Three Key Pieces of Real Estate Investment

After every deal closes, I do three things: 

1) I quickly celebrate (something I should probably do more of once I execute on the business plan of the investment, but hey, you can't even start the plan until you close the purchase, right?) This is not a large celebration, perhaps a drink and/or dinner with my partner(s). Enough to refocus our minds from getting the deal to the closing table, to executing on the plan.

2) I immediately - (within 24 hours) get going on the plan that was laid out well before getting to the closing table. Whether that's ordering material, launching the marketing, giving the go ahead to the contractors, etc. I waste as little time as possible.

3) The last thing I do is post-analyze the deal. (I actually do this twice - once after close, and once after execution of the plan for this specific property). 

So what exactly is post-analyzing? Nothing hidden here. It's exactly what it sounds like. After each deal closes I like to go back through my notes, emails, conversations, calculations, assumptions, etc. and analyze what went well, what had not been accounted for, who played large role's, and what needs to be improved on during the next deal. I've been able to uncover a lot of useful data for myself during these sessions - none more important, however, than figuring out what I feel are the three most important pieces to a successful real estate investment.

1 - Criteria

2- Terms

3 - Network

Understanding your Criteria and sticking to it, knowing what terms you need to close the deal, and leveraging your network to put it all together will lead to a multitude of successful investments.

CRITERIA

Simple. What do you invest in?

Are you a fix and flipper? a BRRRR-er? Multi-family buy and holder? Do you invest in office space, storage facilities, vacant land, mobile home parks? It really doesn't matter what you invest in, so long as you come up with your parameters and stick to them. For example: If you're a fix and flipper than perhaps you focus on SFH with a SF size of 1,100 to 1,400 with at least two bedrooms, in areas x, y, and z. As you get more deals under your belt you may find that your criteria becomes even more detailed - now your investments must also be built after 1950 and have attached garages. The more deals you do (and post-analyze) the more information you will have access too and the better you'll be able to fine tune your criteria to set you up for future success.

That being said, you will never hear me say that you have to focus in on only one niche, and that you will not be successful in pursuing multiple REI ventures, but what I will say is this; having success over and over in one REI segment does not necessarily guarantee success in others. 

TERMS

Criteria is what you buy and the Terms are how you buy it. The terms of acquisition can have the ability to make or break an investment. While it's a little tougher to say that the right terms can make an awful property an incredible investment, I will say that the wrong terms can make an incredible property an awful investment. The terms of a deal are always negotiable, to an extent, the more you know about the different ways to take title and obtain financing to the property the more equipped you'll be to negotiate your way in to a highly beneficial term structure. Things to consider when purchasing your next investment:

• How will you take ownership
  • Lease with an option to purchase
  • Master Lease with an option to purchase
  • Land Contract
  • Traditional transfer of warranty or covenant deed
• When will you take ownership
  • Do you want ownership immediately
  • Do you want the option to purchase to be 1 year out, 2 year, 5 years?
• How will you finance the acquisition
  • Are you paying cash?
  • Are you obtaining a traditional Commercial Real Estate Mortgage?
  • Are you using Hard Money Loans
  • Are you syndicating the deal?
  • Are you forming a a Joint Venture with a partner/partners?
  • Is seller financing available in any form?
• What will the acquisition cost?
  • How many points/fees will you be paying to borrow money
  • What are other associated costs; title, appraisal, legal fees, transfer fees, etc.?
  • What interest rate do you want/need?
  • What is the amortization period of the financing?
  • How long is the interest rate fixed or variable?

While it's always the goal to get the best terms, it's going to be difficult to do so if you are not knowledgeable about all the tools that are available to you. You can find out about a lot of these tools and how to implement them into your plan by performing a lot of due diligence and reading/learning. You can also use the last of the three pieces of the REI puzzle. Your network.

NETWORK

The more I educate myself and the more I invest, the more I come to believe that the most important piece of REI is your network. Having a strong, knowledgeable, and ever growing network will provide you with a necessary supply of tools and opportunity. From there, you still have to be able to vet the properties efficiently to see that they meet your criteria, and you still have to structure the terms of the acquisition to set yourself up for success. The best part though, is that by building relationships with people who know you, like you, and trust you, you won't have to do it alone. Investments made in building a strong network will pay more dividends than any one property you may ever purchase. In order to expand your network, you have to be willing to expand your footprint - doing small things such as investing time in your LinkedIn profile, participating in BP forums, join a REI meetup group, if there isn't one near by, see if you can join by skype, facetime, go to meeting, etc., start a podcast, Blog, or other thought leadership platform where you can share your own experiences and lessons. Have lunch with a realtor, attorney, title company closing agent, appraiser, etc. and let them know who you are, and what you do. I can bet that if you really think about it, there's at least one person you've met while investing and or educating yourself that has had an immeasurable affect on your REI story to this point.

In closing, know what your target is, educate yourselves on the different weapons you can use to acquire the target, and keep building a stronger team to increase the opportunity and efficiency of these missions!

Good Luck!