By Dave Peniuk Submitted On September 29, 2010
These days, a lot of attention is put on how to find money to do your real estate deals. But what if you’re someone with a bit of money to invest? How do you know what makes a good deal?
One of the easiest ways to invest in real estate when you have the cash to invest is to partner up with someone that has a great track record, is investing in the kind of deals that work for your goals and can offer you a deal that makes sense for your money. But how do you find them? And how do you screen them to make sure they are a good fit for you, and for your hard earned cash?
These days the easiest way to find prospective joint venture partners is to do a search online. Most of the folks running an investment business have a website or blog dedicated to explaining the types of deals they do and providing some sort of education and information. You could do a search for real estate investment opportunities and your area to find someone local.
But, personally, I think the best way to find someone to invest with is to drop into a couple of your local real estate investing club meetings. You can also ask your friends and family if they know of anybody successfully investing in real estate.
Once you find a few different people, meet with each of them face to face. In my opinion, you are investing as much, or more, in the person’s ability to manage the deal as you are in the deal itself. You want to make sure the person you’re investing your money with checks out.
Ask yourself and your prospective partner:
Does this investment fit my goals? If you want to learn about real estate along the way you might want to find a partner that is willing and able to teach you as well as invest your money. If you really want to be hands on with your deals then you will be looking for somebody that will work with a hands on partner and perhaps give you a greater share of the deal in exchange for your efforts. Or if you want to wash your hands of the whole thing, make sure you find someone capable of making good decisions once you’ve turned over your capital. You have to know what is most important for you – and then check whether this prospective partner and the deals they are doing will fit with your goals.
What is your track record? Past performance doesn’t always indicate future success but how this question is answered can tell you a lot about someone. We’ve earned one of our partners over 700% return on his investment in six years. We also earned the same partner 110% on another investment in five years. I rarely mention either of these examples to prospective partners because I don’t want to set expectations that high when much of that return was thanks to a rapidly increasing market. Instead, I will tell them that there are no guarantees in anything, let alone real estate but because of x, y and z I feel pretty comfortable suggesting a 15% – 20% return on most of the investments we do.
Listen carefully to how someone answers this question. If they tell you about their best deals and don’t mention the worst, dig into the bad deals they’ve done to get a sense of how they have learned from their past experiences. And to get a sense of how honest and upfront they are. Look for a decision making process and an ability to take responsibility for the bad deals. That’s far more important than finding someone who made a 700% return on someone’s money one time.
What is your credit like? Can I get a copy of your credit report? If you’re going to turn your money over to someone to manage I think you have every right to understand how your prospective partner is managing their own money. I would never trust someone else with my money if they can’t even manage their own. Nobody loves MY MONEY as much as I do so if somebody else isn’t loving their own money how can I feel comfortable they will give mine the attention and care it deserves?
Do you have references? Ask to speak with one or two of the people they’ve partnered with before. If they’ve never partnered with anyone you could speak to present or past coworkers. I believe a good indication of how someone will handle themselves in their investments is how they handle themselves at work. If they were good decision makers and got along well with others at the office then there is a very good chance they will get along well and make good decisions on your deals.
Asking these questions is a good start but it’s not enough. ALWAYS go and check out the deal yourself. It’s not about second guessing the expertise and experience of the person you’re working with, it’s about covering your butt. Look at the property to identify work that might be required in the near future. Walk the neighbourhood to make sure it’s a good market to invest in. And ask any questions you might want to know about how the property will be filled with tenants (who is doing that, how do they screen tenants, what do they look for in tenants).
Finally – determine if there are alternate exit strategies for the property. Are there other ways to get out of this deal if the proposed strategy doesn’t work.
Once you’re satisfied with all of the above then you can feel comfortable and confident moving forward to discuss terms of the deal and possibly get into real estate with a joint venture partner.
Dave Peniuk is a full time real estate investor with a passion for helping other investors succeed. Get his Real Estate Investing Starter Tips Guide free when you sign up for his weekly real estate investing newsletter at http://www.revnyou.com.
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