The following article on managing expectations was written by professional investor David Campbell for a publication distributed to professional real estate agents (Realtors).

Real estate is a people business.  Unfortunately, the people responsible for paying our livelihood don’t usually understand real estate.  Often times, concepts which are incredibly obvious to real estate professionals are completely oblivious to our clients.  Your livelihood depends on your clients having a positive experience and giving you their referrals.  I am sure you have seen agents do a terrific job managing the technical aspects of a transaction only to have an unhappy client at the closing table.   The reason was there was something that the client expected that he didn’t get.  Sometimes we can listen to the client’s expectations and find a way to deliver the thing they are asking for.   Other times it is more appropriate for us to help our clients recalibrate their expectations.

In my real estate business, I work exclusively with real estate investors. Some of my clients own multi-million dollar portfolios while others are in the process of buying their first rental property. One of my novice investor clients recently sent an email to their professional property manager regarding the lease renewal on one of their rental properties.  They copied me on the following email: “The current rent of $1,300 per month is very close to our breakeven point, so we can not go any lower.  More rent would be nice, but not at this time.”

Upon receipt of the email, I contacted my client with the following advice:

“Always price your rent at market rate regardless of what your personal expenses are.  A professional property manager will help you establish the appropriate rental rate.  If the market rent has gone from $1300 to $1,400 OF COURSE YOU SHOULD CHARGE $1,400 RATHER THAN $1,300.  If the market rent has declined to $1,200 and you keep your asking rent at $1,300 because that is what your expenses are, your property will sit vacant and you will feel stress.  Always price your rent at market price. Take your profits when the market lets you. Suck up your losses when the market forces you to.  Market price is set by the economy not by your financial need.  Your tenant will never care how big your mortgage payment is.”

A client who prices their property with the guidance of a professional will have set their expectations for success.   A client who sets their own price for a property based on personal need will eventually feel the stress of the marketplace rejecting their property at that price.  Inevitably the property owner will blame their realtor for not meeting expectations, when the problem was the client’s expectation was wrong from the outset.

Here is another maxim to run your business by:   “If you aren’t going to get paid for your work, you might as well stop working right away.” If your client has set themselves up for failure by focusing on their personal need while simultaneously ignoring the needs of the marketplace, you should counsel your client to establish more appropriate expectations, or fire your client and move onto the next deal.

To your success!

David Campbell
Professional Real Estate Investor, Developer, and Broker
(866) 931-9149 Ext. 1
David@HasslefreeCashflowInvesting.com

 

PS.  I look forward to helping you set and achieve reasonable expectations for your investment real estate objectives.

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2 Responses to Managing your expectations is a prerequisite to getting paid

  1. Patricia Clepper says:

    Hi David,
    I have read all of the emails you have sent me. I so enlightened by the knowledge I have received. I do have a question: I understand that your philosophy is Hassel-Free not risk free. Given that, I want to know about
    the risk of a down market in regards to the real estate notes.

  2. Patricia – Thanks so much for the kind comment. You are correct that there is risk in everything. Some of the risks of note investing are spelled out in my free ebook “secrets of hassle-free cashflow lending” – http://www.hasslefreecashflowinvesting.com/investor-education/hassle-free-cashflow-lending-ebook/

    as well as in the video “nuts and blots of private lending” http://www.hasslefreecashflowinvesting.com/video/nuts-and-bolts-of-being-a-private-lender/

    As long as your borrower keeps paying the mortgage and you aren’t planning to sell your note prematurely, a down market would have no impact on your investment. If your borrower stops paying during a down market, you will get the property through foreclosure. However, because of a continually amortizing loan balance (our typical notes are 15 year amortization), your chances of having negative equity as a lender are greatly reduced. For example, if today you buy a 15 year amortization note with an unpaid balance of $75,000 secured by a $100,000 property (75%) and assuming in three years there is a huge market decline and value of the property drops 30% you would then have a $67,000 note (because of amortization) secured by a $70,000 property. That’s 96% LTV which is not an ideal situation for a lender, but you would still in positive equity territory which is a lot better place than you would be if you had invested in pretty much any other asset class before a major down market. If you have questions about note investing, use this link to schedule a time with me to talk through your situation: http://www.timetrade.com/book/wbytq

    All the best – David Campbell

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