Ethical Issues to Avoid in Real Estate Investing

Ethical Issues to Avoid in Real Estate Investing

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The global conversation about ethics has reached a fever pitch. Across the world and in every sector of society, it seems investors are increasingly concerned with the impact their investments have on the world around them. Profits are still consequential, but now investors want to do more with their money. They want to support sustainable, life-improving causes and steer clear of interests that pollute and drag down.

Table of Contents - Ethical Issues to Avoid in Real Estate Investing

Earlier this year, the CBC profiled an uptick in the number of investors who resolutely refused to invest their money with specific companies like Amazon, Facebook, and the manufacturers of oil and gas, cigarettes, and assault weapons, among others. The signs are clear: this generation of investors cares about the moral results of their investments, not simply the financial ones.

Those same concerns over ethics extend to real estate. Even in a market that would appear relatively innocuous, some instances will test your moral resolve.

Here’s what to look out for and how to avoid potential entanglements.

Are real estate ethics really important?

You might not think that real estate would be rife with ethical violations, but you might be surprised. An investigation conducted by the National Association of Realtors revealed that nearly two-thirds of real estate transactions involve some sort of ethical misdeed. The reason is simple: there is a pronounced distinction between behaviour that’s ethical and behaviour that’s legal.

For example, if you’re selling a piece of property and find out that a mall is going down the street, that information could influence a buyer’s decision to purchase or avoid the property. It seems pertinent to the deal, but you’re not legally required to let a buyer know about the mall. Cases like these are where the practice of real estate ethics come into play.

Understanding and adhering to them is critical to establishing trust and ensuring your investment dollars are being used to good effect.

Beware the land grab

Real estate organizations like REITs are great for real estate investors who prefer a passive income from their real estate portfolios. In these cases, investors choose to put their hard-earned money in the hands of experts and then sit back and relax while they rake in quarterly profits.

Before you choose this kind of real estate investment, make sure to examine the entire portfolio of whichever real estate company you choose. Some of these enterprises make a significant amount of money with unethical real estate practices like land grabs.

Let’s say that a developing nation demonstrates signs of improvement (in leadership, in the economy, in quality of life standard, etc.). In some instances, private investors from an industrialized nation like Canada who anticipate rapid growth in these nations will swoop in and buy massive tracts of land for a fraction of its original value. This swindles the nation’s inhabitants out of several million dollars and can have a horrible impact on land reserved for agricultural needs.

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Consider the climate

There’s no denying that humanity has had an impact on the Earth’s climate. The perils of climate change are becoming more evident with each passing day. This knowledge is growing among investors, and they’re taking steps to act accordingly. When you’re entering the real estate market, make sure to keep the climate in mind when you’re going about your daily tasks.

Use builders who follow sustainable business practices. Stress the importance of water conservation among your tenants. Small steps like these can dramatically influence your portfolio’s overall environmental impact.

Keep labour in mind

You don’t have to be a newshound to have heard some tragic story about employees of developing nations labouring for pennies on the dollar in near slave-like conditions. For years, several prominent brands have reaped exceptional profits by treating their employees like serfs. Though countries worldwide have taken steps to adopt fair labour laws, there are still places that blatantly disregard employee working conditions and payment.

When you’re investing your money in a real estate project — especially one taking place overseas — make sure that the people working on the ground (like construction labour, cleaners and property managers) are receiving fair pay for a fair day’s work.

Prioritize employee safety

If you’re taking a more hands-on approach to your real estate portfolio, you will inevitably work with third-party contractors. Maybe you’re rebuilding a roof. Maybe you’re remodelling a bathroom. Maybe you’re enlisting a land surveyor.

Whenever you’re working with other agencies, be sure to check on the relevant guidelines set forth by the Centre for Occupational Health and Safety. These rigorous rules are designed to keep all employees safe while they’re working on the job. If you discover a contractor that routinely disregards CCOHS standards, it’s best to avoid doing business with them.

Remember good faith regulations

When you’re attempting to sell or rent a property, you must make efforts to remain as honest and transparent as possible. For example, if you have information that could persuade a potential buyer or renter against the purchase — whether it’s issued with the foundation or a troubled history — you should disclose it to the client.

If you’re using a real estate agent to market your property, they should be responsible for disclosing pertinent details, as well.

Don’t sacrifice your ethics

For the longest time, cynical investors have argued that ethics have little place in a profitable real estate portfolio. After all, they argue that ethics are expensive. Taking a cut on profits to disclose information to buyers or paying workers a decent salary costs money.

Still, as the world moves toward more frequent ethical activity in the world of real estate, more and more firms are discovering that behaving ethically can be extremely profitable. All it takes is a little more homework and some patience to see a major (and prolonged) improvement to your portfolio’s strength.

Pitfalls to Avoid


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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.