Is this Ethical? - Posted by Ryan

Posted by David TN on June 17, 2003 at 21:49:34:

Ryan: If this business bothers you, then why don’t you find something else to do for a living. I don’t mean this in an ugly way. This business is not for everyone.

I understand what you are trying to say, I just don’t agree with you. I have thought quite a bit about whether I was taking advantage of people. I won’t be a part of that, but I’m not going to buy and sell houses for free either.

I have no problem seeing this business as a service to people. Some of these people are in bad situations, and some are not.

I also understand that there are some so called investors that do take advantage of people. You will find scabs like this in any business you can name. Please don’t lump all investors in this group. I would suggest that the vast majority of us investors are very ethical.

If you can’t see what everyone that has joined this dialouge is trying to say, then I repeat, find a line of work that suits you better.

Lots of luck in the future, Ryan!

Is this Ethical? - Posted by Ryan

Posted by Ryan on June 16, 2003 at 19:45:37:

During my brief stint as a RE investor, I have seen and heard cases of investors making so much money in a deal. I know that there some of these deals are legitimate but I can?t help but wonder whether too much is too much?

It is true that some of the so called ?motivated sellers? do know what they?re getting into but choose to do so anyway because it?s within their best interest. However, there are cases where we have people who are in distress and emotional and truly do not know what is best for them. They don?t deserve to have investors masking as angels descending from heaven to supposedly help them but in truth screwing them by literally taking away all that they have.

Here?s one example. One family was late in payments on a 50k loan on a beautiful house (in Seattle, Washington) that has a market value of 300k. The foreclosure date was set and made public. One investor showed up to offer to help. He agreed to make up for the back payment of approximately $10k on the agreement that the family must sell the house and split the proceeds from the sales 50/50. The property was sold quickly and the net proceed was around $200k. 100k of which was the given to the investor.

In this case, had the family simply allow the foreclosure proceeding to run its course, they would have easily get back more than $150k. Did the investor take advantage of this family? I think so. If he truly wanted to help this family, a 20k compensation would have been sufficient.

This Real Estate investing world offers so much knowledge and methods that a typical person would never know. It would be truly inspiring to have investors who actually take time to find creative ways to truly help these unfortunate ?motivated sellers? instead of helping themselves. I for once would like to hear some of these inspirational examples?

And how would you know if you?re the devil in disguise? If you most of your time worrying that your ?motivated seller? might find some other methods that can get them more than what you offered or if you know what you offered can be quickly and easily topped then chances are you?re it.

So basically what you all are saying is… - Posted by ryan

Posted by ryan on June 17, 2003 at 19:30:35:

If the seller is ok with the deal then go for it? And that his decision to work with you is his best decision? If you know for sure that there’s a great, cheap, and easy chance that he could find a better option then wouldn’t it make any difference?

Am I God’s instrument? - Posted by gerald(tx)

Posted by gerald(tx) on June 17, 2003 at 12:21:02:

Here’s an interesting take on a Sub2 I just did. Now, I’m not a deeply religious person myself, but I did think the perspectives were noteworthy.

The seller commented after I got the deed, “We were so worried about losing the house and having our credit ruined. God must have answered our prayers when you came.”

After I resold the property, the new buyers remarked, “we had so much adversity in the past few years, it was like God had guided our hand to your newspaper ad, and allowed us to become homeowners again.”

Meanwhile, here I am in the middle, reaping a nice profit with no particularly religious feelings about it all.

Re: Is this Ethical? - Posted by Rob FL

Posted by Rob FL on June 17, 2003 at 09:29:54:

This is just plain silly.

These people own a house worth 300K with a tiny 50K loan on it and can’t figure out a way to come up with 10K to catch up the mortgage, so they HAVE to sell to some investor who takes 100K in profits. I don’t buy it. If these people were truly in foreclosure then they must have been bombarded with mail and phone calls from mortgage companies, attorneys, investors, etc. trying to strike a deal with them. They had plenty of options.

If you don’t like the idea of big profits, then you need to read your high school economics book again. Do you really think that the large coke at McDonalds is worth $1.89 ??? You can bet that the cup costs about 15 cents and the drink costs about 5 cents. Boy they sure are ripping us consumers off for selling that drink for more than about 50 cents. They know how cheap that soda is, that’s why they give you unlimited refills. What gives them the right to make all that profit? Especially when they sell hundreds of sodas every day.

As a matter of fact why do Michael Eisner and Bill Gates get all those huge salaries and benefits when the ones who do all the work are all the hourly employees who are slaving away for minimum wage. That’s not fair. The hourly employees work alot harder than the executives.

Put up or shut up! - Posted by Andrew

Posted by Andrew on June 17, 2003 at 08:32:17:

Hi Ryan,

If you were so concerned about this family, why didn’t you “help” them? Why didn’t you break out $10,000 and bail them out?

This reminds me of recent instances when public people (e.g. Warren Buffet, Bill Gates Sr., Bill Clinton) have been critical of tax cuts. They are rich and claim that the “rich” don’t “need” a tax cut. Fine, if they truly believe they should be paying more taxes, then why don’t they just write a check to the US Treasury for the additional taxes they think they should be paying?

Like many people (yourself included), they are willing to criticize the actions of others and ramble on about how much they want to help people. When it comes time to lead by example and put their own money on the table, they’re nowhere to be found.

So Ryan, if you truly feel the way you’ve stated in your post, go out and get a great real estate education and start “helping” all of those poor, helpless sellers.

In other words, put up or shut up!


Where? where? where? - Posted by GL - ON

Posted by GL - ON on June 17, 2003 at 08:16:13:

Where are people like that when I’m shopping for a house? I’ve never seen a deal like that.

Besides, people make poor financial decisions every day. How many cars would get leased if every motorist analysed the deal and made a rational financial decision? How much jewelry would get sold, fancy designer clothes, and a million other examples?

People don’t normally make decisions based on money. They make emotional decisions and then try to justify them financially.

If those people only owed $50,000 on a $300,000 house why didn’t they keep up the payments? Do you know what the payment would be on $50,000 at today’s interest rates? Around $250 or $300. DO you mean to tell me they were living in a $300,000 house and couldn’t afford that? Or were there other things they preferred to spend the money on?

If they really couldn’t afford the place why didn’t they sell it?

The story doesn’t make any sense. If they were really that dumb it’s lucky the guy came along and they got $100,000, otherwise they would have got nothing.

By the way if they were that dumb I wonder how much of the $100,000 they had left after a year and what they had to show for it?

Really though that’s not your point is it? That’s all window dressing.

YOu say “If he truly wanted to help this family, a 20k compensation would have been sufficient”.

That’s the nub of it to you, isn’t it? Not what he did or how he did it, or why, but the amount of profit he made?

That is what I call “exceeding the speed limit of making money”. This chaps some people’s butts to no end, and they always know how much is too much. Take whatever that person makes, ad on what they think they ought to make if everyone wasn’t against them, and that is the most anyone ought to make.

Anyone who makes more than that is the devil in disguise.

What a load of hooey.

There are grafters thieves and chiselers who deserve to be hanged, but you can’t pick them out by the amount of money they make.

No, one of the drawbacks of living in a free country is that everyone else has the same freedom you do, and if it p*sses you off that they are doing better than you, there isn’t much you can do about it.

Re: Is this Ethical? - Posted by Dfree

Posted by Dfree on June 17, 2003 at 01:48:05:

To sum up this discussion we should return to the original question Ryan posed.

Is This Ethical?

The answer to that question comes from one of our most core beliefs/worldview.
Socialism or Capitalism.

If you think our sole purpose in business is to provide services and meet the needs of our society while making sure there’s a fair share of profit losses and gains, no one wins and no one ever loses, no one should turn out better or more worse than their fellow citizen, then you could side on the unethical side. RYAN

If you think our sole purpose in business is to service and meet the needs of our society with the most advance technology,productivity and/or innovation available to you all the while expecting and preparing for maximum profits in the process, then you will side on the ethical side.JoeK

Any other arguments will fall on deaf ears, because at the base of it all you are speaking two totally different languages.

Re: Is this Ethical? - Posted by Joe Kaiser

Posted by Joe Kaiser on June 17, 2003 at 24:36:52:

You insult people when you assume they are poor helpless souls
who don’t know what’s best for them.

They’re not . . . and they do.

You said that they are the victims of someone who’s “literally
taking away all that they have.”

No . . . they got $100k.

I’d do this deal in a heartbeat. Locking up $100k for someone
who, left on his own, might lose everything, is a good and
valuable service.

Certainty is worth a lot. The “bird in the hand” thing is worth a

I’ve been to sales where huge equities are lost, where bidders
have conspired not to bid and later divide up their booty. Tell me
what happens to these people when the winning bid is $62k?

Don’t tell me it can’t happen . . . it happened to me.

Do you know why record companies get recording artists to sign
for peanuts? It’s because they lose money 9 times 10. It’s a high
risk venture. The one good deal has to pay for the other nine,
plus, just so they can come out ahead. Hopefully, that one deal is
a huge money maker cause if it ain’t . . . they’re history.

High risk transactions like foreclosures require significant profits
because the downside is huge and there’s real potential for the
investor to get blindsided and lose everything.

What happens when the investor pays the $10k, stops the sale,
puts money into the place to get it ready to market, finds a buyer
. . . and then the former owner says they didn’t understand the
deal and thought it was a loan?

What happens is bad things.

Free legal aid isn’t free to people like you and me by the way . . .
we pay through the nose.

If you’re in this business, you have to make huge profits for the
very fact that there’s a risk/reward ration that will kill you if you
don’t. That $100k profit may look unreasonable if you’re looking
at one deal, but in an overall view it may in fact be paying for the
deal last month that didn’t work out.

Finally, there’s nothing wrong with offering someone $100 for a
$5k rolex. I make those kinds of offers all the time, and when I
do, there are no obligations or strings attached. The other person
decides for themselves whether or not the offer makes sense. If so
and they are so inclined, we do business. If not . . . we go our
separate ways.

Distressed and motivated sellers are not the poor helpless souls
you make them out to be . . . and would likely be offended if they
realized you’d pigeon-holed them as such. They are people with
problems who would like the problems gone and some certainty
as to the resolution, and they will gladly pay you for providing
that service to them.

The alternative is rolling the dice, sitting with their fingers
crossed, hoping the house sells at the sale for an amount that
gives them enough to move on, getting the foreclosure stuck on
their credit report for ten years, wondering if the sheriff is going
to come by to throw them out on the street, fearing the new
buyer will show up unexpectedly and force them to leave, having
zero dollars to move or get into a new place, having to hire an
attorney and wait months to be able to collect any funds they
have coming from the sale, and on and on and on.

You seriously thing that’s a better deal then the $100k they got?

If so, you don’t know people.

Joe Kaiser

Ryan is simply trying to get a rise. - Posted by Sean

Posted by Sean on June 16, 2003 at 22:44:56:

Its obvious from his comments here, he’s already made up his mind as to what investors are, and really isn’t open to any view other than his own. Looks like he’s just trying to get a rise.

Are there investors who would take advantage of a situation? Sure, investors aren’t saints, but they are no more prone to evil or unethical behavior than anyone else. If you think Investors are mainly Simon Legree’s looking to put orphans and widows out on the street, then I suggest you go find another line of work, assuming you even are an investor. Perhaps the free legal centers would be more to your liking, where you can make sure us landlords don’t get paid for providing housing to people.

Re: Is this Ethical? - Posted by JohnBoy

Posted by JohnBoy on June 16, 2003 at 20:48:41:

What guarantee was there that they would have gotten $150k if they had let the foreclosure run it’s course???

The loan had a $50k first, plus $10k in back payments, plus attorney fees and court costs. So lets say the bank was $70k into the deal. The bank sets their minimum bid at $70k to cover their interests. What if someone showed up at the sale and the highest bid was $90k? The bank gets their $70k, leaving the seller with $20k in left over proceeds. The buyer at the sale gets a $300k house for $90k!

The only way the seller would get $150k is if someone showed up at the sale and bids $220k for the property. Not that that wouldn’t have happened, but there is no guarantee that it would have.

If no one shows up to bid the property goes back to the bank. The bank then sells the property to recoup their $70k. Do you think the bank is going to be concerned with getting $220k for the property after they foreclosed? Heck no! They only need to worry about getting their $70k back!

Did the investor hold a gun to the seller’s head forcing them to agree to the terms they agreed to? Doubtful!

If selling for enough to pay off the loan and getting $150k from the sale was so easy, then why didn’t the seller sell on his own or list with a realtor before letting it go so long before the sale date? They could have sold it themselves before the sale if that was the case. So why did they wait until it was to late to act? How is that the investors fault?

They should be greatful because they were able to get back $100k of their equity! It could have been a lot worse. There are no guarantees you will recover any equity after a foreclosure. Not to mention that a foreclosure follows you for the rest of your life! It doesn’t go away after 7 years like other debts being reported to credit bureaus. Foreclosures are forever! So what is keeping that off your record worth?

Is it ethical? Depends! Did the seller agree to the terms? If so, it’s ethical!

No one is holding a gun to a seller’s head. Sellers have every right to seek professional opinions if they are in doubt or have any concerns or want to know what options they may have. If a seller chooses to forgo that and they are freely willing to agree to whatever is being offered to them, then how is that unethical?

Investors don’t get involved with $300k properties, where they trust a seller to perform on their end without risking further litigation later, and investing $10k cash, only to make $10k - $20k profit IF all goes well!

However, if you think getting involved in something like this is justified with making a $10k - $20k profit, then by all means you do that. Once you get burned from a deal like this you won’t be so quick to judge. You will be sure the deal is more profitable before taking the risks.

As far as a $10k - $20k profit goes, I can make that without spending any of my money and taking over property that is encumbered at 90% - 100% of FMV. If I’m going to shell out my cash then it’s going to have to pay a heck of a lot more than $10k - $20k!

Also, if the seller only owed a total of $70k after back payments, attorney fees and court costs, then why didn’t they just refinance to pay off the lender? $70k would only be 23% LTV. You can finance the deal at that low of a LTV! Many sellers can refinance at 60% - 65% LTV when they are in foreclosure and have awful credit! So why didn’t the seller do that? How much of the facts to you know about involving this case? Things are not what they sometimes appear to be.

Re: Is this Ethical? - Posted by JT-IN

Posted by JT-IN on June 16, 2003 at 20:45:59:


What I find more aggravating and outrageous than your above example… are PIG-HEADED property owners… Who are in the throws of financial calamity and foreclosure, and you come along and offer them a down right whale of an opportunity to save their BACON… and they are too stupid to recognize a viable opportunity when it smacks them right in the face… Of course, there is no law against stupidity, but there are far MORE folks who lead themselves to slaughter, than led by an unethical investor.

A question for you Ryan… How many property owners have you sat across the kitchen table from, or chatted over their dying bushes in the yard, in an attempt to get them to listen to a reasonable solution…? My guess is… Not many. The example that you give above is one that is far-fetched, and while I am aware that this sort of things occurs, it doesn’t really happen all that often. The vast majority of equity is squandered by owners who are too PIG-HEADED… I have sat across from owners who have lost, shall I say “millions” in equity, on a conservative estimate. Could they have been saved this equity…? Sure, but why didn’t they…? PIG-HEADEDNRSS, to a paramount degree.

You have hit a hot button here, Ryan. I would gladly pardon the doings of the one investor who you choose to crucify above, because that owner at least walked away with proceeds in pocket… albeit, maybe more would have been had by going to sale, but can you be certain of that… Maybe… but maybe NOT.

When doling out the award for greed and disception, I’ve got to name the property owners first… Many, many times, I have seen these folks lie dead to your face, in attempt to get a RE investor to save their BACON by lying about certain liens, and judgments. This is far more rampant that the issue that you posted on above.

My advice to you Ryan is go out and sit with Owners who are in trouble, night after night, for a good period of time, and then come back and sing a tune… It will sound quite different than what is stated above.

From the guy is is fed up with PIG-HEADED owners letting their equity go down the d@mned drain…

Just the way that I view things…


Re: So basically what you all are saying is… - Posted by JimD (NC)

Posted by JimD (NC) on June 18, 2003 at 15:09:36:

I think the problem here is the emotional issue involved with it being somebody’s home. The only other possiblility is that Ryan has a deep-seated problem with capitalism. Allow me to relate that will illustrate which it is: There is a house in Richmond sitting on the banks of the James River called Agecroft Hall (lovely place try to check it out if you’re in town) that was built in the 12th or 13th century. How you ask? It was originally someplace in England on the edge of a quarry and about to be torn down.

The eventual owner purchased it, had it disassembled, numbered, transported across the ocean and reassembled in Richmond. Where did he get the money to undertake such a project? (The following is from memory and the numbers may be off slightly) He had some free cash and the Norfolk and Richmond RR was putting in a line between (cleverly enough) Norfolk and Richmond. They ran out of money 6 miles short of the terminal in Richmond. He gave them $600,000 to complete the last 6 miles of track in exchange for half of the company and became a very wealthy man.

If you feel like this was a reasonable exchange then I’d suggest that your problem with the house example is an emotional one. Otherwise, I think you have a basic problem with capitalism. -jd

Respecting the free will of others… - Posted by Andrew

Posted by Andrew on June 18, 2003 at 09:59:22:

Hi Ryan,

I think you’re confusing the roles of an “advisor” and a “service provider”.

An advisor would walk sellers through the various options and make a recommendation. The final decision should still be up to the seller, since they’re the ones that have to live with it. This sounds like a role you’d be more comfortable with. The question is, could you put food on the table being a real estate advisor?

We investors are service providers. We explain what we can do and the costs/benefits to the seller. It’s still his decision, he can always say “No” if he thinks another option is more appropriate. Believe me, sellers know that you’re in this game to make a profit… why else would you be there? No, I won’t tell him about other great, cheap, and easy chance that he could find a better option… that’s for him to research.

Would you consider this unfair or unethical? Well, if you go to store and ask how much the milk is, do you expect the clerk to tell you where you can get it cheaper? Do you expect a Ford salesman to recommend a Honda? No, of course not. They are providers of goods and/or services, not advisors.

Sellers are free to choose and do their homework, just like me and you. Don’t assume that they have the same wants and values that you do. Heck, what if they don’t brush twice daily, drink too much beer, chain smoke Camels, watch reality TV shows, and buy American cars… are you going to set them straight and tell them how they could better live their lives? What gives you the right to judge them that way and why should they live in a manner to please you?

Some people are better suited to being an advisor/counselor than a service/good provider. Maybe you could further explore the advisor opportunities.


PS - My parents smoke and play the lottery, which IMHO is just a tax on stupidity. I don’t do either and I’d really like it if they’d quit both. Apparently they get some enjoyment out of doing these things, but I don’t. I respect that they are free to make their own decisions and reap the rewards/consequences. They haven’t asked for my advice, so I say nothing. However, they do ask me about financial/investment advice and I do my best to give it to them.

Well… - Posted by Bryan-SactoCA

Posted by Bryan-SactoCA on June 17, 2003 at 20:04:24:

If he can find a better option by himself and has the will and time to do so, that’s fine. But the people that the posters here work with have neither will or time or ability to play the marketplace and find the best deal. It’s like a starving man grabbing any bite of food he can find. These people want out of their RE mess quick and easy. I suppose they know we’re out to make a profit and they just don’t care at that point.

It is nice when it works out that way though… - Posted by matt

Posted by matt on June 17, 2003 at 14:32:22:

Nice when it works out well all around though :slight_smile:

Re: Am I God’s instrument? - Posted by Heather -Tx

Posted by Heather -Tx on June 17, 2003 at 13:09:02:

Believe it or not, this is the kind of response we got from our first deal that was a preforclosure. We took her loan sub2 and gave her 2 K to help her get a new place, and she said she prayed the night before and we were her answer.
I too have no religious outlook on my REI, But I’m sure glad SHE did =)

Heather Zaal

Re: Am I God’s instrument? - Posted by JohnBoy

Posted by JohnBoy on June 17, 2003 at 12:33:11:

The Lord works in mysterious ways.

So tell us, does this mean you will be donating 10% of the profits to the church??? :slight_smile:

Re: Put up or shut up! - Posted by Len

Posted by Len on June 17, 2003 at 11:06:58:

Hey Andrew,

I think you’re right on regarding your challenge to Ryan.

I don’t think you are right on in your comments about Gates & Buffett. Neither of them were saying that the rich should pay MORE in taxes than they do now, they were just saying that the rich don’t really “need” a tax cut. Two different things. Not arguing whether taxes are good or not here, just clarifying…

This has been an interesting thread to follow…

And Ryan, you should take a look at michaela-atl’s post about the lady she’s trying to help. She scrambling to find adult support services to help the lady who’s property she’s buying AND she making a pretty good profit. Unethical? Not a chance…


Re: Put up or shut up! - Posted by RichV(FL)

Posted by RichV(FL) on June 17, 2003 at 09:33:01:


Great point and so true.