Money Making Ideas

Editor’s Note: This article first appeared in the February 1975 issue of the Real Estate News Observer.

Because of difficulties many brokers are having during this monetary mishap, the Real Estate News Observer is devoting much of its space to Money Making Ideas, Improvement in Marketing Meetings to Increase Closings, and related matters. Brokers looking for more advanced articles are asked not only to bear with us, but also to submit their suggestions to help their fellow brokers with less experience.

We believe this staff study fits into the immediate picture, as it should help to make better coun-selors, and thus make more dollars for them.

A Good Question Indeed

Do you believe that real estate counseling has been the main subject of debate within the industry during the past decade? This is substantially true, because there is no easy system nor “A” to “Z” rules. It’s just that too many people do not understand what should be accomplished from a counseling session.

There is a common misconception by those who are ill informed, or who choose to condemn progress in the real estater’s quest for professionalism by saying, “It gets the client ready for the market place, like a lead lamb at the slaughterhouse.” To all these people, we say, “Read on.”

Types of Counseling

One method is to counsel for an hourly fee. An example would be a home buyer wanting a competent broker to review his offer on a home purchase through another broker’s office. The prospective buyer wants to have a 3d party review the offer impartially to see that all bases are covered. The same client might also want to retain an attorney and/or CPA to answer legal, tax, and accounting questions.

A second type of counseling is portfolio management counseling, whereby a broker is retained at an hourly rate or flat fee to analyze a client’s estate portfolio. The broker will offer constructive portfolio upgrading suggestions based on his careful study.

A third type of counseling is investment counseling, more commonly referred to as investment planning. This often is accomplished by a group of planners working as a team. Frequently an insurance agent, a registered stock and bonds salesman, an attorney, CPA, and a real estate investment broker will form the team. This team will work together to form the best investment package for the client. The package also will include recommendations with regard to revocable and irrevocable trusts, pensions, and profit sharing trusts.

A fourth type of counseling is residential counseling. This normally is done by residential real estate brokers in their offices. An attempt is made to determine what type of home would best fit the client as to need and utility. In the interest of time management, confidence building, and good business practice, do this counseling in your own office, not in the client’s office or home.

The fifth type of counseling is problem solving counseling. This type has been the source of most of the debate. The “leading the lamb to slaughter” argument is completely lacking in truth. The balance of this study will be to, “Tell it like it is.”

The Basic Rules for Problem Solving

1. Establish in-depth knowledge of the client’s real estate holdings. This is traditional real estate at its best, a complete professional study of all of the client’s real estate. This is called “home-work.” It is believed that 75% of real estate offered in the United States lacks complete homework. While there are no statistics to back up this 75% figure, the estimate is based on many interviews with hundreds of brokers and salesmen as to the quality of homework. Too many salespeople try too many shortcuts, and too many, unfortunately, do not have the proper found-ation or expertise to qualify as counselors. Bill Broadbent, S.E.C., once said, “No homework, no deal, save ‘Luckmanship.'” Bill Broadbent is right. You must know all the facts for backup data.

2. Obtain full information about the client. Again, problem solvers get severe abuse from some for getting “too much personal data from the client.” Some critics of problem solvers claim it is none of our business when it comes to learning all of the facts and circumstances surrounding a client. Without this knowledge, we have seen clients “un-counseled” to the extent that they are buried in taxable transactions, clients taking properties that normally are unacceptable, or getting clients out of one problem into a bigger one. We must accent the fact that the more you know about your client, the better you can represent him. Additionally, it’s a lot easier on you. Some of the things we should know about clients? Hobbies, educational funds for children when needed, thoughts about debt obligations, business talent, organizational skills, dependability, plans for retirement and many, many more. These are all “get the facts” data needed as a part of the overall “homework.”

3. It is imperative to learn the client’s immediate objective. The client has a reason for doing something now; it could be real or pseudo. You must find the answer. Perhaps he may want to raise cash to retire a short-term debt. Perhaps he has his eye on another real estate purchase, or personal property purchase. All answers should be found before an attempt is made to find a solution to any problem. That’s the HEART of counseling. Find a solution only after you have recognized the problem. Find out the immediate objective, and you’ll be on your way to finding a reasonable solution.

4. The next step is to determine the client’s long-range objective. This is sometimes very difficult to determine, as many individuals have given little “open” thought to long range objectives. The counselor might have to probe to secure this data. However, everyone, and we mean everyone, does have a long-range objective. To be exceptionally effective in counseling, the broker is going to have to ask many questions to find out what the client would like to have “down the line.”
NOTE: A client is best benefited when a transaction solves his immediate objective, and leads toward his long-range objectives.

5. Objectives are attained when real estate produces the desired benefits. Thus, the real estate agent has another goal: to determine what benefits the client realistically desires in consideration of his existing assets. NOTE, we used the word “realistically.” Can a man with all cash buy a real estate vehicle which produces a cash return? The answer to this question is yes! However, can a client realistically exchange encumbered land in a zoning freeze, in tight money, for cash flow? This example might not be too realistic, considering the type and quality of real estate owned! Clients should become benefit-oriented, as their existing holdings are subject to producing benefits or lack of producing benefits. Most times we are working on exchanging properties for other real estate, which produces more benefits. This would be the lot owner exchanging a lot that produces little or no income for an apartment house that produces income, tax shelter, equity buildup, and hopefully, appreciation. Does this mean the former apartment house owner “gets nailed?” The critics might say so, but the former apartment house owner could be a builder and might need the lot for development (and made a fair profit on the apartment house).

Here are a few benefits people look for in real estate ownership. Remember, the list is endless, and limited only by your own mind.

A. Equity buildup by payoff or debt
B. CASH flow (before and after tax dollars)
C. Appreciation (a hedge against inflation)
D. Depreciation (tax sheltered against ordinary income)
E. CASH (converting an asset to cash)
F. Profit Taking (enjoying appreciation)
G. Building Retirement (putting excess dollars to work for future-year benefits)
H. Environment Changes (to acquire real estate in other areas to change pace: from the valley to the seashore)
I. Diversification (don’t put your eggs all in one basket)

As you can see by the above simple examples, people are motivated to do things because they want to change their benefits. It is this motivation and degree of motivation that must be determined by the broker.

6. Don’t let the dollar serve as the only measuring stick. All too often, both clients and bro-kers use the dollar as the final test in a real estate transaction. While the “dollar value” of an asset is important, other considerations must be “fairly” studied, such as: the client’s immediate objective, the client’s long-range objectives, the degree of motivation and the proper and realistic review of the client’s property being used in the transaction.

An example of this might be a client whose child needs a life-saving operation NOW. The client has no ready cash and will have to sell his only real estate assets, a vacant duplex on the wrong side of town valued at $30,000 if occupied. The duplex is encumbered by a $20,000 loan. We feel the client might not use a hard line “dollar” approach to the solution to his problem. Perhaps, the broker could sell the property for $28,000 today! If the client does not use the dollar as a measuring stick, he might be better off solving his immediate objective (the child’s operation) and taking the temporary loss of the $8,000 proceeds, $4,000 cash used for the operation, and the broker can use the remainder to buy another “rented” duplex or purchase a note at a discount. “No matter what the problem is, there is a solution,” said Richard Reno (and he is right!) The important point to remember is, “The dollar is not the final measure.”

7. The final reason for answering the question on “why counsel?” is: to build a working relationship between the broker and client. The client will become a better client once the above process is started and continued as he fully realizes the benefit of a broker working on objectives and benefits rather than the traditional “hit and miss” approach to real estate. It may sound strange, but a faith relationship is built between a broker and client. This is not a faith relationship of dependency, but a business relationship built on the hard facts of vehicle research, client research, short-range objectives, long-range objectives, maintaining a realistic composure, and continued communication between client and agent.

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