In a previous blog post, I discussed one of the many chicken and egg scenarios when it comes to real estate investing: Experience versus Getting Deals. This blog post will delve a little deeper into the topic of experience and provide two strategies to show “experience” even if you don’t have it yet.
Experience is one of the key criteria that is looked at when it comes to real estate investing. Without experience, it will be hard to raise capital, obtain loans, and be taken seriously by brokers.
A common method taught by the real estate gurus out there is to develop some sort of a platform to release content through social media or your website using podcasts, videos, and blogs to show expertise in the space. This is great for those who are getting started in the real estate space as it is a great way for newbie investors to gain knowledge by interviewing others and learning from their experience.
The method above can only get you so far and will likely NOT get you the true experience needed to close on a deal. At the end of the day, having experience is essential.
So how can one show experience even when they don’t have it? Below are two successful methods we’ve used.
One of the most effective methods of showing experience is through partnering with other more experienced operators. You are able to piggy-back on their experience and reference that experience when you are talking with potential lenders, investors, and brokers.
Depending on how you structure the partnership, you may be splitting the equity of the deal. It is also common to pay for the experience, such as hiring a Key Partner/Principle (KP). This will depend on your structure and agreement with the partner(s).
When we were first getting started, we reached out to a potential KP and they were willing to come onboard our deal but we’d have to give up 20% of the sponsorship equity and pay $100k.
How do you find a partner?
There is no playbook on finding partners but it is typically found over time and/or with someone with common interests. By attending meetups and conferences and/or joining real estate investment groups, you will be able to meet many like-minded individuals who may eventually turn into a partner.
This post will not go into detail about how to find a partner as it was covered in a previous post.
#2 INVESTOR PACKET
This is much overlooked and essential material to have at the ready. An investor packet will make you look professional and help you stand out from others. This will also allow your potential investor to know what you invest in.
The goal of the investor packet is to build trust and confidence in you. This packet will provide information about the company including each partner, relevant real estate experience, and show a sample deal of what you invest in.
The basic format of an investor packet should include the following:
Brief information on the company
Real Estate Experience (if any)
Even without any concrete real estate experience, there are certain skills we all develop outside of real estate investing that can be applicable to successful investing. For example, are you a manager or leader in your company where you oversee others? Have you managed large dollar assets? Have you had to sell anything (tangible or intangible) in your life? These are just a few questions to consider and there are countless non-real estate skills that can lead to success in real estate investing. You should include these in the investor packet.
Having a sample deal will allow potential investors to see you have a plan on what you’re investing in and not being an absolute opportunist. There are too many real estate markets, sectors, and classes out there to just shotgun an approach. You must be focused in order to develop expertise in what you are investing in.
This packet should not be too long and should be concise and straight to the point. You can see our investor packet here.
The two methods described above can help you overcome the “experience” hurdle when you are first getting started or trying to scale into larger real estate deals or sectors. It is certainly not the be all and end all, but has brought us the most success.