Real Estate Agents And The Service Industry

This is episode number 2082. The topic we’re going to talk about is real estate agents and the real estate service industry as one of your career options in real estate with vigor. I love talking about real estate agents.

Calm down. I know you’re excited.

We’ve been talking about your career choices in real estate. Now, we’re going to talk about the service industry in general and all the career choices and the people who are involved in completing real estate deals, managing real estate after it’s been rented out, and all kinds of options for you where you can add some value. All kidding aside, people who are good at it add value to the people who are the stakeholders.

Here’s the thing about this. All the people in the service industry have chosen, probably subconsciously most of them, to not be stakeholders, shareholders, or owners/risk takers. It does not take any real money compared to being an owner to be a real estate agent, mortgage broker, lender, title agent, property manager, or janitor. It takes you showing up with a resume saying, “Please, hire me. Give me your money. I would like to stand and get in the way of you effectively doing a real estate deal unless you perceive my participation with some value,” which is almost never the case. Unless you’re a janitor. We all appreciate you. How can we do a show about real estate agents without ranting?

It’s funny. “Where are my choices, Mom and Dad? Am I going to be a janitor or a real estate agent?” “Janitor.” It is good. I’m not pooh-poohing it. It’s solid.

Here’s an anecdotal story before we take the question. I lived across the street. We were young. We had babies. All of us in this one street raised our kids for the first few years of our lives. One of the guys across the street was a mortgage broker. I love this guy. We had a great relationship. We were young dads. We were out playing with the kids when everybody got home all the time. At some point, we found out what each other does for a living.

He told me all about being a mortgage broker over beer and the reality of it. He was always trying to get us a better rate but what he was doing was finding a bank that would pay him the most to originate a loan. He was getting in the way of my effective success, whether it was a primary residence or anything. In my opinion, if you talk to a property manager and you have a bunch of apartments, they’re going to tell you why they’re the best in the industry to manage those properties.

Fraud is rampant with rental property managers because they’re collecting the rent. Imagine you have a 100-unit apartment building and it’s $2,000 a unit. They’re collecting all this revenue for you and convincing you the whole time that they are necessary because, without them, you could never collect that amount of rent. It’s a full-time job and maybe they’re right. They convince you to collect the rent. They have control of the money.

They tell you who paid and didn’t pay.

Every month, it’s hundreds of thousands of dollars. It takes a very special type of person who has to keep their hands out of that pot and correctly account for all of it. I’ll leave that at that.

Thank you.

Each day on the show, we answer a question from our Land Academy member discord forum and take a deep dive into land-related topics by popular request.

How Much Time To Spend On Due Diligence

Zeb wrote, “Hi, all. How much time do you spend on deciding if you will buy the property when the signed purchase agreement or seller’s response ‘yes’ comes back from the mail?” Do you want me to go?

Yeah.

I talked about this, as a matter of fact, in the career path. I talked about due diligence phase 1 and phase 2. Phase 1 is quickly the eight days. I’ll tell you, Zeb. I’m five minutes. If you’re brand new, I’m going to say 15 to 30 minutes on a deal. You’re going to keep getting better and better at it. You’re going to look at and go, “Access, check. Attribute, check.” It’s all the A’s that you know.

Once it passes that, say I had 10 phone calls or 10 purchase agreements, 10 people are interested and we have a number, I go through all 10. I spend 5 minutes on those 10 sp it’s less than an hour. Two of them passed my test. I’m like, “I’m going to dig into these two.” I’m going to revert to phase two due diligence, which is I’m trying to find something wrong with them.

I’m like, “Does it all checkout? These are good to go. Let’s double-check the math and zoning and make sure it can do what I think it can do. Let me double-check if everybody’s alive and I can buy this thing.” Double-check if the price is good. I made a good decision and I still want it. Look what’s going on in the area. Do I want it? Hopefully, one or both of those are going to say yes. I need to hurry up and open escrow because I don’t want them to change their. I get them to purchase.

My question when we were talking about due diligence in the career path is, “Who here enjoys due diligence?” No one raised their hand, except Jill.

For me, that’s when the deal happens. I see it and know it. I’m like, “This is good. I love it.” I approve it. We get a bot.

There’s a reason people don’t like due diligence and this is my opinion.

Why?

It’s because in the back of their head and deep in their soul, they don’t have the confidence that Jill has and the decision that they’re ultimately making, there is to buy it or not buy it. They think that they’ve missed something. This is the difference. I know that I miss something but if I’m buying it and it’s so cheap, I don’t care. If you buy a property that they believe is retail, a $100,000 piece of land for $20,000 and a bunch of stuff goes wrong, you sell it for $40,000 at a deep discount. I built an entire business and a career on that lack of due diligence, let’s call it.

People are afraid of it too because they don’t have the experience yet but fortunately for them, we do. Fortunately for you, you can ask us every Thursday. That’s one of the nice things. I wish I had that myself. I’m sure I was nervous back then but I didn’t know how not to be. I’m like, “Whatever it is, I’m going to make it work.” 1) I had you. 2) Price. It didn’t take long. After three deals in the area, I know what I’m doing. I know what’s a good one and not a good one.

You have to do 100 transactions and not get burned by having it work out how you want. You start to believe in yourself. I use 100 as an arbitrary number. For some people, it’s ten. For some people, it never happens.

That’s sad.

Due diligence is a massive reason I believe that people stay out of this business.

They get hung up there. A lot of people are afraid. The mail doesn’t even get out because they’ve got to answer the phone, make the decision, and then buy something. For some people, that is scary but not for us.

I look at due diligence as a pain in the butt and it kills more deals than it should. If you review a transaction with due diligence longer than you should, at some point, you’re going to kill the deal.

If you keep digging, you’ll find something.

Every single deal. With the primary residence, if you don’t like the way that the kitchen table is set up, you’re not going to buy it.

“It’s North-South facing, not East-West facing. I can’t buy it.” That’s what you’re going to go with?

Eliminating The Middlemen

We didn’t start this way but all I look at is the money. I could care less about everything else. I want to know that it’s so cheap, we can’t lose, and then I’ll buy it, whether it’s the greatest thing in the world or the worst asset ever. We have both in our portfolio. It’s all about the money. In this episode, we’re going to talk about real estate agents and the real estate industry in general. This world is packed, full of people in the real estate service industry who want a piece of your real estate transaction.

Right from the beginning, there are real estate agents who want 6% of your real estate deal, whether you’re on the buy or the sell side. Let’s eliminate them. Done. We’re going to send out a mailer and talk to sellers directly. No real estate agents are involved. The world is packed, full of all kinds of people in the financing industry. There are two types of people who lend money. There’s tertiary debt and secured debt. Credit card people have unsecured debt.

Eliminate the middlemen! Send mail, talk to sellers directly. No real estate agents involved. Share on X

Tertiary debt, they love to issue it. They love to charge you as much as the law will allow. Why? It’s risky. There’s nothing except the person who is backing the loan that you’re making. With real estate, you get the actual piece of real estate as collateral or backing, plus the person who’s loaning the money is on the hook most of the time unless it’s a non-recourse loan.

People love to lend money on real estate and lend as much as possible. People who are mortgage originators or brokers love to do it too because they get paid upfront with huge amounts of money. To originate a real estate loan, they get paid by the actual lender. They want a piece of your real estate deal. I’m going to eliminate them. I send the mail out. The seller calls me and says, “Yes, I want to sell my land to you.” “I want to buy it. We are going to pay cash.”

I like this game.

No more lenders and real estate agents.

Who’s closing the deal?

“If you want to do it real fast, I can get you a cashier’s check. There’s a notary that’s going to show up. No more title agents or escrow agents.” Scratch.

Want to do a deal fast? Cash eliminates lenders, real estate agents, and title agents. Done! Share on X

You can take that out.

I wrote this on a bar napkin many years ago. I was so tired of flipping nursing homes. As an acquisition person, there are so many people involved. The federal government and state government had to sign off on it. I finally philosophically looked at the bottom of a scotch glass and tried to figure out how to get everybody uninvolved. This is the model I came up with.

You did great. Keep going. We own it so we got to sell it.

That’s what Facebook marketplace is for or any other place on the internet like a fixed price MLS company. On the sell side, because all kinds of real estate agents want to get involved in that, so they want 6% of your real estate deal. Nope, we’re going to sell it ourselves. You’re left with a buyer and a seller. On the sell side, you’re the seller with the new buyer. That’s it.

It’s lovely. It makes me happy. That’s my warm and fuzzy thing.

If you look at Indeed or anywhere else where there are people who are hiring new employees, the real estate industry is packed. It’s full of opportunities to manage real estate. They all have one thing in common. It doesn’t cost anything to get in. It’s a job.

Can you think of one thing that you eliminated that is necessary?

No. You need title insurance but that’s only if you have a lender. All of us got juked there. Title insurance, like most insurances, is a sham. Title insurance in particular as an insurance product is a joke.

Title insurance, like most insurance, is a sham. Title insurance, in particular, as a person's product, is a joke. Share on X

Collecting on a title insurance policy, because they made a mistake, is harder, I’m going to argue. Let’s say you got in a car accident and you get from your automobile insurance. They will pay. The other guys, good luck.

I’m not knocking it completely because it’s a huge employer.

I don’t mean to pooh-pooh people and all this but all this stuff I could do myself. I could do all the checking that they do and write my own little thing. I’ll put a sticky note on the deed and say, “Jack, I’ll guarantee everything I find I stand behind like a title insurance policy.”

All kidding aside, it’s a great way for somebody who wants to get into the real estate industry as an investor like us to learn. Someone’s going to pay you. Theoretically as a real estate agent, a property manager, or an escrow agent, or whatever else is involved, learn. That’s great. In the back of your head, you’re sitting there saying, “I’m learning. I’m going to give it myself. I did this. As a commercial real estate broker, I have to learn so that I can be on the other end of the phone. I want to own stuff but I’m completely broke because I’m 22 years old.”

A great way to learn real estate investing is to work in the service industry first. Get paid to learn! Share on X

Maybe a title agent would be another thing too. “I’m going to watch all these deals get done, learn everything about it, and watch how much money these people are making. I see it so I’m going to go do it myself. I see how they got the funding. This guy put up the dough for this guy. I didn’t know that was possible. I can go do it myself.” That would be great.

How Technology Is Changing The Industry

This is all going to change the technology piece. I’ll end on this. The technology piece is banging on the real estate service industry’s door with blockchain. Several years ago, Microsoft set out to change the way people buy and sell houses. With how much money real estate agents and everybody makes, it’s a joke that almost 10% of the real estate deals that you do, and let’s say it’s a primary residence, goes to other people.

Technology is changing the real estate service industry. We don't need to give away 10% of a deal anymore! Share on X

We don’t need that. Maybe a lot of years ago we did when we had no access to the properties that were for sale. You had to drive around and look for signs. You could make an argument for that but that’s not the case anymore. Join us again where we discuss how to make money in construction, specifically modern construction in the construction industry. You are not alone in your real estate ambition. We are Jack and Jill, information and inspiration to buy undervalued property.