Friends and Real Estate Don’t Mix

“Never go into business with friends.”

Hands up if you have heard that statement before.

My right hand is reaching for the sky, which is hard to do whilst still typing.

I heard it, however, about twenty years ago, and I ignored it and went into a business venture with a former work colleague.

We all have to learn our own lessons. Eighteen months later, tens of thousands of dollars in debt and a fledgling business to run and grow I learned a big one.

Selfish and unscrupulous acts can be and are carried out by those who we think have our best interests in mind, people who are considered close to us – trusted friends, colleagues and even relatives.

Sadly, I have seen many business ventures fail because two or more friends or acquaintances saw an opportunity and invested time, effort, money and energy into it, only to see the venture crash because there was no structure of leadership in place, culminating in distrust, poor communication and a complete breakdown of all components within the business.

Why am I sharing the lessons I learned about business partnerships and relationships when I should be talking about one of the many facets of Real Estate?

Investors, people who buy property and derive an income from the rent paid by tenants, need to understand that they are actually buying a type of business.

They invest their capital into an asset which produces cash-flow, leading to profit or ultimately growth in the value of the asset over time (capital growth).

The cash-flow comes from the payment of rent by the tenant. The tenant has obligations under the lease to ensure the asset (property) is looked after and returned to the owner, when the tenant vacates, in the good order in which the property was presented when first occupied by the tenant PLUS pay the nominated rent on time.

A fairly simple business arrangement you would assume.

In the majority of cases this arrangement is honoured by the tenant and owner alike.

BUT… here is the lesson!

Those investors (business owners) who allow friends, relatives or acquaintances to lease their asset (property) – usually at ‘mates rates’ and without any proper management of the property are almost certain to come a cropper.

Not always, but in my twenty plus years in business and real estate, the ‘investor/lease to someone known them without proper management’ scenario fails dismally in four out of five cases.

This is almost the same ratio as friend/acquaintance business partnerships.

I have seen examples of ‘renting to friend’ situations that have become an investor’s worst nightmare. Trashed homes, thousands of dollars in unpaid rent, total disintegration of the initial relationship.

Why?

Because from the get-go the trust factor is too high and shortcuts are taken in regards to documentation, clear spelling out of responsibilities, offering or asking for discounted rent and a lack of will to properly manage and maintain the property with regular inspections. In short – there is no defined structure of who is who in the zoo.

Like a failing business, there is no clear leadership or direction. All required tasks are ad-hoc or non-existent and as the situation deteriorates, no one is willing to stand up and rectify what is about to break or is broken.

If you decide to buy a property for investment purposes, and intend to install someone you know as your tenant, make sure of a few basic undertakings:

  • Always sign an official lease with clear dates and expectations inserted
  • Take a full four week bond and lodge it with the rental authority in your state
  • Ensure the tenant pays true market value for rent each week
  • If the rent falls only one week behind, bring it the tenant’s attention and ask for immediate payment
  • Carry out three monthly inspections and bring any issues that concern you to the tenant’s notice for immediate rectification
  • If the tenant reports any maintenance issue that needs fixing, do it as soon as possible.

If you are investing, treat it like a business from the very beginning. Being too kind to someone close to you who wants to ‘share’ your asset can lead to an experience you thought you might only see on A Current Affair.

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Ivan the Terrible and the Disappearing Comfort Zone

I know well that stepping outside my comfort zone can be rewarding. Once you take the step, you realise it wasn’t that hard at all. But in this case I was about as comfortable as a rooster in a pond.

I believe it may have been invented by a round table conference involving the CIA, Mossad, The KGB and MI6.

The latest bugging device? No. Poison lipstick? No. A new undeniably persuasive interrogation technique? No.

Well what is the fiendish collaboration?

Pilates!

As a bit of an ‘old school’ trainer from years of playing footy, cricket and soccer, I was pretty much a weights, jog (now walk) and swim kind of guy. This regime had me in reasonable shape and I had only increased my body weight by about five kilos over that last 25 years.

Yes, I was in a fitness comfort zone.

One day the love of my life, not Paul Gallen, my wife Karen, came home sprouting about her newfound (and adored) fitness regime – Pilates.

I giggled (on the inside because I like a peaceful existence) and said, “That’s nice dear that you like it.” I didn’t know much about Pilates and thought it was another form of yoga or ‘lady stretching’. I was doing the grunt work in the gym, pumping out reps and sets.

“You should have a go at it, you would love it.” She said. “Sure, maybe, I’ll see” was my offhanded response each time Karen mentioned I should get on board. She spoke of the little, but ‘fit’ Columbian instructor, Ivan, who was reshaping her body and making her feel really good.

After using the, ‘are you chicken or what?’ encouragement sale technique, I cracked and said, “Alright, I’ll go and meet Ivan for a session, a bit of stretching and that will be good for me and a bit of variation.”

One afternoon, I gave myself an hour off to meet Ivan and see what this Pilates thing was all about. Lovely guy – small, trim with a toothy smile and an accent reminiscent of Gloria from Modern Family.

After about 10-15 minutes of re-learning how to breath and ‘contract your core’ (a phrase that haunts me), Ivan the nice little Columbian guy, became Ivan The Terrible!

Holy ‘What Muscle is that Batman’!!!!

For the next 45 mins I was asked to do moves and exercises that were devised as torture moves for the agencies I mentioned at the start of this story. The noises coming out of me ranged between ‘wounded moose’ and ‘howling dog’. Who talked me into this shit?! I think I called Ivan an arsehole more times in that first one hour session than I have said ‘arsehole’ referring to Manly players at every Sharks match they have ever played against each other.

I asked Ivan if he knew Pablo Escobar, but he ignored me, smiled and say , “Contract the core…” The wounded moose could be heard up the main street.

After the first couple of sessions, walking became problematic for Ivan’s new student. Walking down stairs, I looked like there was a 3 foot rod stuck fair in my backside, with my legs made out of Aeroplane Jelly. Karen’s mirth could only be described as manic.

I was way out of my comfort zone, but Ivan kept telling me that the results would come. I kept going back for more…”Breeeeathing, contractions…and that is five…”

“HANG ON, I counted seven already”

“Thee first wons you weren’t breeeathing properly”

“Arsehole”

“Five, breeeathing contractions….”

I am seriously out of my comfort zone and the results are brilliant. I haven’t lost a lot of weight, but my pants are loose around my waist. I have put on muscle and a long term and nagging shoulder problem is slowly improving.

I’m hooked and Ivan is becoming more and more terrible, in a nice way.

All through life we face challenges or are asked to step outside our own comfort zone. Taking that initial step, especially with someone coaching and supporting you, is so rewarding and gives you confidence to take on more challenges.

It is like selling your home. You can stay in an uncomfortable comfort zone and hire a traditional agent, pay thousands and feel a little deflated at the end, feel no different. Or you can take a small leap of faith, take control, sell your own home with support and a gentle ‘stretching’ from an online agency like Agent in a Box, and feel great about what you achieved.

Just taking that first step is nothing compared to the results you end up with. I did it, explored something a bit foreign to me and now the benefits far outweigh the effort.

You are safe. We’ll leave the torture to Ivan The Terrible. Our support never produces the sounds of a wounded moose, just happy members who took a little leap and have been rewarded handsomely.

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Customer Service – Do We Suck At It?

I recently took a break and visited my eldest son in Canada. He is half way through a working visa and we thought a trip to British Columbia – Whistler, Vancouver and Victoria (Vancouver Island), with a quick stop over in Seattle (USA), was quite in order.

Without boring you with details and inviting you over for slide night, it was a great trip.

Even though we were on a holiday, relaxing and discovering new places, it was a case of ‘you can take the man out of the business, but you can’t take the business out of the man’.

The ‘Customer Service Experience’ was something I was acutely aware of in every place we stayed and visited. Hotels, restaurants, cafes, markets, bars, places of interest, transport hubs, shops…everywhere I was considered a ‘customer’.

According to Turban et al. (2002), “Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer expectation.” – Wikipedia.  Across the board, the North American ‘experience’ reached my expectations and at times exceeded it. They are the masters of customer service. Almost all the service people we dealt with were interested, courteous and appeared to be happy to be in their job. I probably spent more money while we were away because these people made me feel comfortable wherever I was, and they made me feel welcome.

“There are no traffic jams along the extra mile.”  Roger Staubach

Tips? You bet. And I will stick my neck out and say that the lower wage/tips system makes perfect sense and engenders enthusiasm as well as outstanding service experiences.

Twenty years ago a friend of mine went to North Carolina in the US for a working holiday and found herself waiting tables in a popular seafood restaurant over there. When she told me that she was earning ‘five bucks an hour’, I nearly fainted. But then she gave me the whole story, and most nights she would finish with her five dollars an hour plus $200 in tips. Some nights, $350-$400 wasn’t out of the question.

How did she earn it? She knew the product (food), she was happy, she made her customers happy and ensured the night was a great experience for all.

This is what I found when I went to North America. Good to great customer service experiences everywhere.

All holidays must end, so home we came. Back to the best country in the world, with some of the most mediocre customer service in the world.

Have I opened a can of worms? Maybe, but our customer service skills in general don’t compare with our friends on the other side of the Pacific.

We’ve all experienced it, poor customer service, but there does not appear to be any concerted push to improve it. Four out of five business don’t make it to see their second birthday and I’ll bet London to a brick that 50{5be8b5650852dcf96a34828ba5a88d9285f6c7439f02c8133f6b05e7d943eaff} or more of those failures are because these business had little or no concept of what customer service is or what it even looked like.

“Make a customer, not a sale.”  Katherine Barchetti

So how surprised do you think I was when I was perusing some Real Estate information online the other day when I saw this headline, “Franchise boss sounds alarm about terrible service”?

What I basically knew about the industry I worked in was being made public by a Manager from well a known nation-wide Real Estate Franchise. You can read the article and her blog here.

Was I surprised by what the manager had revealed? No.

Are real Estate Agents delivering value for money to sellers in relation to the commission they are paid? I’ll let you answer that one.

Is the alternative to sell your own home with support from genuine experts, without commission, a viable alternative? You bet it is.

“In the world of Internet Customer Service, it’s important to remember your competitor is only one mouse click away.”  Doug Warner

It’s really time for many service industries to lift their game or customers will find alternatives that are willing to disrupt the ‘old guard’ and welcome those customers with a smile, convenience and real service.

Photo credit: Rotary First 100

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Trust Remains an Issue, yet Old Habits Die Hard

In an earlier post, I discussed the problem of trust in real estate agents. More recently, Brendan Wong from Real Estate Business Online reported that in a recent survey of 1700 people, 53% indicated they did not trust what the real estate industry said about the market. 27% said they sat on the fence when trusting the same news and only 20% said they trusted agents. That is a tough audience by any stretch.

A big contributor to this distrust is the commission structure.

Each year in Australia, around 350,000 residential properties change hands – sell. About 97% of these sales are ‘facilitated’ by traditional Real Estate Agents. Based on the RP Data-Rismark Daily Home Index, the Five Australian Major City Aggregate Price sits at $592,000 (as at 6/9/13).

So, with the average commission being charged by agents, Australia wide, sitting around the 2.6% mark, a sale of $592,000 would see a commission of $15,392 being paid by the seller, and that does not include any advertising expenses. You would have to admit, that is a reasonable chunk of money that any home seller will never see again.

Mr Wong’s article goes on to mention that media, especially print, contribute to the non-trust conundrum because they need to sell advertising space, and the general public could be lead to believe that commentators associated with property advertising publications embellish the true position of the market to ensure pages are filled with properties for sale.

And, one of the Real Estate Industry’s greatest and ongoing ‘trust-killers’ continues to be practiced; the over quoting, by agents, of potential sale prices to get listings.

True, not all agents should be painted with the same brush, there are some very good operators out in property sales world, yet the stigma of distrust and pain felt by sellers when that chunk of a sale price heads off to an agent lingers, as it has done for decades.

Then why, with this atmosphere of distrust and perceived lack of value for services rendered compared to the amount of commission paid, do such a huge proportion of Australian home owners gravitate, somewhat reluctantly, toward agents when the time comes to sell?

In my latest eBook, The Eight Biggest Myths of Real Estate, I reveal why the vast majority of home owners gravitate toward agents when the decision is made to sell up and move on.

One of the myths is that many people still believe that agents have almost exclusive access to ALL the buyers who are searching for property in any given suburb, town or region. Sadly, for agents, and happily for home owners, this IS a myth. Why? Because buyers follow property, not agents.

It is a tough pill to swallow for an industry where it may be the case that only one in five people actually like them. As an agent, I understand the frustrations of home owners, and in some cases buyers, with the level of service and professionalism that is lacking in some quarters of the real estate industry.

But, whilst ever the income of agents is derived solely from the successful completion of a property sale, self-interest and perceived desperation to ‘earn a quid’, there will always be doubt in the minds of home sellers that will prevent a break out of trust that many agents crave and a large number of home sellers find hard to embrace.

So what is the solution? If you are going to use a traditional agent on commission, do your homework. And whilst important, don’t just base your decision on how many properties they have sold. As I have discussed in a previous post, there are different types of agents. Some agents with high turnover simply spend more on marketing themselves to get more listings and have teams working for them to handle your sale along with many others.

Talk to friends and family and learn from their experiences. And meet at least three face to face before making a decision. Don’t rush it.

Alternatively, engage a fixed fee agency online and sell it yourself for a fraction of the cost. Who better to trust than yourselves? There is plenty of support online these days to help you get a great result. If you think you can’t do it yourself – think again!

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‘Tis the season to be selling

The 1st of December fell upon us, almost unexpectedly.

“Where did that one go?” “It’s December already?”

Time seems to tick away a little quicker each year, especially when they are eventful and things aren’t quite the way we may have gotten used to them.

Recently Property Observer posed the question of property experts that often pops up this time of year: “Should you consider putting your property on the market now or wait until after Christmas? And if so, when is the best time in 2014?” My invitation for commentary must have been lost in the mail, so I thought I would provide my thoughts here.

2013 saw some notable changes. With hand on heart, being involved and as immersed as I am in the world of property, the change of sentiment in the market, particularly property buyers, was as tangible and as real as the nose on your face.

Although the big two – Sydney and Melbourne had been bubbling away since early 2013, the rush of buyers to the starting line commenced in August/ September as the Federal Election came to its inevitable result on the 7th of September.

Never have I seen such a pent up supply of consumer and buyer confidence waiting for the Starter’s gun to go off around 8pm on the 7th of September. And when the ‘Bang’ came, the sprint away from the starting line was something to behold, and thankfully, many of the original participants are still in the race with fresh legs joining in everyday.

The one thing that we all must acknowledge and be acutely aware of is that ALL markets are driven by sentiment, not numbers. Fear and Greed are the drivers – and fear, for the time being, has been stuffed away in a big bag in the cupboard, ready to be unzipped and worn as a shield if any economic blip emerges on the radar.

So for now, the going is pretty good. Consumers have loosened their wallets and purses and business are investing in growth strategies and hiring.

When it comes to selling your home, whether in a For Sale By Owner situation or by hiring an agent, I’m going to let you in on a little secret that may dispel any misconceptions home sellers may have about being on the market during the Holiday Season (PC for Christmas time).

Yes, in the week or so leading up to chook, turkey, prawn and crownie/XXXX/VB day – yes I mean Christmas Day; property buyers who are actively searching for their next home or property, may just take a breath from their quest and buy that present for Auntie Marge and Uncle Barry, or pack the car for that visit to Mum and Dad’s; but nothing is surer that come the 26th/27th of December the internet will cop an almighty bashing from current potential buyers and those who decided over another crownie or glass of charddy, on the 25th, that it was time to move or dive in a get that investment property.

This has been the pattern for the last four or five years, even in the soft, fear driven market we saw in the post GFC period. So what will the Holiday property buying season look like this year with a serious shot of confidence coursing through the veins of property buyers, who will have the time to browse online? Mmmm.

Could it be a good move to get a jump on your competition and put your property out there before the usual influx of new listings come on board in early January?

If that little voice has been saying “Well, I could sell my own home” or “Better call in an agent”, taking action and being prepared for the holiday ‘search and buy’ season may be the best move you ever made.

Happy Holidays to all. (PC is really not my thing)

For the non PC’s – Merry Christmas and a Happy New Year.

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