Is it immoral, unethical, or corrupt to buy real estate at a severely discounted price from a motivated seller?
I mean, think about it – a lot of the time us real estate investors are intentionally targeting people who are struggling in life, so we can capitalize on the situation and get a deeply discounted property…
Is this wrong?
Are we sharks, taking advantage of people’s dire circumstances?
No, I don’t think so, and I’ll explain why…
What A Jewish Rabbi Taught Me About Business
One of the best books I’ve read is called Thou Shall Prosper by Rabbi Daniel Lapin.
It really helped me come to this conclusion.
The entire premise of the book is to provide non-Jewish people an insight into the way Jewish people see the world – especially when it comes to money and business.
Now, I’m not Jewish but the fact is, whether we like it or not, the Jewish people have one of the smallest populations on the planet but they hold a disproportionate amount of the wealth, patents and noble peace prizes compared to the rest of the world, so I feel like that merits some attention.
In the book, Rabbi Daniel Lapin makes a case for the good of capitalism by providing a story about a street vendor.
Say a street vendor saw a person throwing away a broken chair, and offered to pay the person $5 to take it off their hands.
To the person throwing it away, this is a huge value because instead of simply throwing away a chair they no longer cared for, they got money for it instead.
Now, say that the same vendor had knowledge on how to fix that chair, so he went down to the repair shop to get some items to make the chair functional again.
After fixing it, he found a couple who just bought their first house, who just so happened to be in desperate need of a new chair.
They had budgeted $50 to purchase one from the local furniture store but the vendor offered him only $20.
The couple was thrilled because they got a great looking chair and saved $30 off their budget.
There are many scenarios that happen every day, where these kinds of business transactions are a win-win for everybody.
Real estate investors can provide a very similar value to the world as the story of this street vendor (but usually with much larger numbers behind each deal).
Real Estate Investors Serve Motivated Sellers
For a motivated seller, liquidating their property is a solution, or at the very least, it’s an aid to a painful problem in their life.
Real estate investors offer these motivated sellers the ability to free up thousands of dollars for themselves (and in many cases, this money would otherwise be lost), even when the offer is deeply discounted.
If a motivated seller has a property that is in desperate need of repair and they don’t have the skill set to fix it – a lot of the times, they’ll be stuck paying taxes on a property they can’t use
Not to mention, most realtors won’t even touch distressed properties because they require a lot of effort to move and ultimately sell cheap, which means the realtor won’t get much of a commission for their efforts.
So we real estate investors offer some pretty big value when we’re able to purchase these troublesome properties and take away the headache of dealing with them.
At the end of the day, we are truly providing a service to people, allowing them to quickly cash-out their property. There is great value in this service, for the right person, in the right circumstance.
Real Estate Investors Can Rip People Off… But Why Would They?
Now of course, in the narrative of the street vendor, if he had ill-intentions and somehow stole the chair, lied to the seller or used some manipulative tactic to convince them their chair could never be sold to anyone else for a higher price… then, in my opinion, that would be unethical.
When it comes to motivated sellers, I’m very intentional to disclose that I’m a real estate investor and I say explicitly,
I can’t pay full-market value for any property I buy.
I then proceed to tell them that even though this is the case,
I am an all-cash buyer and close very quickly and that for the right person, I can provide a great value… but I’m not the right fit for everyone.
With this kind of transparent approach, I can honestly tell you that I don’t have any problems finding deals in my business.
The Heart Behind it All
I really think the whole issue of ethics boils down to the intent.
If you’re legitimately trying to rip people off for one reason or another, then you need to get that sorted out – it’s never a good idea to intentionally hurt people for your own benefit.
But as long as you keep at the front of your mind, that your goal is to create win-win situations and you strive for that every day, you’re actually serving the world with a great service.
That’s why, for me, I’m a pretty strong proponent for entrepreneurship and capitalism. I believe if it’s done with the right heart, everybody wins.