Strategy Review - My Entry Into Real Estate Investing

[Drew Clements]

Hi All - If you'd be so kind as to review my strategy for entry below, I'd appreciate any thoughts, insights, warnings, etc. you may have! But first, some context...

My degree is in business management with a marketing emphasis. By day I run an online marketing agency in Colorado. But for the past year and a half, my wife and I have been remodeling our duplex - our first "deal" - and I'm doing all of the work myself to make the "numbers" work. It's turned out to be a live-in flip/rehab of sorts as we plan on selling it in a few months given the very favorable market conditions in our area. In other words, we paid too much for it, it's an old house that's surprised us with deferred (but covered-up) maintenance, and we'll be lucky to "break even" not counting our time when we sell. Chalking it up to tuition.

SO now that we're a little smarter, we're trying to figure out a better strategy for entry (round 2). Here it is:

Last week I called up a family friend who has been working in real estate for decades... he's an agent, owns his own construction company, and is getting old :)

I wouldn't call him a sophisticated investor, but he has the skills I lack and I think we're very complementary. This is element #1 of my strategy - leverage an existing track record.

During our call, I pitched him on me bringing my skills (general business management and marketing/advertising) to the table in exchange for the opportunity to use them - i.e. he would enable me with his skill set and I would help him to scale, using his track record as a springboard to craft a win/win situation. I originally thought that I could help him with his deal flow through advertising, but as we talked, I discovered that although that is something he's interested in expanding, his immediate need is investment capital.

Turns out that, of course, he's maxed out on the conventional financing side of things so all of the deals he's doing now are financed with hard money. He's known that he needs to get started with raising private money for years, but hasn't been able to make it happen. I'm confident that I can make it happen, though, so I'm volunteering to take on the task of raising capital.

Once I figure out and refine/streamline my process for raising capital, my next goal is to scale and balance incoming capital with incoming deals.

Now, I don't have all the details yet, but I know that there's a lot of opportunity to get into hot water in the process of raising private money (i.e. SEC regs on advertising, etc.) so I plan on consulting a real estate attorney as part of the setup and refinement of this campaign.

That's the basic vision for what I plan to do. But I would really like to get feedback on any relevant points from those of you with experience in working with other investors and raising private money (e.g. action/awareness items for a newbie).

Also (and this may sound strange) but how do I make money in this? I've pitched this all to my investor friend with a general "I'll eat what I kill" approach so as to align our interest and not be a drag on things. But to be honest, I'm not sure how to structure in the eating when I'm not sure what's being killed when it comes to raising capital. Bringing in leads/deals is one thing, but what is the value of bringing in a private money lender in dollars and cents? This seems like a non-standard approach, so any advice in evaluating and realizing the value is appreciated.

I'll wrap it up with that as this post is getting long, but I look forward to discussing your insights and advice!