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A New Business Model In Real Estate

13/05/2010

A New Business Model In Real Estate :

Inspired by Carla Muss

Recently, there have been a large number of businesses formed to buy and sell real estate.  These businesses are not real estate brokerages.  They are individuals who see an opportunity to make a good return on their invested dollars.  The presence of these companies has alarmed some real estate professionals because they are calling themselves real estate companies and buying and selling real estate without a license.  Example of one of the new businesses upsetting some real estate agents.

I am not an attorney nor a tax adviser. I’m pretty sure there is a place on the IRS tax forms where you specify what type of business you are in.  If their primary business is real estate, they may be a real estate company for tax purposes; they did not specify ‘brokerage’.  Will the average consumer know the difference?  Maybe not but they come right out and say they are not agents.

I am not for nor against these people making a living.  As I understand it, in most (maybe all) states, you are allowed to buy and sell your own property without a license.  You are sometimes allowed to sell X number of properties for someone else, providing you follow the letter of the law. I would hazard to guess that they have followed the advice of attorneys in setting up their business.

These people are buying, rehabbing and selling houses to make money.  They are taking advantage of an opportunity.

They may also be offering to finance the purchase of houses.  This may be the only recourse some people have to buy a house.  As the mortgage lenders have tightened their restrictions, fewer people are able to qualify for a loan.  Many of these people are able to pay a mortgage but are unable to qualify through traditional lenders.  As long as they are willing to accept a higher interest rate, that is their prerogative.

The investors know that they cannot get 9 or 10% interest on their principal through money markets or CD’s.  If they are willing to lend their money to people to buy houses, I don’t think that’s against the law. It’s called creative financing and I expect we will see more of this over the next few years.

The financial institutions have failed to give their customers what they want and need. Their executives have absconded with funds and left ordinary citizens with huge financial losses in their retirement funds. Our federal government gave many of these institutions billions of dollars to help the people and the institutions chose to pay their executives outrageous bonuses. They did very little to actually help most regular working people. They did very little to help people who have lost their jobs through no fault of their own. The insurance companies turn their backs on people, who have paid premiums for years, when they most need what they thought the insurance companies were there to provide. Banks are still not making much of an effort to help people who are having difficulty making their mortgage payments. The institutions’ behavior has caused people to lose what little trust they may have had in them.

In America, the land of opportunity, a door has been opened.  Banks are kicking people out of their homes, allowing the houses to deteriorate and then selling the houses at discount prices.  The same banks are then denying mortgages to people, some of whom I think are perfectly good people who would pay a mortgage on time.  People need a place to live.

Enter the entrepreneurs.  Buy the house at a discount.  Fix the house up.  Sell it for a reasonable price and still make a profit.   The investors are happy with their return.  The houses are not sitting vacant.  The construction workers who fix the house up get paid.  The people who buy the houses have a place to live.  Everybody’s happy.

This is a business model that works.  People have been doing this for decades.  We are just noticing it now because there are more of them.  They are flourishing due to the state of our economy, the high rate of unemployment, the breakdown of our health care ‘system’, the failure of traditional financial institutions, and the desire of ordinary people to own their own home.

My advice to us is to make friends with these entrepreneurs.  They are providing a service that some people value.  They will pay us commission to show and sell their houses.  They are not our enemy; they are a niche market that will probably grow much larger over the next few years.

Trump University Real Estate Training
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Maria Morton 816.560.3758 Realtor©/ABR/SRES

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One Comment leave one →
  1. 13/05/2010 19:06

    This post was inspired by Carla Muss, Realtor in Beaverton, OR. Carla’s Active Rain blog post about Practicing Real Estate Without A License sparked a little controversy. See it here:
    http://activerain.com/blogsview/1641684/practing-real-estate-without-a-license-please-read-this

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