It is human nature to want to squeeze as much profit as you can out of every single deal you come across. Most people in business associate profit margins with success. To be fair, this is true. However, monetary gains are only a part of real estate investing. While this approach may work on certain deals, it will ultimately come back to haunt even the most experienced of investors. There are many scenarios in which making less can have a much greater impact on your bottom line. You want to try avoiding making more at the expense of others, as real estate is a people business. Retaining relationships is perhaps more important than the bottom line of a single deal. The trick is knowing where to pick and choose your battles. More importantly, when should you think about the big picture?
When you go to investor club meetings, you will often hear stories about investors’ triumphs. However, you will quickly learn that those investors who talk the loudest are often the ones that have closed the fewest deals. They find a need to hang onto those deals, no matter how few and far between they may be. Chances are, they ended up in their situation because no one wants to work with them anymore because of their greedy approach. While they may brag about a large profit, they probably lost a good partner in the process. More importantly, they probably lost the prospects of future partners as well. You may be able to milk one deal for all it’s worth, but the odds of you working with anyone involved in the transaction again will be very slim. Again, real estate is a people business. Don’t burn bridges unnecessarily.
The HUD-1 settlement statement is an itemized report of all closing costs for everyone to see. Anyone that has been in the business a few weeks can read one and know where every cent in the transaction was allocated. If you are charging outlandish fees or demanding unwarranted credits; attorneys, realtors and everyone else that wants to will see and recognize your feeble attempt to make an extra buck. It probably won’t have an impact on the current deal, but moving forward you will lose the benefit of the doubt when it comes to working with those people again. They will see your name on the buying or selling side and, unless they have to, they will work with someone else.
If you do this enough, you will start to lose business and your contacts will shrink. Conversely, if you are fair with your time and fees, people will want to work with you again. If you ever saved someone money, they will surely remember it. Even if they are not in the business, they will tell someone about it and you increase the likelihood of gaining a referral. People in business (realtors, attorneys, investors) talk to each other all of the time. If you are known as someone that is good to work with, you can bet people will want to pursue a deal with you.
At the end of the day, being greedy is not worth it. The amount of money you can make on one deal is not even close to the total you can make on building a good reputation over years. A relatively small amount of money can go a long way. Before you try to squeeze every dime out of your next deal, remember that.