You Can’t Take A Duplex To Lunch .


That was a favorite saying my old Mentor, Warren Harding used to point out that “people skills” pay larger dividends than real estate skills. Ask yourself if people skills don't serve you well when you're getting a speeding ticket, or asking for a loan, or a job; or trying to get a permit or zoning approval, or buying, selling or renting a house? Warren said that in all phases of real estate and finance, ultimately success, depends less on specific property attributes or the financial “numbers” than on one's ability to communicate objectives to others and be able to listen carefully to be able to comprehend theirs. While there's little room for sympathy in a business transaction, empathy plays a large role in being able to craft a transaction that meets the crucial needs of the parties. This month's letter will delve into this subject a little more to see the part that empathy plays in tactical and strategic situations:


It has been my observation that those in real estate spend thousands of dollars and hundreds of hours learning the technical details of property evaluation, government rules and regulations, financing schemes, the internal revenue code, maintenance and management, building and zoning codes, etc. Conversely, they spend very little time or effort to acquire “people skills”. The result is, like so many other professionals in the fields of accounting, law, and medicine, real estate brokers and real estate entrepreneurs miss out on a lot of deals simply because they haven't attached sufficient importance to learning how to engender a feeling of trust in potential buyers, sellers, and tenants.


Upon reflection, it isn't much of a reach to conclude that the basis of all the legal shenanigans, contracts, leases, Notes, mortgages and Deeds of Trust, lengthy closing procedures, Bills of Sale, disclaimers, and disclosures is lack of trust and confidence between the parties. They haven't taken the time to get to explore each other's values and objectives prior to entering into a transaction.


Test my hypothesis: Have you ever bought, sold, traded, loaned money, or rented property with only basic conveyances and no other form of contract? If so, didn't your relationship with the other party have something to do with the relaxed formalities? How many times have you bought real estate without opening escrow? How many times have you loaned money on an unsecured Note or even a verbal promise of repayment? Think back; how many times have you concluded successful deals with friends, associates, family members, and those whom you respect based on your relationships with only sketchy paperwork? Wasn't the basis of these transactions mutual trust and respect? I don't mean to imply that formalities should not be observed, but my point is that, in ideal circumstances, paperwork and legal documentation serve more to “memorialize” a transaction than to serve as the foundation for it. In many instances, this creates more net profit for everyone.


A case in point: When Mitsubishi bought Rockefeller Center for a billion dollars, they refused to record their deed, thus depriving the state of New York of over $100,000,000 in recording and transfer fees. Absent of a law requiring the recording of documents in New York, state officials tried to cajole Mitsubishi into recording their deed by pointing out that the Rockefellers could re-sell the property to another party who, by recording the subsequent deed, would have first claim on the title. Mitsubishi shrugged this off, more or less saying, that they were dealing with the Rockefellers and knew they would never do that; nor did they!


Just for fun, try to name 5 of your friends and family with whom you would willingly enter into a real estate transaction and expect it to be concluded as expected without anything other than a verbal agreement. Alternatively, name five people as Trustees whom you would entrust the safety of your family and assets to. If you can't do this, is it possible that you need to work on your people skills?


I keep a copy of William Zeckendorf's autobiography at close hand. In 1942, at the start of WWII, based upon his reputation for integrity and ability, Zeckendorf was plucked from the crowd of real estate brokers and asked to manage $50 million in assets owned by Vincent Astor while Astor was on duty with the U.S. Navy. This was the opportunity that catapulted his firm, Webb and Knapp, into the big time. Eventually, its earnings grew to $2 billion a year. But none of it would have happened if Zeckendorf hadn't created and nurtured relationships among his peers and within the financial community.


When I opened my brokerage office, I tried to do the same. A major part of my business plan was to get to know home owners in a few neighborhoods that I felt showed the greatest promise. With just a few dollars to spend, I knocked on doors and introduced myself, then asked to sell the occupants' house. At first, I left a business card, but soon discovered that I got a lot more call-backs by leaving a color brochure which told them something about myself and listed all the various real estate services I could provide. This gradually expanded to include acting as both a Seller's and a Buyer's Broker, working as a Mortgage Broker to help current home-owners re-finance their homes and to help sellers obtain new financing for buyers, managing investors' houses, consulting on tax matters and tax-free exchanging, and doing basic estate planning.


It took a lot of study and many seminars for me to gain professional skills sufficient to offer these services. In the interim, I earned referral fees by helping potential clients find reputable specialists who could provide the services this required. I set myself apart from other brokers by making it a practice to be available to my customers on a 24 hour per day, 7 day per week basis. By being both a problem-solver and a rain-maker, I built relationships both with consumers and service providers. Over time, the people I helped in turn helped me build my own business with referrals. Although I was strictly small potatoes in my town, during my tenure as a broker, I still listed and sold 4% of all houses sold by members of my MLS, which numbered about 2000 members. The earnings and profitability of my brokerage outdistanced my competition by a wide margin.


I'm convinced that building long term relationships with, and taking a genuine interest in those with whom I've done business — particularly those who subscribe to this newsletter and who attend my seminars — has been the key to my seminars' and newsletters' almost three-decade survival. When it comes to fruitful relationships, it's truly a two-way street. As I review my career and consider that I've outlasted those comets in the industry who burned brighter for a short time before disappearing, I believe that I owe my longevity to all of you who have supported me with your loyalty. I've tried to respond to you in equal measure.


So, what's the secret to building solid business and financial relationships? I believe that it all starts with open and honest communication that leads to cooperation rather than raw head to head competition that can cost much more than it gains. Honesty is truly the best policy; particularly when dealing with other people. The entertainment industry has a cynical saying that you'll never get ahead until you learn to fake sincerity. That may work in show-biz, but it's the easiest way to terminate an honest and productive relationship. Far better to share expectations and objectives with parties with whom you are attempting to do business, and to cooperatively work out ways for each of you to achieve what you are setting out to do.    


If you think about this a little, isn't this also the key to achieving long lasting personal and family relationships? If you feel that those closest to you don't understand or share you goals, is it possible that you haven't taken the time to sit down with them and explain where you're going and how they can help? For that matter, how much time and effort have you invested to find out what they want; and then tried to search out ways in which you could help them achieve it? The bottom line: Working with people achieves much more than working against them.

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Quotation not permitted.  Material may not be reproduced in whole or part in any form whatsoever.



For a lot of people, buying a house boils down to getting the lowest possible price; and selling a house amounts to getting the highest possible price. There's a lot more to it than that! First, as a buyer, you should consider what you expect a particular property to do for you. Are you going to manufacture equity by fixing it up, or rezoning it, or developing it? Are you planning to “flip” it to another person at a wholesale price? Are you going to sell it on the retail market? Are you going to hold it for long term gain and income? Does the way that your profit is going to be taxed have any impact upon the terms you need? All of these factors should be considered when structuring your offer.


In general, when you are going to sell a house, the full price you pay includes the immediate cash plus additional cash required to obtain financing, to pay for preparing the property for sale, for marketing, and for interest, insurance, and taxes until you sell it. If you expect the seller to carry the financing, and/or if you expect to take title subject to existing financing, you'll need less cash, but may experience higher monthly expenses. If you want to save on these holding costs, you may decide that it would be better to lease the property with a short-term option, and close your transaction at the same time as you sell the property. These factors need to be taken into consideration in setting your offer.


On the other hand, when you expect to buy a property as a long-term rental, price won't be nearly as critical to your success as the monthly carrying costs in comparison to the net operating cash flow. Here's why: Usually, house payments consist of principal, interest, taxes, and insurance. Ideally, these will be paid out of the income that's left over after all operating expenses have been paid out of the rents. That opens up a Pandora's box of additional factors which include marketing, utilities, interior and exterior maintenance, management, vacancy, turn-over, collections, capital improvements such as new heat and air, roofs, etc. More than price, the way in which you finance the house will have a direct bearing upon whether or not the house will support itself out of rents, or whether you will have to dig into other money to support it. Each house that you buy that generates negative cash flow reduces the total number of houses that you can buy. That directly affects the length of time it will require for you to become financially independent. Can you see that it might make a lot of sense to pay a higher price for a house in exchange for lower payments?


Knowing what your needs are and communicating this to sellers is only half the battle. Discovering what their needs are is the other half. You need to find out how much cash they actually need to be able to make a deal; and you'll have to take the time to find out why they need it and what they're going to use it for. This information may completely change your plans for the house. For instance, if their bottom line cash needs are more than you're prepared to give, all the talk in the world won't lead to a transaction. So, you may decide to simply “flip” the house to a consumer rather than to keep it yourself. You may find out that they are more interested in a secure source of additional income than they are in cash per se. In that event, you might offer to lease/Option it on terms that you can afford to pay rather than to buy it outright. If they need cash, but don't want to move, you may get them to give you enough time to find an investor willing to buy an Option or a Remainder Interest in the title so that they can remain in the house.


You aren't going to be able to establish the degree of confidence and trust needed to elicit the information you need simply by passing offers and counter offers back and forth through a broker. You have to be able to sit down at the old kitchen table and try to work out an arrangement that meets both parties' needs. Once you've established a rapport with the sellers, the more skill you have at structuring financial arrangements, the more success that you will achieve. Precisely the same principle holds true when dealing with buyers. You have to establish what they can afford, then structure a transaction that will provide the profit or income that you need. Here again, experienced salesmen know that establishing a degree of trust and confidence is the key to a sale.


If you look closely at both happy and unhappy property managers, you'll swiftly see that a definite pattern emerges. Unhappy property mangers have high turnover rates that lead to higher maintenance and repair expenses. In turn, these create a cash flow squeeze that makes them desperate to fill vacancies, which in turn makes them lower the credit and performance standards they expect out of their tenants. Consequently, they never get a chance to carefully screen tenants prior to renting to them, and to be able to take the time to share expectations and objectives. These unhappy rental owners are swiftly driven away from the benefits that long-term rental houses can generate. As a result, their opportunities are restricted to relatively short-term and highly taxed buy/fix/sell/ profits.


Conversely, happy property managers use people skills to motivate tenants to move in and stay while they pay increasing rents for years. David Tilney, who teaches America's premier single family house management course, has never had an eviction over two decades of property management. The foundation for his success as a manager rests on two key principles:


(1)   Adjustment of his own attitude to regard his tenants as members of his management team. He treats them not as unruly children who must be told everything and constantly corrected but as responsible employees who can be motivated to make an earnest effort to help him make a success out of his long term rentals.


(2)   Rigorous screening of rental applicants to be certain that they will fit into his “management team”. They must accept the mandate that they are there not only to pay rent on time in the proper amount, but to also make an affirmative effort to improve the value of the property.


David matches his shared expectations to his tenants by keeping faith with them. He is a responsible owner who provides attractive, decent, clean, and safe residences in areas where middle class people want to live. I've met some of his tenants and seen his rentals. Based on both appearances and performance, nobody would ever suspect that tenants weren't the property owners. By reducing to a minimum turnover, maintenance, vacancy, and collection problems, his effort is rewarded with much higher net rental cash flow year after year.


The best thing about getting tenants involved in meeting your long term goals in return for your meeting their housing needs is that management effort virtually disappears. Did I mention that David spends half a year in his second home that is 2000 miles from his tenants. Does that sound like the kind of management job you'd like?


Empathy isn't some blue-sky concept; it works. By learning to share objectives and expectations with others, you can buy the right rental house on terms that provide positive cash flow, then attract the right tenants to occupy it who will buy your house for you by renting it for decades. You can have all this if you learn to screen your tenants for those with whom you can form a positive relationship that meets their needs, then nurturing it so they don't want to leave.


Will Rogers once said “I never met a man I didn't like.” In response, we all liked him. Successful brokers, buyers, sellers, and landlords have learned to extend this a little by demonstrating that that they never met a customer or client that they didn't want to understand and to help. Once you learn to communicate this essential attitude to others, a lot of nice things will happen to you. You'll find that you're a better negotiator, a better buyer and seller, a better manager, and a much more satisfied person. If you haven't tried it, now's the time to start.

Copyright © Sunjon Trust All Rights Reserved, (888) 282-1882
Quotation not permitted.  Material may not be reproduced in whole or part in any form whatsoever.


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