Do you ever notice that so many people talk about real estate investing? Many people love to talk about investing in property although finding good deals, developing a team, creating a system, having some success and ultimately financial freedom all seems like very challenging tasks.
Do you ever notice that so many people have an opinion on real estate investing? So many people are happy to speak like an expert while their experience in a market, strategy or neighborhood could be little or even no experience at all! Who do you take your advice from? In my investing career I have been the recipient of unsolicited advice from many, many people in fact, so many it’s actually humorous!
Too many new investors listen to bad advice from the wrong sources. How about advice from realtors? Their role is to facilitate a transaction although so many new investors listen to realtors. We could apply the 90/10 rule here where 10% of realtors really excel at working with investors and could offer some helpful advice. Finding good realtors takes practice and those good realtors are definitely working with multiple other investors, so how do you get your foot in the door, so they send you deals? This is a very simple example of how working with a mentor can pay you dividends and make your real estate investing a better experience. We truly prefer you find and build a relationship with the effective yet elusive 10% versus the easy-to-find 90%! In fact, your mentor will tell you to build relationships with multiple realtors in multiple markets to allow you access to more deals and more growth.
No matter what realtor you decide to use you will still need to verify, verify, verify the information you receive. Here is one example: When a seller states all the rents are paid on the 1st of the month. That is great, we will require proof of deposits within 5 days of accepted offer to verify that statement to buyer’s satisfaction. There are so many more details to acquiring a good property and a mentor is certainly a way to help you get there faster and safer.
The previous example is pretty simple right? Let’s take this to the next level (we could do this all day!) How about if you are buying a multi-family property, what day of the month do you take possession/close the deal? I am shocked how many times I asked realtors that question and they tell me “the last day of the month” or “the first” and they claim, “it doesn’t really matter.” The truth is it doesn’t really matter TO THEM. It surely matters to me as the multi-family buyer. If I close on the 4th or 5th, I get credited the rents for balance of the month. No big news there, hang in there with me. My plan is to get credited the rents and also request to delay my first mortgage payment to the middle of the following month or even the second month out.
- What do you think that would do to your cash flow?
- What do you think that would do to your bank account?
- Do you think that could make you a better investor? Yeah!
- It’s essentially getting money for nothing.
Getting money for your knowledge and that is very powerful.You are correct, this investment is off to a great start with cash flow from the beginning. Asking a realtor questions such as this can be a good indicator of their experience. Never forget that you are in charge, and you get the final decision whether to proceed, back off the deal or find another realtor.
Even highly educated professionals such as attorneys and accountants can give you advice that may not be the best for you. They would never lead you wrong intentionally of course but often we meet professionals who do not specialize in real estate or certain creative strategies in real estate. New investors hear common statements such as “my accountant said I don’t need to incorporate” and “they recommended I just increase my insurance” or my attorney said, “this strategy cannot be done in this state.” These are common examples new investors face and my answer is always the same “perhaps it’s time you find a new accountant/attorney.” It would be best to find accountant and attorney that 80% or more of their business is real estate investors. Find these professionals and you have a better chance at getting good advice for your business. Your mentor can teach you how to interview and be certain you are getting the right professionals on your team.
Tip from Pip’s Path:
Seek legal and accounting advice. Using the proper corporate structure will increase your personal and corporate liability protection while legally and effectively reducing your income taxes.
Often times new investors make statements such as “my friend is going to mentor me” or “my family member has property and they are going to help me.” To assist you in evaluating the quality of their help please refer to above section regarding attorney and accountants. This is one of many ways to determine if this person the right choice or even capable of helping you achieve your goals. Do they even have a corporate setup?
Other considerations for selecting a mentor:
- Do they invest for cash flow or appreciation?
- Skilled investors invest for cash flow.
- Skilled investors enjoy appreciation when it occurs.
- Amateur investors hope for appreciation as that is often the only way they make money.
- What are their exit strategies?
- Skilled investors have multiple exits.
- Do they have experience teaching?
- Can they commit 3 full days to you? Plus, pre-work, plus follow up.
- Do they have a post mentorship follow up plan for you?
- Do they offer lifetime support?
- Do they have success with multiple strategies in multiple markets?
- Do they have success in creative financing and no money down deals?
- Do they have contracts and paperwork for various strategies in multiple states?
- What are their minimum criteria for properties?Do they know and use metrics such as cash on cash return, gross rent multiplier, cap rate, debt service ratio, etc. etc. etc.
- How many creative financing strategies do they know and utilize?
- What is their plan to get you from earned income to passive income and then portfolio income?Do they even have that plan for themself?
- There are so many considerations (these are just a few) to account for when selecting a mentor with the skills, strategies, plan and the time to help you.
Next time you are uncertain where to take advice (or you are getting some unsolicited advice) from I suspect you will view the other person differently. Don’t be surprised that you may have more knowledge than they do! Asking questions is key (be sure to read my blog called “The Power of Asking Questions”) to determine how they stack up and whether they may be a positive addition to your team.