“What are the 3-10 things that I can do to start investing in real estate immediately?” Josiah asked.
Answering this question was fun, and after that, I saw the same question pop up in different ways all over my life.
Real estate investing is a simple business, but execution is difficult. It all comes down to a disciplined, consistent approach to building relationships.
What is a deal?
First, and foremost, you need to first understand the basics of a deal.
A deal is when an opportunity meets financing.
An opportunity is a piece of real estate with clear business plan to profitability. Financing is the money required in the form of debt or equity to execute that business plan.
You don’t have much before these two come together. It’s nothing but a lead.
How do you find opportunities?
You hear it all the time, “real estate investing is a relationship business.” But, what does that actually mean?
The pipeline is the lifeblood of any real estate operation. It fills up by consistently interacting with major deal sources – brokers, owners, and influential third-parties.
- Brokers – these men and women hit the street to meet with owners daily. They provide value-added services to convince owners to list properties with them. They control most of the available opportunities in any normal market.
- Owners – these are people that own properties in your market. You may build relationships via local meetups, conferences, previous deals, etc. Most astute investors will always use a broker to maximize exposure (and sale price, as a result), but your relationship could help win a deal if it comes to a coin toss.
- Influential third-parties – these are the folks that provide services to real estate owners and brokers. They could be accountants, attorneys, contractors, architects, etc. Opportunities from this source are scarce. Still, you need them for execution, anyway, so you may as well put them on notice that you’re in the market for interesting opportunities.
How do you find financing?
Financing comes in two flavors – debt and equity.
Debt is abundant and relatively easy to find in a normal market. Align with good capital brokers to run a process to get the best interest rate and terms.
Equity is more challenging.
Think of prospecting for a romantic partner. Lenders are good for dating because it’s a low-risk proposition. If you don’t get along, you just move on to the next lender.
Investment partners are more like a marriage. You commit to share all the good and the bad. In sickness and health. Therefore, the courting process takes more time and energy. You need to prove to your potential investor that you have what it takes to execute the business plan effectively.
The process for finding investors is similar to what I described earlier re: opportunities.
First, make the commitment that this is something you want to pursue. After that, put it out into your network that you’re interested to meet potential investment partners. You’ll be surprised by the types of people that emerge.
Note: it’s important to consult your compliance team (attorney and accountant) when you bring on potential investors to be sure you’re meeting all the SEC requirements.
So, what did I tell Josiah and others like him?
Basically, money will find its way to make a good deal, but you must find a good opportunity first.
My five step process:
- Connect with deal sources – brokers, owners, and influential third-parties – and build fruitful relationships
- Create a system to efficiently evaluate every deal you come across
- Find a mentors on BP or in your area that can give you advice along the way
- Build routines and habits help you stay consistent with your prospecting
- Get a good opportunity under contract – the money will come, even if you need to flip the contract