Recently, have found myself telling a lot of people not to buy real estate. Weird, right?
It’s not that I don’t think people should own apartment buildings. They absolutely should, for a whole host of reasons.
But the market is pretty hot right now and it’s easy to make a bad deal.
I don’t worry about this with the sophisticated investors with whom we work. They trust us not to do anything stupid and we take that trust incredibly seriously. Plus, being sophisticated investors, they are accustomed to deals sometimes not working out. So, in the unlikely event that we were to lose money (it hasn’t happened yet, but it probably will!), it would not be the end of the world.
I do, however, worry about less sophisticated / less wealthy clients of our brokerage. These people tend to have $50-500k to play with and that money is very, very important to them.
So, we find ourselves advising many of these people not to buy things that they themselves want to buy.
Why would a brokerage talk itself out of commission income?
The answer is pretty simple: The brokerage is tiny compared to the rest of our business. We have big ambitions for it, but those ambitions will only be realized over the course of years. And the way that we will realize them is to make sure that our clients are happy with the deals we help them buy. Happy clients refer their friends / family / etc. and that is, by far, the best kind of marketing.
So, we’re perfectly happy to tell people not to buy marginal deals. We figure, over the long run, earning trust is considerably more valuable than money.