Monday, January 4, 2010

The Ethical Investor

The Ethical Investor
Dishonesty and unscrupulous behavior may succeed in the short term, but ultimately everyone loses when an investor is unethical. As in the recent devastating housing crisis that caused honest and dishonest investors alike to struggle and now bear the consequences of increased regulation, the backlash of poor ethics affects us all.
Some questions are harder to answer than others when it comes to ethical investing. Is it ethical to promote no money down deals that may save someone from bankruptcy, but the buyer may be naïve in his understanding? Should a landlord rent to all people who have the ability to pay, or should he make judgmental decisions on the kind of neighbor this tenant would make? What should be the guide?
These questions are simple when they apply to cases of obvious misleading or fraud. If there is a rule or regulation, it needs to be followed to the letter and spirit of the law. If that means investment returns are reduced on that transaction, so be it. As soon as law abiding becomes subjective, a society collapses. In investment decisions that are not as clear-cut, as in the above examples, a good rule may be to put yourself in the prospective client’s shoes. If you would feel correctly advised, informed, and fairly treated with the same tactics, then you may likely proceed with a clear conscience. If it is a deal that you would not accept were you to know all the facts, then it is likely a transaction with ethical issues.
Ultimately, the crux of the question is whether real estate investing is an honest endeavor? If you believe it is, then you should proceed to make deals that reflect that integrity. If not, then get out of this business and shine shoes. Your soul is too precious to throw away.

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