Where do YOU Live on the Real Estate Spectrum?

[Don Konipol]

In my mind there are 4 general categories of participants in real estate investing 

1- ADVISORS - Attorneys, accountants, title company employees, contractors, appraisers, etc - usually compensated fixed fee or per hour 

2 - INTERMEDIARIES - Real Estate brokers, mortgage and loan brokers, “wholesalers”, - usually compensated percentage commission

3 - MONEY MANAGERS - Real estate investment fund managers, mortgage fund managers, REITs, managers with discretion as to investment purchases, trust fund managers, etc.   - wide variety of compensation methods include percentage of assets under management, “promote” as a percentage of profit, equity ownership as compensation for sponsoring deal.  Differs from intermediaries because money managers have authority to invest without needing approval of money investors. 

4- INVESTORS - Investing THEIR OWN money in real estate, mortgages, and real estate related investments. Compensated by ROI.

Now, many people, including myself fit into more than one of these categories.  For example, I am co - manager of a private real estate high yield mortgage fund, a real estate equity investment fund, and I invest my own money not only in the funds but also in whole mortgages, real property, REITs, and other syndications.  So this covers #3 and #4.  But, we also make money because I own a commercial mortgage brokerage that earns 3-4 points on loans my fund makes.  So that puts me somewhat into category #2 above, arguably, since we do not broker deals that our fund doesn’t finance.

Admittedly my view is bias by my personal experiences, but I have found that those individuals in category #1 to be, for the most part very competent and professional.  Same for most, with a few  exceptions for category #3 and #4.  It’s category # 2 where I’ve found the widest gap between professionalism and incompetence.  Most of the mortgage brokers, real estate brokers, etc are very professional and have a good basic knowledge of real estate.  However, these positions being a large part sales, have obviously attracted the type of salesperson who hops on whatever is selling at the moment.  I have encountered people acting as intermediaries with little knowledge, training, or experience or understanding of the field they’re involved in.  They usually make ridiculous proclamations about the strength and desirability of a deal without the slightest idea of how to evaluate a deal.  A good friend of mine was just such a salesperson.  In a 24 month period he was a mortgage broker, oil and gas participations salesperson, sold “vitamins” which improved your vision, sold burial insurance, life insurance, disability insurance, rental furniture salesperson, mobile truck washing, temporary office space, and for sale by owner house advertising.  

So, which categories do you operate in?  Do you agree with my analysis?  What’s your experience?