We use a term in real estate investing coined the “professional real estate student” or PRS. This is the person who goes to all of the REI meetings and seminars, yet gets paralyzed when it comes time to pull the trigger on a real estate deal even when they have 20 pages of information and 10 hours of research invested into that deal. They are seminar junkies, addicted to the illusion of progress, but they never get the first deal done.
The second type of investor is the dealmaker or DM. DM’s take their training and information that they have and they pull the trigger to get deals done. I will go to battle with a dealmaker who has awful credit and no money, as opposed to a professional real estate student who has $200,000 and great credit; because I know I will get more deals with the DM than with the PRS.
PRS’s tend to over analyze, and the DM’s learn, implement and execute. To bring on some EP’s, you need to understand the mindset of what makes them a partner and not just an investor themselves, because I’m sure you’re reading this and saying to yourself why not just do it themselves without me? Most of the time, it is because they already have a full-time job and other obligations that spread them and their own mind as thin as they can get. They also perceive ‘that it takes liquid cash to make money in real estate.’
You need to show the EP that you have them covered in real estate, and that they can leverage your contacts, deals and your time to share in the profits of a partnership and real estate. They understand profits, and equate that to money invested out of their pocket, but you will show them a different and better method. Without you, the deal won’t get done, and you need to remember that. You’re the one finding the right deal, or at least you will be by the time I’m done with you… you’re the one coming up with the financing plans… and you are the one ensuring the house gets maximum volume so that when it’s sold everyone makes a cash windfall on the deal.
This is the eight second elevator speech on how to get people to invest in you…“I’m not going to let today’s tight lending environment dictate to me how many deals I can do and the best time to buy real estate…I’ve gotten so many deals in my lap that I’m actually bringing on partners. I’m getting such good deals that my EP’s don’t have any money in the deal (*no money due to private funds in hard money this is further explained in Manual Four), we don’t close on any deal that does not have at least 30% equity, and I am more than happy to share the profits and cash flow on the backend.
Here’s how it works, first I find the property and evaluate it, it gets purchased, then I fix the property, rent/lease option/flip the property, manage the property, market the property, maintain relationships with our REO specialist, handle contracts/title/insurance/inspections, etc. and also manage the buyer. I’m committed to buying a house with 30% equity or more and I know where to find them. I have a team in place to help make sure the deal is good and I direct the negotiation.” You can also tell your partner they receive the tax deduction until it sells or you buy it from them later at an agreed-upon price.
All the equity partner needs to do is…
- Apply online to make sure they qualify for investment financing.
- Set a phone appointment to go over some questions with you.
- Get their income and assets documents to your lender.
- They get preapproved and are ready to buy.
Here are some scenarios to consider:
Scenario#1: Utilizing a Hard Money Lender then transferring into traditional financing
Scenario #2: Traditional financing
Scenario #3: Using all EP funds
Whoever can get the most equity partners lined up in this tight lending environment wins! The key is to always be looking to bring on more EP’s, even if you already have a few lined up. You never know when you will need more. You may be asking yourself, “I can qualify now on my own, why would I want to bring on an EP?’” Because most investors will get stuck after 4 to 10 financed homes, and an EP, on average, is another 6 deals to grow your business. If they bring on 6 partners and do 6 deals a piece then that would lead to a potential of 36 deals, as opposed to doing only 10 on your own.