4 Legs of the Stool - Your REI Business Plan

There are "4 Legs of the Stool" in REI.

The four legs of the stool include:

One: finding sellers. To keep this conversation simple, you're looking for sellers that generally are motivated and have a problem. 

The three kinds of houses for real estate investors are 

-pretty houses with equity, 

-pretty houses without equity, and 

-ugly houses that have equity. 

Ugly houses with no equity really have no value to the real estate investor. Your marketing should pinpoint each one of these three types of sellers.

Two: finding buyers. Keep this conversation simple, you need to find wholesale buyers, retail FHA conventional buyers, and owner financing buyers for rent to own or owner carry.

Three: finding funding with partners, private lenders and hard money. This is where OPM and other people's money comes in.

A JV partner will be a credit partner or money partner. An example would be a JV partner to put up capital to purchase and to rehab, and be paid back all expenditures and expenses, including holding costs and sales costs. If the deal is purchased, rehabbed, and resold, then the net profit would be split somehow. Does not have to be 50 50%.

Private lenders, this is where someone would act as a bank, usually using theirIRA money. A custodian such as www.Trustetc.com is usually used to prepare the paperwork for what's called a self-directed IRA. Let's say you found someone to let you $10,000 from their IRA. They have $100,000 in mutual funds with theirstockbroker. They would contact the custodian to create a self-directed IRA, and direct their stockbroker to sell $10,000 worth of mutual funds. The $10,000 would be transferred to the custodian. The custodian would then draft the paperwork to lend to you the real estate investor. It's called the private banker concept. The private lender would receive interest. The IRS has rules re: self directed IRAs, notably Title 26, Section 408A, and Section 4975,

Hard money used to be easier. You used to be able to get a 65% loan-to-value loan, interest-only, with a one-year call. You used to be able to get a hard money loan with no "skin in the game", meaning that you didn't have to have any money in the deal. Now hard money lenders want sure things. Credit is tighter, so selling the property retail is harder and slower. Many hard money lenders want experienced rehabbers that have a good track record.

Four: centers of influence. A good real estate agent or investment advisor be properly trained in centers of influence marketing. Think about "who knows a lot of people that can refer you business?". Some people to come to mind are people that know a lot of people and they know their financial issues. Chamber of Commerce president, Rotary club president, financial planners, small bank managers, all of these people know a lot of people in the financial issues. Joining clubs and giving speeches helps get warm leads. Center of influence marketing really helps your business.

So no matter what your REI focus is, whether it's single family houses, multis, small apartments, mobile homes, etc. every day when you get up plan your day, think of the four legs of the stool.

Ask yourself daily, how can I get more sellers, more buyers, more funders, and more centers of influence for my REI business?