Posted by Vicki on January 17, 2000 at 09:12:08:
Thank you Jim!!!
Debate Topic: How Much is “Too Much” Profit? - Posted by J.P. Vaughan
Posted by J.P. Vaughan on January 16, 2000 at 15:47:21:
While I was talking with our good friend Lonnie Scruggs last
week, he suggested that we start a “Debate of the Week.” I
like the idea.
Here’s the issue:
Is it wrong, unethical or immoral to make a big profit on a deal?
How much is “too much” profit? Why?
Dirk’s “The Ugly Duckling Mobile Home” post (see below) is the
catalyst for this topic. In case you haven’t read it, here are the
facts:
Dirk sold a 1967 2/1 singlewide mobile home for $14,000 at
$375/mo 9% interest. The NADA (“bluebook”) stated value is
around $2,000. It has a washer and dryer, but it was is sore
need of repairs and rehab. An “ugly ducking.”
Two women who live together and have two children called him.
They have bad credit-failed businesses, recent bankruptcy, etc.
They loved the place and told Dirk they could afford $380 per
month plus the park rent. They plan to fix up the place, the park
is nice, and it’s close to the hospital where these women work.
It’s also in a great school system for the kids. Two bedroom
apartments in the area go for around $800/mo.
This post inspired some remarkable comments (see below) like,
“I haven’t seen such a rip since NY was sold for $24.” And “I too
would like to know how you could take advantage of someone.
Selling a MH for such an inflated price is wrong…you are using
your knowledge to rip people off.” And “…I don’t have the
intestinal fortitude to get someone to pay $375 a month for a
run down mh.”
Now, the point here is that different people have different ideas
about what is “right” and what is “wrong” in this business.
I DO NOT want to rehash Dirk’s deal. But I do think it could be
interesting to debate “How Much is Too Much Profit.” If you have
any ideas, let’s hear them!
JP
Just how much DID he make? - Posted by ray@lcorn
Posted by ray@lcorn on January 17, 2000 at 22:12:07:
JP,
This has been interesting, and made even more so by your participation. Good to see you on the board again.
Before I jump in with THE definitive statement about profits and morals, sprinkled of course with warm bromides and general wisdom ((big grin!)), I’m curious about the answer to a question:
How much did Dirk make?
For all of this talk of whether or not he ripped two SoCal “ladies” a new one on the sale of an old wobbly box, I have yet to hear that he MADE the difference between NADA value and the sales price. He never said he had that much in it, or how much he had in it. In fact, I searched the original “ugly duckling” post to see if this had ever been revealed. Seems to me that everyone has assumed that Dirk “made” the difference between the book value and the total of payments for (how long?). Nowhere have I heard what he paid for it, or how much had in it if he traded for it. In my book, the money ain’t made 'til it’s paid.
So before I got on my high horse and defined “too much” I figured I should know what ballpark we’re playin’ in. I mean, Bill Gates has made something like $80 billion, and according to the government that is “too much”. Yet, I have heard from everyone here that any investor is entitled to “some” profit, at least 20 to 30%. So it seems that somewhere between 20% and $80 billion would be juuust right.
So how close was Dirk’s deal to $80b?
ray
BTW, in 1967 you could buy a 2/1 12x56 for about $2,900 retail, delivered and set. My dad owned a manufacturing plant and sold them wholesale to his own sales lots for $1650 fob/plant. The NADA value ($2,000) pretty much shoots the depreciation argument against mobile homes all to he** doesn’t it?
What if: Widow / 100% Equity / I buy for ?% FMV - Posted by Paul (STL)
Posted by Paul (STL) on January 17, 2000 at 19:38:43:
I’m glad JP started this post. I’ve read about half of the responses but haven’t seen anyone touch on one that haunted me last week before this post began.
Scenario:
A widow owns a house free and clear. I offer to option it from her for 33% of FMV (it doesn’t matter what FMV is in this scenario) and she accepts it. I find a buyer and double-close quickly, walking away with a huge chunk of change.
Some would argue that I really screwed the old gal (what goes around, comes around). After all, she and her husband faithfully made their monthly payments for 30 years and all I did was come along and snatch it out of her hand like taking candy from a baby (no gun to her head, though).
Others may not think I “stole” it from her. But what if the deal was 50% of FMV? Would I be less of a bad guy or still a full blown villian? What if the deal was 75% of FMV? Would I be considered somewhat more reasonable / professional?
We all draw our lines differently as to what is a ripoff and what is fair game. We all determine how much profit we can make and still sleep good at night.
My question is this: Does anyone have a rule of thumb that they use for such a “simple” deal as this where profit is pure and risk is virtually zero? (Yes, we would be assuming that everything about this deal is perfect: house is in excellent condition, title is clear, great neighborhood, seller accepts any offer I make, in a seller’s market.)
I personally refuse to go for the jugular. I would like to have a rule of thumb that helps me to strike a balance somewhere in between.
I think this will help us to really focus on “How Much is “Too Much” Profit?” Thanks!
Paul
SO MANY PEOPLE MISS THE POINT! - Posted by David Otto
Posted by David Otto on January 17, 2000 at 16:01:41:
I am disgusted at so many of the jealous nay-sayers on this thread. Everyone is going on the idea that these were poor, stupid, helpless women who Dirk came in and swindled.
They started a business right? Granted it Failed, but they were smart enough to do that. They were also smart enough to TAKE RESPONSIBILTY FOR THEIR MISTAKES AND BAD CREDIT.
Dirk failed to mention if he held a gun to their head. I am also sure that he did everything correctly. He seems to play things that way. I’m sure that he provided them with a Federal Truth in Lending Statement so they would know what was what.
What I really see here are a lot of jealous, idiots who need to shut-up and learn something from Dirk.
Who says that the mobile home price was inflated?
Get a life people
David Otto
Talking about “profit” only is too simplistic. - Posted by Matthew Chan
Posted by Matthew Chan on January 17, 2000 at 15:10:43:
As I see it, talking about profit in itself is to simplistic without looking at what profit truly is: (Sales price) - (Cost of goods/service) = Profit.
The people who say “too much profit” automatically assume that the sales price is too high. What ever happened to the thought process that perhaps the profits was achieved by getting the (Cost of goods/service) down low thereby increasing the profit.
Of course then, someone says we “should” lower the sales price to lower our profit. Fine. Then as JPiper pointed out in another post, where is the incentive to work to find “cheap deals”? Without rehashing some of points made in other posts, people need an incentive to pursue the “less desireable” aspects in our lives whether it be in the garbage collection business, dry-cleaning business, risky loan business, used car business, used MH business, etc.
As far as I can tell, nearly all of these people would close down if a limit was placed on how much profit they could make. They didn’t go into these “less glamorous” businesses for charity. They did it because they saw a need and opportunity for it. They succeed (attaining profitability) because they create a market for it (thereby setting the “value” or “market price”) and become efficient (lowering cost of goods/service).
What about the computer and Internet stock craze now going on? You think all these people investing their dollars into stocks of tech companies (many who still operate in the red) want to limit their profits? Should we put a limit to how much a stock investor can make? There are no dividends to be had, only the hopes of appreciation. If you take away people’s opportunity to make great profit, people will pull out. In the case of today’s stock market, billions of dollars would evaporate making the previous recessions and depressions seem like a mild stomach-ache.
The funny thing is people have few problems with the value of “intangibles” such as stocks. They say you own a part of a company but I dare anyone to take a piece of merchanidise from Wal-mart without paying for it just because you own Wal-mart stock. At least Wal-mart stock is backed by some physical property.
What about farmers and food produceers? Why do you think the government is subsidizing them? The marketplace is so brutal that it not only eliminated profit, it caused people to go into debt. That is why so few people want to be farmers or be in the food-supplying business. Little profits. So like it or not, the government is helping them to stay profitable so all of us can have groceries available at our local grocery store. I am very certain that the government would be ecstatic if there were more farmers and they became profitable so that the government would have one less thing to subsidize. So, even the government understands the need for profits.
In another post, there is talks about Rembrandts and other artwork. To many people, they wouldn’t pay over $100 (including me) to have a painting hang on the wall. Not because the painter or seller is “undeserving”. It is simply because I place little value on it. Fortunately for art sellers and makers, I am not the ENTIRE market. I only constitute one segment of the market.
The point I am trying to make is that the issue of profits is not quite so simple. It has its roots in human nature, the marketplace, work efficiency, incentives, and perception of value.
You take away the unlimited profit potential, the American economy would not be where it is at today. So this notion that “everyone” should back down on profits is a little insane to me. If some people want to control their profit levels and limit their income, no problem. It is a free country. But if “everyone” had to do it, then life would be quite different. There is a larger view of how things really work.
P.S. I would recommend Donald Trump’s new book, “The America We Deserve”. The Trump really goes at it in defining “The American Dream” and what it entails. Profitability and prosperity are in there.
Trade off - Posted by ann
Posted by ann on January 17, 2000 at 12:47:48:
Just a few thoughts to the general reader: Slightly round about way of explaining, I went to my
car dealer. Big ugly sound in the engine. We drove around a few blocks, mechanic said, come back Monday.
Meanwhile, I asked about the windshield wiper hose
(broken) Oh, that’s not fixable. Gee, I had it duct taped for 5 months, can’t you just screw it in? No,We have to order the
part, and we dont’ have it, takes a week to order it, and it will cost…x$
which I tell them I couldn’t afford. I go 1/2 mile, the engine
falls out of the car. I call them, they call a tow
truck. I end up with refurbished engine and brake job.
Sorely needed. Mega bucks. Yet, as if by some miracle, the
windshield wiper hose is fixed at no charge. well, no discernable charge.
So they got enough $$ on the deal to throw it in and
look like good guys. (refused to pay for the tow, though–I should have gone to the owner.)
If you have a house that is paid off free and clear,
should you rent it out for nothing? No, you charge
market rent. However much you want to discount that
is up to you.
Terms are the thing. One mustn’t disdain the buyer
or tenant for being ignorant of the long term cost.
It is easier to go from one low-or medium-pay job to another,
as opposed to getting a professional job after a
real downturn or downsizing or just plain bad
references. Low to medium income is more sustainable.
It doesn’t mean a person is stupid for having such
a job.
It used to be advised “buy all the house you can possibly afford” That was when jobs were more stable.
I wouldn’t follow that advice today.
Apartments not only are more expensive, they are
invasive. They make rules to come in and spray or
even inspect appliances 1/month whenever they feel
like it. It’s a big security problem. So a NH is a great alternative.
Following the demise of my long-term allied health
career, a well-known association member with lots
of letters after her name wrote in a professional publication that we had had “Unearned profit” from our previously high salaries
which are now 1/2 if you can get work at all.
I disagree.
However, as long as the gov’t was paying the bill, there was nothing that was not considered to fall
under our professional expertise, even despite our
professional protests. We had no choice. Do it, let the
institution skim off the top, or they will find someone else who will.
. Once the gov’t cut
back, funds dried up, and suddenly all this work requiring professional expertise was do-able by people with
high school degrees and some OJT.
So, there was no true market. The services were
rendered only because the extended care facilities
made a buck off of us, and the patients went along
with it, because it was free. How many would if it
did NOT cover the cost of their room?
Or even agree to home care? It’s now on a cash basis.
If the person wants to pay, then you provide the service, you don’t do it because it causes something
else, some other service to kick in.
I far prefer the real estate without the middleman (except for the IRS, I think you get to choose your
middleman or not have one, and learn how to make money
for other people in the business)
At least there is always a market for something.
Back to the car…you can reason that you should
have a shorter loan so as not to pay more interest, but
it’s an all or nothing deal. If you hit upon bad
times, you still have to make that payment or lose
the car. You can have a better chance by keeping
payments low. You can always (usually if in terms of
the contract) pay off sooner. But you can’t refinance
the car if you fall on hard times, not at any decent
rate. So the “smart” thing to do, depends on your
circumstances.
The purpose of business is to stay in business.
Can I get an AMEN?
Ann
The value of a property has nothing whatsoever to do with what you paid for it, how much work you did or anything else. It is solely a matter of what someone is willing to pay at that time. - Posted by GL
Posted by GL on January 17, 2000 at 12:35:36:
Take the case of someone who inherits a Rembrandt picture. She or he had nothing whatsoever to do with it. They didn’t pay a cent for it. They didn’t paint it, or discover it, or restore it, or clean it, or do anything at all to earn even one penny.
Now what is that picture worth? Why it is worth the same as any other Rembrandt. Nobody cares who owns it.
Now suppose someone buys it for $1,000,000. This person is an art connoiseur from way back. Knows everything there is to know about Rembrandts.Spent a lifetime studying art. Searched the world for that particular painting, found it in the hands of the heir we talked about, and bought it. Takes it away to the world’s best art restorer. Spends thousands and thousands of dollars on packing, shipping, insuring, restoring, framing and displaying.
Then the restorer breaks the news that after cleaning off the dirt and varnish of 300 years,he discovered that the picture is actually by a student of Rembrandt’s. That it is a copy of one of Rembrandt’s pictures, probably made during Rembrandt’s lifetime. It’s still a nice picture but it definitely is not a Rembrandt.
Now what is it worth? What does it matter what the owner paid, what he spent on it,how smart he is, how dedicated he is? It doesn’t matter a cent. Nobody cares. The only thing they care about is the picture.
The same parable goes for real estate. If a property is worth the money nothing else should matter. But of course nobody sees it that way. Broke people and losers have all these creative ways to put everybody down and keep everybody else from bettering themselves. I don’t know how they do it but they do. If they were as creative about building people up as they are about tearing them down this world would be a Utopia.
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by Rob FL
Posted by Rob FL on January 17, 2000 at 09:04:36:
I believe in obeying the Golden Rule. Treat others you would want them to treat you. This doesn’t mean not to make a decent profit. I would expect people selling me a commodity or providing a service to make a reasonable profit. And if I am a normal rational person, ANY profit they make that I accept is a reasonable profit.
On the other hand, most governing bodies realize that some people are willing to prey on other people and these other people will just accept it becuase they have nowhere else to turn. In Florida for instance, the Car Title Loan industry is currently getting a huge bashing because under current law, they can charge I believe 30% interest. Then 3 year loan people get on their beat up car ends up causing them to pay twice what the car is worth. And one late payment and the car is repoed. Of course, we as investors would argue that they are adults and made an adult decision. However, the lawmakers in various cities are saying that “experts” in the car title loan field are taking advantage of desparate citizens and therefore laws must be passed to stop this nonsense. I guess this is why so many states have usury laws. Becuase in spite of being adults, some people just don’t understand money enough to ever keep any of it.
While I am all for making as much profit as possible, I always try to make sure that everybody understands exactly what they are signing and what it all means. Only then will I proceed with a deal.
Where do you draw the line between making a profit and shafting people? - Posted by Troy M
Posted by Troy M on January 17, 2000 at 08:59:41:
My personal opinion:
If you provide no service, no product, and you are misleading people into somehow giving you money, You are a scam artist.
If you do provide a service and/or product, you can charge as much as you’d like or as much as you think your service/product is worth. That’s not a scam.
I’m sure everyone here who has ever even looked into buying real estate has come across a piece of property that was overpriced. For example, I just talked to a guy last Friday about a house FSBO. He wants 250k in a neighborhood where the comps are 110k. Does that make him a scam artist? Hey, if he can get that price, power to him.
Here’s a good ethical dilemma example:
Suppose I bought a house at the Trustee sale for 25k. Went to my new house to check the condition and find a little old lady there who tells me she has had cancer, recent divorce, etc. but would like to keep “her” house. I say no. Two days later her lawyer calls and says the ladies nephew is willing to buy the property back for the lady. So, what’s a fair price? FMV = 54k, I agree to 45k sales price. I see that as fair since, I’m not having to fix up the property and it’s a quick sale, and they are getting a 9k discount off of the value of the house. But, wait, I stand to make 20k off of a little old lady who had cancer, and I didn’t do a thing to improve the house or earn that money, did I? I say I did, because I know the other guys who attend the trustee sale, and I say I’m perhaps the only person in the world who was in the positiion to, and would take the risk of allowing that lady to stay in the house while her lawyer, nephew, and I negotiated to allow her to stay.
I can tell you, without a doubt, there are many people who would say I took advantage of that lady. Many would say I should have made less on the deal, or even given it back to her/them for the amount I purchased it for.
I say the lady got to stay, even after not paying her mortgage for ? years and forcing the lender to foreclose.
So, what would you do?
And do the numbers really make a difference? What if I had bought the property for 1k at the trustee sale and it was worth 100k? Does that change things, I don’t think so. It’s my property/product/service, I’m going to sell it at the price and terms that I decide are best. Best= best for me, keeping in mind that a deal has to provide some benefit to the buyer and seller or it’s not likely going to happen at all.
Troy M
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by chris
Posted by chris on January 17, 2000 at 01:47:11:
I have already posted on this in favor of PROFIT.
This case brought up a question in my mind that adds to the risk that Dirk has undertaken.
What happens if these ladies make their payments on time for some time. The payments they have made equal more than the book value for the home. They have trouble making any further payments. Dirk wants them out of the property. They go to court. They use the argument that they have already payed more than the house is worth. What is the judge or jury going to do?
It seems to me like the two ladies might be able to get the court on their side.
Just something to think about. One more risk Dirk has taken to earn his money.
-Chris
“Raise The Rent Till Their Noses Bleed…” - Posted by JPiper
Posted by JPiper on January 17, 2000 at 24:23:04:
?Raise those rents till their noses bleed???as gruesome as it may sound, was a cry that I heard early in my career. It came from a very large owner and manager of property, and someone from whom I learned significant knowledge. The point was to raise the rents until people started to move thus creating a small vacancy. ONLY then could you know that you had reached market rent.
Now let me tell you this. In those days we could find rents out in a variety of ways?so we had an IDEA of what market rent was. BUT, in the final analysis, what guided our decisions was not what our IDEA of market rent was?.it was what the MARKET ultimately TOLD us the market rent was. BIG DIFFERENCE.
What does that have to do with this discussion/debate? I think that many of us operate in a market much different than the conventional real estate people and/or lenders. We operate in the market of people with damaged credit. And make no mistake, this is a market. And it?s not the same as the conventional market. In this market, people have poor credit perhaps, sometimes unstable employment, histories of problems. These people are people who are shunned by the conventional lenders. They?re sometimes shunned by even the upscale apartment complexes. They are people who have screwed something up in their life, and now are looking for an opportunity. UNFORTUNATELY, no one wants to give them an opportunity because they are too RISKY.
Into this breach steps the investor. He assumes the risk, but not without a price. The price is huge?because the risk is huge. Keep in mind, this very buyer is turned down by people like Jacob and his lenders. They in effect won?t sell to this guy at ANY price. WHY? Because he doesn?t have the cash, and he doesn?t have the credit.
Allow me to correct something here?..because it?s a misnomer on Dirk?s part?and sometimes on my own part. We say things like ?I sold that property for $11K?. Looks flashy huh? You know, some of us veterans talk about people who are payment buyers. It?s true?many people are. But some of us are what I would call ?payment sellers?. So when Dirk sells a MH, he doesn?t really sell it for $11K?he sells it for $380 per month. And IF (and it?s a big IF) that buyer makes all those payments of $380 per month they will have paid $11K plus interest.
But in the life of a person with this particular history?..2, 3, 4 years is a lifetime?.trying to carry a problem buyer for this period is tempting the Gods?.because they are people who have problems, and over that period of time they are bound to have another one. WHEN they do, Dirk (or me) will be facing a problem?.how do we collect, how do we get our property back, how long will it take us, what condition will it be in, what will it cost us, etc etc etc.
I have recently taken back a house from a tenant/buyer. Repairs to the house, plus lost rent, will total ONE YEAR RENT (GROSS). There?s the risk folks?.these people do screw up.
PROFIT??? I can?t speak for you, but in my world there is no profit large enough sometimes. I make large profits at times, HUGE?.but in my mind I earn EVERY penny, and then some, with the risks that I take. Tonight as I write this I am mindful that one of my tenant/buyers is in jail. He used a phone call to leave a message on my voice mail that he would call me about the rent when he got out of jail. This guy was a risk when I ?sold? to him. I sold at a huge price. Sometimes people will question me regarding the price?.my response is always the same. Go down the street and do this deal with someone else. (I already know the answer, no one else will do the deal with him?he?s too risky).
It seems to me that Dirk has simply located a market?..a market which willingly and happily pays $380 per month. This market isn?t ruled by NADA books, appraisers, etc. Evidently Dirks market is huge?because he easily sells large number of these MH?s. I know my market is huge?it?s larger than the number of houses I can provide. I ask and I get outstanding prices and terms. This is the proof of the market?not a book, and not an appraiser. People are begging for these deals. Perhaps the point of this is that NADA DOESN?T SHOW the market?.maybe there is really that much difference between a cash market and terms. But then again, Dirk should (and I think does) understand that he takes a large risk, and that this is how he earns that large profit. He should also understand that this risk can take away that profit quicker than you can blink an eye?with damages, lost payments, etc.
Here?s what create the largest possible profit. You buy from MOTIVATED sellers, and you sell to MOTIVATED buyers. There?s a huge spread there. But it?s not without risk?.and sometimes it takes some effort to realize it.
JPiper
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by FL
Posted by FL on January 16, 2000 at 23:07:55:
There is a differance between a good profit and being greedy. Where you draw that line is up to you and what you can live. I believe what comes around goes around.
Just my opinion.
THE SUBJECT IS PROFIT, NOT DIRKS BLIPPING “DEAL”! - Posted by David C
Posted by David C on January 16, 2000 at 22:33:59:
Greetings All!
The subject of this thread is, “Is there such a thing as too much profit?”, NOT DIRKS’ DEAL! Now while dirk doesn’t need me defending him anymore than I need him defending me, some of you folks, (and I mean this in the nicest way possible,") totally missed the boat here. So lets talk about my favorite most subject, MONEY!
I have found that a persons opinions and beliefs evolve as they develop the ability to make larger and larger sums of money. Why? Don’t know. Just know it happens, and I’m as good example as any. Years ago, I only dreamed of making 10k on a deal,(you know, “if I could only make 10k all my problems’d be solved” lol). Now if I’m not making at LEAST 10k on a deal, I better not have to spend more than 10-15 minutes on it! And that number goes up all the time. Ya’ll can add more examples from your own lifes.
Is there such a thing as too much profit? No. Absolutly, positivly without a doubt, resoundenly, No!
At least not for me. Every buying/selling situation I get into I have only one thought in mind, how to make as much money as I possibly can on this deal. The sellers/buyers needs and all that other stuff are only components of the deal that effect,but do not control the profit I put in my pocket. And if there is not enough, I walk. All of the alturistic bull (opinions) so many use to feel better about themselves at my expense, has no effect on me or my business.
One last thought. Never lie to or kid yourself. The reason your in this business (or any other) is the money, and all the good things you can do with it. Never deny that.
Now if I could just make more than my wife and kids can spend!
Peace and Profits,
David C
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by Mike O
Posted by Mike O on January 16, 2000 at 22:18:02:
Oh now I get it!!
As a relative newcomer to Real Estate investing, I now know that after seeking motivated sellers, advertising in newspapers that I buy homes, explain to people that I am a problem solver, negotiate with sellers for a bottom line price for properties, and putting up my time and money to do these deals that are doable.
Then market these homes, use seller financing, hold notes, do rental analysis, market research, comps, holding costs, maintenance, management, clean-ups, then try to get what my market will bear.
I should feel guilty for being able to maximize my profit margin. I should help these people so I don’t make that much money.
Pleeeeease! I got into investing to make money, I will not feel one bit quilty to make whatever I can get on a deal!! I know some people may take offense to this way of thinking but , you know what. It’s my business, my time my terms. If someone offers me above and beyond what a property is worth, my only concern is their ability to make the payments!!
Mike O
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by al
Posted by al on January 16, 2000 at 22:00:36:
what if a bank foreclosed on a house that they knew was worth $100,000.00…over the course of the foreclosed loan they recieved $175,000.00 in P&I payments,they put this same house on the market asking $100,000.00?
That’s what one of my “buyers” asked me… - Posted by Carmen_FL
Posted by Carmen_FL on January 16, 2000 at 21:42:49:
I put an ad in the paper to sell a rehab. I’m asking $88K (FMV). I bought it at $52. Will make about $26K net if I sell it at that. Is that too much?
A “buyer” who called up today obviously thought so. He had seen the house (it is obviously newly redoned - we had to almost rebuild the walls, new tile, carpet, etc.) and told me that he had seen a house “down the street” for $60K (an ugly, beat-up, previously foreclosed home owned by an investor who recently put it back on the market). When I told him what I wanted for my house, he became indignant and asked me why I thought I deserved to make $28K off of poor working people like him, since he was sure I had bought this house for the same amount. I was very polite, but I wanted to tell him “IF YOU CAN DO IT YOURSELF - buy that beat up house, and get it financed and fixed yourself, YOU DON’T NEED ME.” I am performing a service, and my motivation is profit. I do my charity work elsewhere.
It is the same with any other type of professional. Why is a lawyer’s time worth $200/hour, when a laborer only gets $6? It’s the knowledge, expertise, and time that they have spent to become good at what they do. That does not make the lawyer a bad person, or a better one. It just means he chose to use his resources (brains, student loans, etc.) to be able to better leverage his time in the future. The better he gets, or the luckier he is, the more he can make. The Tobacco lawyers ended up making millions - not because they were the best lawyers, but because they were in the right place at the right time. Just like Dirk. Did THEY make “too much profit”?
I say, if you are an adult of sound mind, you have the ability to make your own choices in life, buyers included. Most of the time, everyone ends up with a win-win situation, cold feet aside. As long as you are not purposely setting out to deceive anyone, but only taking advantage of the situations which present themselves to you, go for it. THAT is why we are in business.
PS - I offered $40K cash to the guy selling the beat-up house down the street. Maybe I can fix that one up for another $30K or so…
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by Ray
Posted by Ray on January 16, 2000 at 21:29:58:
In a nutshell: whatever someone is willing to pay, is what something is worth. You can take a dump of a property, and in the right location, make it worth a small fortune.
Let the market, the situation, and the deal decide.
And, here something to stir up some debate… your mention of the $24 for Manhattan was a steal. Yeah, for the NATIVES!
I read, possibly on this site, that if you took that $24, and time-valued it to 1990 dollars, it would compound into enough cash to buy not only Manhattan, but all of Los Angeles with some left over.
Being that I made the first comment… - Posted by Jacob
Posted by Jacob on January 16, 2000 at 20:59:15:
Since I was the first one to have enough courage to question the ethics of this particular deal, I find this topic intersting. In fact, I was going to post a simillar string this week based on a deal I am currently working on. Way to go JP!
Since I have a reputation for making personal attacks, let me preface this all by saying this has absolutely nothing to do with Dirk as a person. I do not know him.
Now, having said that let me state that I think this deal stinks. As I stated earlier, these women are happy right now, as they have somewhere to live. What happens when the honeymoon wears off and they realize they overpaid by 1000% or so? Do they refi and lower payments? Of course not, since the unit is too old and worth 10% what it is financed for. I have no doubt that Dirk would be more than happy to buy it back from them, at a good price for him no doubt.
If one wants to call themself a professional investor, a term I hear thrown around a lot on this site; that term has requirements. As a professional, one has a much greater knowledge of the marketplace and the workings of real estate than the general public. That is one reason why holders of a re license must disclose that fact.
As a pro, one also has the responsibility to use that knowledge for the benefit of others, as well as ourself. We are not to use that knowledge, contacts, experience to take advantage of others.
Since I dind’t marry into a family of successful re investors, and I do not know any nationally known authors as friends, I require my good name and reputation ALONE to do business. It is all I have, and closes more deals than anything else. I get more deals handed to me than I can do anything with at the moment, because I have a rep for helping people and treating them fairly.
Again, there is nothing wrong legally with charging whatever you feel you can get in a deal. But, I sunscribe to a higher court that says I am required to treat others in a completely open and ethical manner. I am amazed that if someone sold a used car at 10 times it’s value to a friend or relative of those supporting this deal, that same person would be condeming the actions of that salesperson. We would be talking about what a scam artist the car salesman was. I do not see the difference.
Jacob
Re: Debate Topic: How Much is “Too Much” Profit? - Posted by B.L.Renfrow
Posted by B.L.Renfrow on January 16, 2000 at 20:56:21:
In the medical field, where I spend some of my time when I’m not doing RE deals, there is something known as “informed refusal.” That refers to the situation where a patient, faced with a recommended medical procedure or treatment, refuses the recommendation. It is recognized and accepted that a competent adult has an absolute right to refuse any treatment, even if such refusal will result in certain death.
Another scenario: A few years ago, I needed another car. I had no choice. I had to get to my job 5 days per week. There was no public transportation. The only car I owned was suddenly disabled and beyond repair. Problem was, my credit was worse than bad. I did not have enough cash to buy even a modest car for all cash. I was refused an auto loan by not only my credit union, but even by some of those “We Finance Anybody” car dealers. Eventually, I found one that would finance me. However, it was at 23% interest, and the car was priced well above market value. So, what do you suppose I did? I bought the car.
The common thread here is that in both cases, a competent adult weighs the options and makes a decision he or she believes is in his/her best interest.
It’s really no different with Dirk’s deal. Assuming the buyers were not mentally incompetent or under the influence, they certainly did have a choice. They could have remained where they were. They could have rented an apartment. They could have lived in a less expensive area. They could have negotiated the price down. The fact that they took none of these actions does not reflect poorly on Dirk. He provided them a product, which they obviously wanted. How any of you think you are in a position to criticize Dirk’s action from the limited facts presented here is beyond me.
Brian (NY)