. You know, that good night's sleep for the seller could be worth more than $16,000 to them. You don't know everything that's going on in their lives that has them do what they do, nor do you know why they value what they value. I mean, sellers will trade equity for peace of mind all day long. Remember that. They will trade equity, money for peace of mind, and they'll do that all day long. And that's okay.

It's perfectly okay. So a lesson here is don't assume what the other people. party wants. Just ask them. And then do everything you can to give it to them so you can get what you want. And don't place your opinion of value on what the other party wants either. I mean, a good night's sleep might be priceless to the other party. I mean, giving up $16,000 of equity on his property, that might have been a steal for him. He might be thinking he got out of his problem easy and cheap. So go for win-win always. But don't confuse win-win with equal-equal. Now, Let's look at negotiating strategy, of which most likely comprises the majority of my

potentially controversial content of last episode. Specifically, let's look at negotiating as it refers to ethics. I mean, what is ethical negotiating? I mean, depending on your perspective, negotiating in of itself could be ethically questionable. I mean, to negotiate is to deal or bargain with another or others as in the preparation of a treaty or a contract. If within creating a contract, an impasse is reached, meaning, there isn't a quick and easy fix, there isn't a meeting of the minds,

then there must be some negotiating, of which will typically end up in each side having to concede something. They're going to have to give up something, or maybe multiple things. That's negotiating. So, how do you negotiate? Particularly if you can't find an easy meeting ground. How do you determine who gives up what? Well, each party has their own information, each party has their own experience that they can leverage in the negotiation process. You know, typically the person what the most information and experience is going to win. But just because someone wins doesn't necessarily mean someone loses.

You see, negotiation, it's about many things. One of its central elements is convincing others to accept the accuracy or reality of information that will influence the decisions. Negotiation is the process of communication, communication going back and forth in order to reach a joint agreement. I mean, there are as many negotiating strategies and styles

as there are personalities. There is no one-size-fits-all strategy of negotiating. But we all negotiate, we negotiate all day long. Even if we don't even know that we're negotiating, we negotiate all day long. You know, when I teach negotiating to my students, I often begin by indicating that I have rarely participated in a negotiation during which both sides did not lie.

Yet I've encountered very few people within these negotiations that I thought were dishonest. So how can negotiators lie without being dishonest? Well, they misrepresent matters they are not expected to discuss truthfully. For example, this is how a negotiation typically works. You know, two people get together to negotiate. One is authorized to accept any amount over $10, while the other is authorized to pay any amount up to $15.

So here they have a $5 settlement range between their respective bottom lines. You know, they initially exchange small talk, they get to know each other, they build rapport, that's normal, and then they begin to explore the details and the issues of their transaction. Now, the person who hopes to make the sale, they state that they cannot accept anything below $20. And the person hoping to make the purchase, they indicate that they cannot go one penny over $7.50.

They are happy and elated to have begun their interaction successfully, yet both have begun with bold-faced lies, haven't they? So, in that instance, is this negotiation unethical? happens every day and darn near every single industry. Is it unethical? Perhaps you partake in that type of negotiation every once in a while. Maybe frequently, or maybe even on a daily basis in what you do for a living. Is it unethical?

I don't know. That's the thing about ethics and morals and people's perspective of what's right and what's wrong. It's very subjective. There is no hard answer. How about when you go to a swap meet or a, a flea market and you stop by someone's booth and the merchant is selling their widgets for $10 each. Now you can easily afford to give the merchant the $10 that he's asking for. But you want a deal. So you say something like, I'll give you $8 for one of your widgets. Is that

unethical? Or maybe you have a little experience under your belt and you've been able to accumulate some negotiating wisdom over your lifetime and you understand the timing aspect of negotiating. and you show up late Sunday afternoon just as the merchant is packing up his widgets and he's loading them into his van he's getting ready to go home and then you stop by I'll give you $7 for one of your widgets.

Is that unethical? I mean you did so because you knew what's likely going through the merchant's mind. It's the end of the weekend. I'm on my way home. Why not make one last sale? So what if it's a discount? It's better than not making the sale at all.

You see, you stopped by at the end of the weekend because you knew you were more inclined to get your discount. You knew that timing had an impact on whether you got your discount or not, right? Why would you do that? Why would you try to take advantage of this poor merchant that's only trying to feed his family selling widgets on the weekend at the swap meet?

Why in the world would anyone do that? Is that unethical? I don't know. Or is it just business? Or how about when you go to buy a car? I mean, you walk on to the sales floor knowing that there is no way, there is not a chance in hell that you're going to pay full price. I mean, you're expecting a discount off the sticker price before you ever leave your house for the

dealership. And maybe you have some experience under your belt. Maybe you once sold cars for living. Or maybe you know somebody that did. Or you watched an episode of Consumer Reports on TV. Or you read a blog post, 10 tips to saving money when you buy a car. And now you're armed with some insider information on how car sales work. I mean, you're developing your strategy now.

You've got information. And you wait until the end of the month before you head to the dealership because you know the salespeople have monthly quotas. And you know that you're more likely to get a better deal at the end of the month on the 29th or the 30th. Or even better, you wait until the 31st. Or even better than that, you wait until the 31st and walk into the dealership just before they're closing.

I mean, that's when you're likely to get the very, very best deal for your car, right? you have some information about how to negotiate specifically with car salesmen and you know the timing is really really important to when you actually go in to do your negotiating i mean why would you do that why would you do that to the poor salesperson that's sweating day in and day out to sell these cars i mean they might be working 10 to 12 hours a day maybe working six or seven days a week i mean they're stressing out that they might not hit their quota they might even be stressing out that they might lose their job because they haven't hit their quota for the last three months in a row. Why would you do that to the poor salesperson that's doing everything they can

to feed their family? And why would you hold the poor salesman's feet to the fire like that? Is that unethical or is it just business? Is that ethical or unethical for you to use the information you have and wait for the right time to use it to get a good deal? To wait to use it to get the very best deal you possibly can for a car. Is that unethical or is that just business? You know, When it comes to ethics and morals regarding the question, what is ethical? I mean, the answer is very subjective. There's a huge gray area there. I mean, a huge one.

Here's where the subject is black and white, however. There is no doubt that one could make just as strong of an argument that negotiating is unethical as one could for negotiating is just business. If you are one that would make an argument that negotiating is unethical, I mean, you probably shouldn't pursue real estate investing. I mean, take your money and go invest in stocks and bonds and mutual funds where the price is the price. There is no negotiating there. I mean, what goes on behind the scenes?

That might be a ethical question or an ethical debate, but there's no negotiating for you. Or put your money in a savings account where the interest rate, it is what it is. There's no negotiating there either. You know, that get rich slow program, the get rich over 40 or 50 years, it's not for me. And not only is it not for me, I mean, I really believe it's a scam. And it's what most people do, unfortunately. Unfortunately, because it fails 95% of the time. That's why I think it's a scam because it doesn't work for anybody.

95% of all Americans by the time they reach the age of 65. 95%, that's pretty much all Americans. They're either dead or dead broke. And that's part of the Department of Health and Human Services. That's their statistic, not mine, by the way. So real estate investing. To me, it is a business. It might be something else to you, but it is a business to me.

and it's a business of which the better your people skills are, the better your negotiating skills are, the better the business is going to be. Now lastly, is it unfair that a person might invest, say, I don't know, $50,000 in their business education or training, and those that they encounter do not? Is it unfair for those two to do business together? Is it unfair or unethical that one has more education and experience

than many of the people that they negotiate with. Is it unfair that they use that education and experience to create good deals for themselves? I mean, is that unethical? Is it unethical that they choose the time of when to actually negotiate because they know the timing might serve them better? Is it unfair because they practice and refine their negotiating strategy and technique? And because they do,

is it now their responsibility to negotiate on their own behalf and also that of the other? And is that what ethical is in the context of real estate? negotiating on both behalf because one chose to learn how to negotiate and then decided to practice, drill, and rehearse to get good at it, and the other person did not? Is that what ethical is in the context of real estate? Just because it's real estate?

I mean, that's insane. Listen, people go to school so they'll be better at their job, so they'll have an advantage in the marketplace and be selected over someone else going for the same job, so they can create a better life for themselves and their families. Is it unfair or unethical because they went to, school to improve themselves for this reason. I mean, the other guy or girl isn't going to get the job, right?

I mean, there's only one opening available. Is it unethical because the other person lost? They didn't get the job. And athletes. Athletes train day in and day out to make it to the pros. They do so for the day when a position on the roster opens up. They are ready to take it. They are ready to seize it so that they can do what they love and earn a big paycheck and take

care of their family. I mean, there will be thousands of other athletes that will be left off the roster and forced to go do something else besides going pro. Is it unfair because the other guy trained harder? Is it unethical because there were losers? There were people that didn't make it onto the roster. Let's get straight for a second. This is how the world works.

In fact, this is how nature works. It is survival of the fittest. Whether you want to believe that or not, it is survival of the fittest. And if you want to survive, you have to stay fit. And staying fit comes in different shapes and forms and sizes. I mean, staying fit might look like increasing your physical endurance or strength. It might look like getting that MBA or PhD. It might look like reading books about your trade.

It might look like attending seminars. Or staying fit might look like listening to a podcast about real estate investing. There are countless ways to stay fit to survive. And I didn't make it this way, by the way. It's just how it is. You can accept it or not. It is what it is. But Matt, this is real estate, this is someone's residence, this is someone's life.

So, what's the difference? I mean, competing for a job, negotiating for a widget or a car, training to go pro, aren't those all people's lives as well? You know, but if that's your position, if that's your position when it comes to real estate, specifically when it comes to motivated sellers, that real estate is different somehow, then we're not really talking about ethics, are we? What we're talking about is situational ethics. We're talking about a double standard.

We're essentially talking about hypocrisy, aren't we? Yes, we are. And that's not really a real estate conversation, is it? I mean, that would be a different podcast show also. You know, in a nutshell, and in closing, I believe it's my responsibility inside of my real estate investing business to create win-win deals with people. And I do.

And I help motivated sellers get what they want so I can get what I want. And I'm here showing you how to do the exact same thing. And that's that. I mean, if you have a rebuttal, send me an email to Matt at Epic Professionals with Ethics in the subject line, and I'll address it on the air. I mean, actually, I'd love to hear your perspective,

especially if you disagree. So send me an email to Matt at Epic Professionals, that's Epic, E PIC, Professionals, that's plural.com, Matt at Epic Professionals.com with ethics in the subject line. And I'll read it on the air. And like I said, I'd love to hear your perspective, especially if you disagree. So until next time, and as a very wise person once said, I mean, I believe it was Zig Zigler, you can have everything in life that you want if you will just help enough other people get what they want.

To your success, I am Matt Terrio, living the dream. Thank you for spending this time with Matt Terrio and the Epic Real Estate Investors. Podcasts. When you have a moment, stop by iTunes to leave your comments and let us know what you think of the show. And if you haven't done so already, get started investing today by visiting free real estate investing course.com to access Matt's free course, how to do deals, no money required. Until next time, to your success. This podcast is a part of the C-suite network. For more top business podcasts, visit c-sweetradio.com.