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What Is A Standard Real Estate Investing Deal?

What is a Standard Real Estate Investing Deal?

After I recently spoke to a group of business folks, three of the attendees asked to meet with me privately. So after the breakfast meeting we went to…ummm…a breakfast meeting.

Because real estate values have fallen so low, the three were thinking of forming a partnership to buy distressed real estate. Before they moved forward with their plan, they wanted to get some basic real estate investing questions answered.

Their main question was: What is a standard real estate investing deal? They were a little miffed when I pointed out that there was no such thing as a "standard" real estate investing deal.

With most deals, there are three sides involved: The seller who no longer wants the property, the buyer who wants the property, and the lender who puts up the grease (money, equity or something of value) to make the deal happen. That's about as standard as it gets.

Many would-be real estate investors mistakenly think real estate investing is about real estate. It's not. It's about people. The building blocks of a deal are people - and what they want. The property is nothing more than the catalyst.

Because people want different things, each deal is unique and must stand on its own two feet. A common trait among successful investors is their ability to make the unknown known. In other words, they are able to find out what the seller, buyer and/or lender wants.

I asked the three would-be investors - and I learned this from Pete Fortunato - if they knew what the Golden Rule was. One said, "Yes. He who has the gold rules!" "That's not it!" I cried. Another correctly answered, "Do unto others as you would have them do unto you."

"And this is a terrible rule!" I exclaimed. (NOTE: Before you stone me, please hear me out.)

When structuring a deal, it's NOT about how YOU would want to be done unto. It's about how the person on the other side of the transaction wants to be done unto. In other words, the Golden Rule should be: Do unto others as THEY want to be done unto.

Here's an example: Suppose I'm doing a deal and the seller wants $20,000 cash from the sale so he can buy a new car. Problem is, I'm a capitalist who doesn't believe money should be spent on something that drops like a rock in value three minutes after it's bought! Money should be invested so it begets (I'm staying Biblical here) more money.

To use the Golden Rule - "…as YOU would have them do unto YOU" - I'd want the buyer to not give me $20,000 cash. Instead, I'd rather have him give me a $20,000 note secured by the property at 8% interest.

Here's the deal making/breaking question: If I insisted the seller take a $20,000 secured note instead of cash, would this be a deal maker or breaker? I'm guessing a deal breaker, right?

Ok, hope this explains why I changed the Golden Rule!

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