Vet'ing a mentor?

[Caleb Mclamb]

Hello BP,

I am just getting started and have been active in my local REIA, I have been approached, about a week after a meeting, by a member who has offered his mentorship and would like to do a deal with a 50/50 split. He is an elderly gentlemen who seems to have been in the business for awhile.

Of course I am exited and happy to have struck up a conversation with the right person, however I want to trust but verify. What are the best ways I can verify their credibility when I myself am new in the business and don't have the connections to just ask around?

Is there any way I can look up tax records to see the properties they own? To see what they've bought and sold in the past few years? 

As I said I just want to trust...but verify.

Thank you for any insight

[Bill Gulley]

Caleb, let a bit of my wisdom kick in here. Be assured, asking to meet family is way out of bounds, in some small town, the grapevine works very well, if an investor has been around, he will be know in RE circles. I don't think I have ever met family or friends of another I'd deal with as some way to vet them and I have never taken some young'n to any family dinner, that's just not business like.

Now, you said "elderly", I see you're a young guy in your avatar, your perception of his age may be different than mine, elderly to me is in his 80s, not 60s.

Now, if the guy is in his 80s, and just plays in RE as my dad does, trying to vet him as some active rehab type probably isn't the way to go, as close as my dad gets (or I do) is a phone call. He may not even appear on title, that's not to say he didn't facilitate a transaction or a project or originated some transaction.

Next, in a casual conversation at lunch, old guys usually like to tell war stories, ask where the property was. Listen to him. His favorite stories will be a good indication of his expertise and where he has been dealing, was he primarily a Realtor, money guy, did he swing a hammer, or is he more of the political connected type that facilitates deals?

His deals should have been local, rarely will you find an elderly guy in new waters. So, title companies, local RE attorneys, older Realtors that have been around are the ones to speak to. He probably deals with friends, he probably cuts deals on the phone, elderly investors aren't out driving for dollars anymore, they operate in circles that have been developed over the years. Trying to vet this guy like a younger fix n flip guy may not pan out as that's probably not his participation.

So, ask him how he participates and as J. Scott mentioned, ask about his contractors and suppliers. He might tell you and may say you can call them anytime.

OTH, these relationships are unique and there is an amount of loyalty between contractors and those that feed them or that have fed them for possibly decades. He may well want to protect his contractor relationship and while you're certainly entitled to know who the hammer bangers are and the construction firm and the particulars to that project, you aren't entitled to his personal relationship or past business dealings with that contractor, so understand the difference. Same with suppliers, he may get a 20% discount on cabinets, but you can't expect to walk into that cabinet shop in the future and get a 20% discount!

So, as to contractors and suppliers is the value of his past experience with them, that can be huge as those he has dealt with will probably be more responsive to his needs than to others starting out.

When you ask others about him, use a bit of tact as they may well tell him that you called. A title company or attorney may not be very specific and your question should probably be phrased to generalities. If I were calling, I'd introduce myself and simply say I'm considering entering a partnership with Joe Blow and I understand he has dealt with you in the past (whether or not he did, that's your understanding) and just wanted to ask in everything went smoothly? They may say....never heard of him, or they may say yes, we've closed deals with him and nothing was an issue here, or, they may say......well, keep your eyes open. Neither of these sources can go into details of past transactions, that is confidential and asking will be seen as rather unethical, asking them to be unethical putting them on the spot. If they volunteer information, then you can go from there, but they need to volunteer it.

Same with talking to older Realtors. I say older because this elderly guy has probably been around for decades and he may only be dealing with the old guys, a new agent may have only heard about him but hasn't dealt with him and if they did, as a listing agent, that experience will be rather limited. 

Those in that REI group know him, talk to them on the side, be aware they may have an agenda to get you to work with them as well, so take things with a grain of salt.

Now, hard core vetting: If he is or has been a Realtor, contact the RE Commission and ask to verify licensing, then ask if he had ever been sanctioned or had any action taken to his license status. If there was, I'd want to know when and why.

Same with HUD, HUD has a list of sanctioned players that have been barred or placed on restrictions, someone could be hit at different levels from never buying another property for investment by a court order to being excluded from HUD type financing or projects, if they have walk away as these are serious issues.

Run the name for criminal matters, if there are recent issues, even a DWI, I'd think twice as if they get nailed, sued, your project can be at risk. If there was some issue 30 years ago, it would probably have to be fraud related, that's a personality matter that doesn't go away, all other matters can be chalked up to circumstances or youth, if he was a Viet Nam protester or got busted in the 60s, use some common sense.

If he has a license, the Board of Realtors is another place to check, he could have been sanctioned at the Board level and not at the state level.

Ask him why he picked you to mentor!!!!  See if he blows smoke at you, like.... I just like helping newbies and how it's said. He may like them because:

1. they are easy to manipulate if they do things a little off, newbies aren't up on ethical dealings usually and older partners may not go along with something they do.

2. are they developing a bunch of birddogs, teach just enough that you'll need to come back to get deals done?

3. teaching takes time, but eventually you should be saving his time and energy. An elderly guy doesn't have much of either left, in that respect it's mutually beneficial.

4.   then, there are a few that are simply paying it back, true professionals do mentorships without strings attached or any other agenda other than working to teach and being fairly compensated in their participation.

Ask him what he expects you to do, what he expects you to  bring to the table. Sounds like the 50/50is fine as both contribute to costs, but you'll probably be the gofer which is fine because you'll learn a lot just chasing things down. Make sure you have a meeting of the minds!

Other than those hard vetting matters above, don't do your reputation type vetting until after the interview as you'll learn where to do you vetting, where to direct any concerns.

Frankly, what you really have at risk in this deal is your reputation if you simply watch your money and the property valuations, don't place funds anywhere without an audit trail for every dollar, receipts, contracts, deeds, deeds of trust all need to be accounted for in a business like manner.

Since this is his deal, it really does sound like a favor. It's rather obvious that if he contracted and had funds to do the deal, he doesn't need you. Even if the contract isn't sealed, I'd bet he doesn't need you. So, my feeling is that he probably is just paying it back taking you under his wing. Another point, he may not want to fool with a newbie that has no money, it takes more time, effort and brain damage to get creative when he doesn't have to go there, so it could be that's why he offered the deal to you, you're not starting in the basement so to speak.

Another thing, is he intending to hold this duplex as a rental, you need an exit strategy, you might buy him out or he you, I'd not suggest being a co-landlord.

This guy could also drop dead any minute if he's truly elderly, so ensure your participation can carry things off in the event something does happen and you don't end up with his son-in-law as your new partner. He knows he is in this position so talk about, he shouldn't mind going there. In that case, you might ask about the experience level of someone taking his place, but not to the extent of showing up at thanksgiving dinner.

Last points:

My dad is elderly, I think he did 3 deals last year (not family stuff) he knows more about RE and this town than any flipper who may have done 20 deals last year, hands down. Volume of deals done is not an indication of knowledge or experience as most seem to think. The issue is more to some old dog simply staying current. I was involved in 6 deals last year, I'm retired, only one do I have title to, many here on BP have done more transactions than I have in the dirt of RE, certainly doesn't mean they have more experience or any greater depth of knowledge (should be evident). What you're getting with some elderly guy is knowledge and experience, so don't go into the deal as you would partnering with an active bush beater, hammer banger, operator that digs the market every day, that's not what this guy is offering.

You need to bone up quickly on ethical and legal matters. Getting in with an elderly investor I'd bet, dollars to doughnuts, that he's living in the 80s, you need to be able to identify his strategies as to being current. Many old dogs, still do old tricks, what they will teach are old tricks. You need to determine how those old tricks are applicable under today's reality. He may suggest doing a financed option on that property, so you may have a little teaching to do too!

Be honest with him, after you ask why he picked you, you could mention your reservations just because you're so new, not that you don't trust him but concerned about jumping in. Listen to what he has to say, such a concern is prudent and something you should demonstrate.  

This guy, if elderly may just be doing this and going to the REI to have something to do, I'd not be trying to look at him as a guy trying to do RE like some 40 years old guy. Go ahead and vet the deal and him, but most likely, sounds you got lucky. Trust but verify, but consider what really needs to be verified in relation to what is actually going on. If he has a reputation as an old crook, move along, if the reputation seems good, I'd think you'd be fine. :)