Credibility Counts: Should You Partner Or Build It?

[Luke Smith]

Real estate investing draws all kinds of people in. Some are looking for a quick score, others are looking for cash flow to retire early. Regardless of your reason to enter the industry, you're main action item is finding deals. In order to transact in some capacity, you need to source real estate deals. Sourcing a deal can be difficult depending on your track record and knowledge of the industry. Credibility is required in order to get in the conversation with a broker or even a seller. Since credibility is required, should you buy it or build it?...

As a newbie, you're probably just wondering where to start. Bigger Pockets is a great place for that! You're in the right place. Read up and you're on your way. Maybe you've read up and now you're ready to pull the trigger on a property. Should you source your own deals or talk to a real estate agent? Will they take you seriously? I mean, it is your first deal, right?...

These are valid questions. There are tons of arguments on whether or not you should source your own deal or use an agent. I would recommend both. As you're looking (search for tall grass, dilapidated houses, ugly houses etc.) on your own, leverage an agent (or multiple agent's time). It starts with a relationship. You don't need to pretend. Just be who you are. Be honest with the agent and let them know exactly where you are in your journey. They can choose to work with you or not. Obviously, the more money you have, the more inclined the agent will be to work with you (they're only human, right!) Get a budget and let them look for you. At that point you're on your way. 

For those with deeper pockets this is where the conversation gets more interesting. Should you build credibility all on your own or buy it? What I mean by that is, should you start from scratch and work each deal on your own or leverage your capital with others?

Some would argue that doing a deal on your own is the best. In this scenario you will reap all the rewards... and take ALL the rsk. If you're ready to drink through a fire hose, then great! Buckle up and take down your first property. You'll be sure to make mistakes, but you will learn from these and grow. Real estate really is great! It's one of the only things you can overpay for, mess up along the way, hold it for years and still (potentially) come out on top. For those that are more risk averse, they might consider the alternative to doing a deal on their own.

You can leverage your capital with another investor's expertise. When you think of a partnership, most people think of money, but in reality a partnership can be anything where all parties add value. One party can bring capital, and the other can offer their expertise or time. This is particularly great as both add value and bring something that the other does not. As a capital investor you can provide cash and piggyback off of an investor that knows what they are doing. There are many syndicators out there, but I'm just talking about your local market. If you're looking to get in to real estate and you have some money, you might consider partnering with a local expert.

This method allows you access to an expert's deal and builds your experience. Yes, you are still taking a risk, but you're doing it with someone that has a proven track record. Conversely, if you go into a deal all on your own, you'll be left to deal with everything yourself. Again, this is great because you'll learn a ton, but the risk is high and the potential that you'll make a mistake is even higher. By partnering with someone, you get to add the experience to your resume, your portfolio and you can leverage that on your next deal.

After do your first deal, you realize it's not that hard. But after your a few deals you can prove you're a real player in the market. You don't have to be the biggest fish in the pond, just a valid option. With this, you can garnish attention from those that may have previously overlooked you. This will help you get access to more deals. If you partner along the way you can sprinkle capital throughout your market. You'll start rubbing shoulders with all of the right people. You can also get involved with more deals because you haven't locked up all of your capital in a single property. Partnerships allows you access to more deals, and the ability to scale (provided the investments are bringing in a return) and diversify your risk.

Life is hard enough on your own. We already covered that real estate can be forgiving (over time), but consider how much better your experience could be to start off with an expert; rather than trying to do everything on your own. If you can't tell by now, I'm a strong proponent of partnerships (if they're structured right. Ask your CPA and attorney for advice depending on what each member brings/offers to the deal). I would argue it's better to buy this credibility by offering some capital and/or sweat equity with a seasoned investor rather than starting from scratch. To each their own. Food for thought...

Happy investing!