Leveraging People to Create Multiple Income Channels – Part II

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Real estate is not about houses or location. It’s about leveraging people for your benefit, and theirs.

Understand why each member of your network is important and know their roles

Ask any millionaire if they got wealthy alone. They will undoubtedly respond with an emphatic “no”. Business and investing are team sports. You must know who your team should consist of and understand their individual purposes because without them, you will go nowhere fast. Building a good real estate investment team starts with your chosen exit strategy for each particular deal you do. This can be done by working backwards in your head from the estimated profit all the way to the beginning with the purchase or control of a particular deal. As an example, let’s look at a typical rehab project in today’s market, working backwards in this exercise – like professional investors do in real life:

• Profit – will require the sale of your finished home to a qualified buyer. Because lending guidelines are so tight right now, a real estate agent will be the best alternative to market the house and snag a qualified buyer. Get to know several excellent agents who understand real estate investments or are investors themselves, so they can help you from start to finish on each deal.  Remember that real estate listing and sales services will cost a standard 6% of the final sales price, so make sure you deduct this from your estimated profit margin. A talented mortgage professional (loan officer) will help you structure your deal with an eventual buyer based on their credit and financial profile. Make sure you add several loan officers from banks and small mortgage brokerages to your network and explain your strategies to them before you buy. In tight credit markets such as this one, “investor friendly” loan officers will know which exit strategies are working and which ones aren’t.Appraisers, in conjunction with loan officers, will show you geographic areas to avoid buying homes in. There is no sense in trying to flip a deal where property values are declining or are too low to make any significant profit. Note buyers are just like loan officers but they can often fund your potential buyers on more liberal terms that loan officers. This helps you to sell faster and move on to your next deal. Get to know a multitude of note buyers and what they can fund that loan officers are having trouble with. You can’t possibly meet enough Million Dollar Middlemen to help you sell quickly. Bird dogs or transaction coordinators are some other names for this genre of underground real estate investor. Its middlemen that can often times come up with buyers quicker than anybody. Most middlemen are property wholesalers that will add a set commission to your sales price on a deal that you plan to sell fast at a price way under market value. You can meet middlemen by calling “I BUY HOUSES” ads or by networking with other investors and mortgage brokers. If you do have trouble selling, you’ll need to network with good credit repair experts who will help you complete a lease-option exit strategy by building your buyer’s credit scores to levels that will facilitate bank financing for them. Let’s never forget to add some reputable real estateattorneys to your blossoming real estate network. They will help you structure deals, create needed documents and screen potential lease-option buyers while deflecting ever present legal liabilities; especially if you get stuck having to rent the home if it becomes impossible to sell.

• Rehab – requires various contractors such as plumbers, electrical contractors, roofers, drywall installers, heating and cooling experts, flooring specialists, painters etc. to bring the house up to code. In order to meet quality contractors, it is wise to talk to successful investors in your area who already know talented contractors that do quality work for a fraction of the price of more commercialized contractors.

• Acquisition – For protection, use a trusted home inspector before making any purchase. The best money earned on a deal can sometimes be thousands of dollars saved when a professional home inspector spots disastrous problems for around $300. Because the best deals are bank owned homes (commonly called Real Estate Owned or REO homes) right now, you’ll want to collect a wide array of REO Real Estate Agents to help you spot good deals. Other more experienced investors will lead you to REO Agents. Financing your deal will be a big issue if you don’t have cash or corporate credit lines. By inserting investor friendly lenders, private investors, small venture capitalists, and hard  money lenders into your network and knowing their lending standards, you’ll be able to jump on a really good deal when it arrives. It is also recommended that you work with a trusted business partner, especially if you are a new investor.

Now that you know who your network should consist of (at least in this particular example) and what roles they will play in your investment business, let’s look at why these individuals will become your lifeline to steady growth and examine ways to find and insert them into your business.

Put yourself in a position where you have what others want

The investors who are making money right now in this declining market have what others want: wholesale priced homes with tons of equity. These homes can be rented, lease-optioned, refinanced or sold immediately to other investors or owner occupant home buyers. What’s more, because these investors have assets that other people want, they are developing vast networks of renters, people with damaged credit (for future lease-options), and many varieties of real estate professionals and other investors who have the ability to sell these assets for quick commissions. During this period, these savvy investors are collecting each member of their individual networks just as a child collects stamps or sports cards. They literally have four reliable exit strategies at all times because they create their own demand through networking. They will reap the rewards of these networks and strategies for years to come. The investors that are losing everything have what nobody wants: full priced homes in a dying retail market, with no exit strategies, no networks and no support from anyone.

Advertise

You’ll go to a restaurant and spend $100 on a dinner. You probably drive a gas guzzling car or SUV that costs you hundreds of dollars per month in gas. But you haven’t considered spending a couple hundred bucks a month on advertising to grow your real estate business? Advertising is an effective way to develop huge networks of people. You can build lists of hungry investors looking for turn-key homes. You can market to people with poor credit who want to become home owners by running rent-to-own ads. You can find people needing to borrow money and broker their loans. You can also find people needing to sell a home fast and way under market value by advertising that you buy houses. The list goes on and on. Advertising says to others that you have what they want – whether it is wholesale/retail homes, money to lend, buyers, or simply knowledge.

As you grow, other investors and various real estate professionals will want to work with you

Once again, it’s not all about houses and location. Real-world real estate is about people. There are always beginning investors out there that just want to buy a home zero-down. They don’t pay attention to the numbers like an experienced investor and are usually itching to get in the business. Some will buy anything. If you own a home, can sell it under market value, still make a profit, and set the new investor up for a profit also, then you can move onto the next deal and do the same thing all over again. This new investor will rely on you to find more deals and probably request anything else you can offer them, such as brokering their loans, finding tenants, property management, the list goes on. It’s crucial to understand that real estate is a people business – not a “house” or “location” business. It’s also paramount to understand that if you only use one channel to make money, you’re severely limiting yourself. All millionaire investors have mastered how to utilize all six money making channels because they have grown massive networks of people to assist them no matter which channel they utilize to make a profit.

Recognize that if you help others get what they want you’ll get what you want

Many electrical, heating and cooling, plumbing, roofing and window contractors – as well as everyday handymen, need a source of reliable income to make a living. They have financial goals and families to take care of as do you. By rehabilitating residential real estate and by passing their information on to other investors, not only are you improving the quality and safety of our neighborhoods, but you are creating jobs and the quality of life for all people. Not only are you providing a great income for yourself in real estate, but you are providing income and rewards for others as well. By looking out for the members of your network and keeping them employed, they will stick their necks for you too by giving you price breaks, higher quality service and even locating good deals for you.

This is just one example of how building a strong and loyal network can benefit you. In time, your phone will be ringing as certain realtors will be calling you with “hot deals”, knowing you are a good businessperson who can close in a timely fashion. Occasionally a mortgage professional will call and inform you of a hot new mortgage product that may assist you or your buyers in completing a purchase. The list goes on and on. By maintaining integrity, a professional image and intentionally trying to help other real estate experts profit, they in turn will do the same for you. Remember: what goes around, comes around.