A common problem we all face as real estate investors is falling prey to bureaucrats. I believe bureaucrats have crashed and burned nearly as many win-win deals as has sellers who said no to an offer.
Sadly, inexperienced investors don’t yet know that it’s OK, in fact it’s their duty to question authority!
I’m reminded of a great Jack Miller quote: “If you can’t outthink a bureaucrat, you have no business being in business.”
Concerning bureaucrats, the biggest lesson I learned from Jack is when a bureaucrat tells you you MUST or MUSTN’T do something, don’t take their word for it. Instead, ask for chapter and verse. “What does chapter and verse mean?” you ask. Simple, ask the bureaucrat for the code section – the law – that requires you to do or not do that thing.
Here’s a recent example of this at work. Some months back Kim and I made a loan to Melfin to buy a trailer park in Rome, Georgia. Since buying the park, he evicted all the deadbeat tenants and has begun rehabbing each trailer. (Yes, I use the terms “trailers” and “trailer parks.”)
About two months ago, two bureaucrats from Rome descended on Melfin and threatened to condemn his park. The chief bureaucrat told him he had to remove two of the trailers, secure the other trailers (board them up), apply for building permits, and remodel the trailers according to code.
I got a very worried call from Melfin almost immediately.
A meeting was scheduled with the two bureaucrats at Melfin’s park. Upon meeting face to face, the chief bureaucrat told me what he REQUIRED be done.
“Required” is a strong word. It means: Officially compulsory.
Wow, officially compulsory, ain’t that a kick in the crotch. And this is where most newer investors cow down. This is why you want experienced, seasoned real estate investors…you know, investors with grey hair and bald heads…in your deal with you or at least looking over your shoulder. They’ve been around the block a time or two and will help you navigate uncharted waters.
When the bureaucrat said “required,” I asked for the code section. He looked at me blankly, then repeated what I had just said, “Code section?”
“Yeah, the law,” I said. “If what you say is required, then there must be laws on the books stating such.”
I then pointed out that all the trailers in Melfin’s park had VIN numbers. Because they have VIN numbers, they’re considered to be a vehicle, like a car, a RV, a house boat, a plane, etc. This means the building code that’s used for houses doesn’t apply to mobile homes.
Next, I asked about the code section concerning the two trailers the bureaucrat said MUSTbe removed. You’re gonna love this. The bureaucrat said, “There’s no law that says they must be removed, it’s just that if I owned this park, I’d remove those two trailers and replace them with new ones.”
“If YOU owned the park, you’d remove the two trailers? You mean it’s not the law?” I asked. Then I just let the bureaucrat babble while he hung there in the wind. He knew he had gotten ahold of a tar baby, but unfortunately, he wasn’t Brer Rabbit.
I’m reminded of a great Pete Fortunato quote (aka Peteism): “Don’t let someone’s traditions affect your transactions.”
Lest you think bureaucrats are only government employees, in my world, lawyers and realtors fall into this category as well, because many love telling me – OFTEN WRONGLY – what I can and can’t do.
Let’s take realtors first. Y’all know I door knock. This means I also knock on sellers’ doors that have realtors’ signs in the yard. If only I had a nickel for every realtor who called to chew me out and inform me that what I was doing was illegal. (For the record, it’s not the least bit illegal, though there are rules for realtors who knock on other realtors’ listed properties.)
Now let’s look at lawyers. Some years back, Kim and I were at a closing in Georgia buying a property. A Title Holding Trust would be used to hold title.
At closing, I explained to the attorney that I’d be signing the docs as the Alternate Trustee. He told me it was illegal to use an Alternate Trustee in Georgia if the Trustee was in town. Huh?
I asked for chapter and verse. Guess what the attorney couldn’t produce? Yep, you guessed it, the code section that said an Alternate Trustee can’t be used if the Trustee is in town.
And this is where it got good. I asked the attorney why he said using an Alternate Trustee was illegal when in fact it wasn’t. He said, “Bill, I’ve never seen anyone use an Alternate Trustee before. I don’t even know what an Alternate Trustee is. To be safe, I thought it was best to not use an Alternate Trustee, so I told you it was an illegal thing to do.”
Can you believe that? Damn bureaucrats!
The problem with bureaucrats is that too often what they tell you is based on what the bureaucrat deems is procedural correctness; what the bureaucrat desires to have happen. It’s NOT based on law. That said, unless you know to ask for chapter and verse, because the bureaucrat states something as if it were the eleventh commandment, you believe him or her.
We hear the phrase “public servant.” We take this, wrongly it seems, to mean servant of the people. Unfortunately, way too many bureaucrats define public servant as demigod who is not to be questioned!
I need to pause for a second. Certainly, I don’t think this fits the bill for all or even most government employees, lawyers, and realtors. Experience has taught me the vast majority of bureaucrats are extremely helpful and many have kept me from making some powerfully big and stupid mistakes. I’m very grateful for their guidance!
Let’s look at two more examples of bureaucrats in action.
Let’s go back to the early 2000s when I first tried to secure (using a Security Deed) an Option to a property. I took the signed, witnessed, and notarized Security Deed to the Clerk of Court’s office in Bartow County, Georgia.
Upon handing the document to the clerk, she told me I owed a hefty Intangible Tax. I explained that an Option was being secured to the property, not a Promissory Note. Because of this, no Intangible Tax was due.
The clerk told me the law clearly stated that whenever a Security Deed was recorded, Intangible Tax was due, plus a Security Deed could only be used to secure Promissory Notes, not Options. If I wanted to record an Option, I needed to use a Memorandum of Option.
Once again, I asked for chapter and verse. An hour-and-a-half later, and after a number of face-to-face conversations with her superiors, it was realized that there was no law forbidding me from securing an Option to a property via a Security Deed, and because it wasn’t a loan of money, no Intangible Tax was owed.
Fast forward to earlier this year. I needed to secure an Option using a mortgage to a property in Tampa, Florida. The clerk told me the exact same thing. An hour later, and after several face-to-face meetings with the clerk’s superiors, the mortgage securing my Option was recorded and no Intangible Tax was paid. Different state. Same results.
It’s important to know that when I’m dealing with a bureaucrat, I’m not a fist pounder. I don’t yell. I don’t get frustrated. I don’t raise my voice. My smile doesn’t disappear. I do my best to not let my smartassness come out. And when we’re done, I make sure to thank everyone involved and return soon after with a box of cookies or a gift card to a nice restaurant.
When negotiating a chapter-and-verse disagreement with bureaucrats, let curiosity be your number one emotion, not anger or frustration. A simple question like, “Would you please explain this to me in a way I understand it?” will take you much further toward achieving your goal than will cursing and fist pounding.
When it comes to bureaucrats, I try my best to NOT be like my friend Pete Fortunato. He’s famous for walking into government offices and inquiring, “Does anybody competent work here?” (I kid you not!)
As real estate investors, one of the skills we need to master is learning how to fight back against bureaucrats. Just because someone tells you a thing is a certain way, it don’t make it so. If you tell me it’s the law, then I’m going to ask you to show me that law. If you can’t, then it means I can.
Love y’all,
Bill Cook
Want to learn more about ADVANCED Creative Deal Making? Go to BillandKimCook.com. It’s packed with you-won’t-find-it-anywhere-else structuring techniques and strategies. You’ll also find in-depth video interviews with many of the best real estate investors in the country. Bill and Kim Cook have been successfully investing in real estate since 1990. Their portfolio consists of single-family rentals, Lonnie Deals, a small mobile home park, plus notes and options.
