Investment Team – A Real Investment Team

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Team II - Silhouette people - by spekulatorThis week I’d like to be both practical and a little futuristic. On Bloodhound Blog, my blog, Bonzai, and several other blogs lately, there has been talk about changes in the real estate field, and one of those changes, the team approach, is a topic I’d like to relate to investing — not just “team” as in professionals you use for guidance or as vendors to make individual deals, but a partnership “team”, a small, local investment company. I was going to write about Economic Conversion, but I’ll save that. Investment groups are nothing new, just as real estate teams are nothing new, but how these teams/groups function in a biz 2.0 world will, no doubt, be changing quickly.

It’s difficult for one person with a notebook to keep up with all the information inundating us in the information age. The concept of a local diverse, super investment team using some of the practices of Business 2.0 is an appealing idea. How such a team could be arranged is open to many possibilities, but allow me to build one possibility. Let’s say you’ve decided to become an investor, or you are an experienced investor, and you’ve realized it would be much more effective and efficient if you formed a partnership team. You’ve been a leader all your life and you’re skilled at bringing people together to achieve a common purpose, so you thought you’d use these skills to create an investment team. Your idea is to build the team on four strengths: Internet/information mangagement, financial expertise, real estate expertise and local government expertise.

Internet/information management:
With constant innovations taking place in online information search all the time, the investor who’s being fed the most focused, contextual information has an advantage. Having that expertise on an investment team, someone skilled in web 2.0 concepts, allows the players to consider a steady stream of useful information that can be analyzed on a daily basis. Many local governments are putting up websites with updated changes you can feed into by email alerts. Although small cities may not be on the edge of information yet, all this is rapidly changing. Also, by hooking up the investment team with web 2.0 tools, you’ll be able to make information management efficient: blogging to encourage interaction in the communtity; online meetings for the team, quick information display and contact management through something like Open Office, Web Officeor Zoho (check them out carefully — each has strengths and weaknesses) to be accessed anywhere; mapping technology for visual inspiration — being connected will be light years ahead of those investors who aren’t and will bring the following categories together in powerful, useful ways.

Financial Expertise:
Having someone knowledgable about financial management and loan products with their finger on the industry’s pulse will be a powerful addition to the team. New products are coming out all the time — being quick to take advantage of the innovatons, knowing the trends of loan products and having connections to lenders will place the team in a good financial position to maximize profits and design each investment with the most efficient and profitable financing.

Real Estate Expertise:
This could be a commercial agent or a real estate attorney, anyone with real estate expertise that has comprehensive knowledge of the local RE market, access to market information and connections to all the local RE players. People who spend all their time in the RE business hear things and know things that the general public would not be aware of, plus they have a feel for the trends and red flags to consider. Someone experienced and connected to the local RE community will be a valuable addition. You might also want to consider someone who has experience with building and knows about the product itself — building and buildings — at least enough to be helpful in identifying maintenance, repair and renovation costs.

Local Government Expertise:
It would probably be helpful to have someone on the team who knows local government, who has experience dealing with zoning and planning, knows all the players and how to navigate the system. Insider knowledge would be helpful in effectively analyzing information by understanding the mindset of the local players for future development in different areas of town – what concerns for development are a top priority? Are there plans to promote growth on the east side? Are there plans underway to provide incentives for downtown investment and re-building?

Building a strong local investment team like this has pros and cons. The pros are a co-ordinated team approach that if managed correctly could be synergistically more powerful and efficient than an individual effort. If pulled off, it could be attractive to private lenders who want to put up money but not get bogged down in nuts and bolts. It would be attractive to banks, giving them confidence that the well rounded approach would be effective in producing results. It would be effective in making good investment decisions, and being the first to recognize opportunities for investment. It would be good for the gathering, managing and analyzing of information and helping with the due diligence process, having four areas of expertise investigating the viability of a project. It would give each team member more confidence, drawing from the strength of each other, bouncing ideas around, communicating and receiving feedback. It would add financial strength so that larger, more profitable projects could be handled.

The cons, or possible problems, are settling disagreements among team players over strategies and investment choices, creating equitable partnership arrangements, deciding where responsibilities lie with each team member, ending partnerships if it’s not working for a member — there can be many problems with any team or partnership arrangement, so it would pay to take the necessary time to work all these out and to choose carefully. However, I believe all the problems can be worked out if there is an easy exit plan for dissatisfied members. I believe the pros outweigh the cons, but not if it’s poorly planned — four minds can be worse that one if teamwork is not executed to its full potential.

If teamwork IS executed to its full potential, I think an investment team could achieve extraordinary results, especially if all the modern tools of information management are used to provide speed, co-operation, comprehensive knowledge and efficiency.

Note from the editor: Read more about assembling your real estate investing team and be sure to look at some of the great suggestions in the comments.

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  1. Mike,

    Interesting idea. It looks to me like you are setting this up as an enclosed team for internal return investing. What about opening this up as a retail boutique also? I imagine a higher end client would appreciate working with a team that is so diversified. I think again of the law firm example. Well-heeled clients choose which law firm to put on retainer based on a number of things; but certainly the diversity of the firm’s specialties plays a significant role.

    I have quite a few licenses, but find advertising that to be a detriment (e.g. no one wants to buy vitamins from the guy selling them their cell phone – neither of which are things I sell BTW). But if the licenses were with individual partners and you could communicate a high level of integrity… I think the public might find a lot of convenience in a one stop shop. Buy a home, invest in a local bond issue, insure your liabilites and be kept up to date on the latest devlopments. Name it: All Things Financial. Or maybe: Financials R Us πŸ™‚

  2. Sean, that’s a good idea. It’s sort of what I had in mind when i wrote it would attract private money from those who don’t want to get into the nuts and bolts — but, yes, you’d need to formailze it into a boutique operation.

    As a matter of afct, I know a guy locally who does this to a certain degree. He hasn’t gotten connected and he doesn’t have a team such as this, but he works with local doctors and lawyers and Indian chiefs who invest money with him, then he puts the money to work in real estate.

    He says he goes around to some of them monthly and gives them a check for the return on their investment — he says here are people making hundreds of thousand a year, but when he brings that monthly check they look as happy as kids at Christmas — he says they hide that away from the spouses for golf and other extracurricla activity πŸ™‚

  3. Marty Reynolds on

    Wow!!! For me this article is about thinking BIG. I usually hear an investment team needs a handyman, accounting person, etc. These are important but your article seems to hit me “with this team we could develop a large project”. I do see deals die, and a lot of money wasted if there is not a government team member. The Real Estate specialist and the local government guru on the team should be in very close communication. The government guru can show the agent areas where rezoning or redevelopment is going to take place, or the agent can ask if certain areas have the possibility of being rezoned or redeveloped. Very interesting article thanks!!!! it sure gets the wheels turning.

  4. Great article. I want to stress the point that was touched on regarding roles and exit strategies. I see a lot of new investors with the variety of skills needed get together with the team concept that “the five of us will do a project together” and share in it equally, but by the end, it is painful. I have a number of team client companies with big problems due to the change in the market. The standard operating agreements for LLCs, etc., are often not helpful in the specific cases of real estate projects, especially when things get tough and some members do not have the stomach or financial resources to stick it out. Also important is setting out very specifically the roles and expected time requirements for each member as compared to distributions, etc. For example, the accountant member may have a very different time investment than the governmental member, as well as the Realtor member, and each has to have an appropriate compensation schedule. I always suggest that groups very specifically plan out the scope and duration of the project, and the rolls of the team members, so everybody can be aware of what is expected in terms of time and money, as well as when it will end. In my experience, such planning is not always fun, but it helps guarantee that when the project is done, for good or bad, nobody feels that they were taken advantage of and the parties are often willing to undertake the next project together, ready to apply what they learned.

  5. st george rentals on

    I agree that having a technical team should be incorporated in every real estate office and investing team. Business 2.0 is a good term that I have never heard of before.

    I like it and think it will be used more.

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