Newbies are told they can get started with real estate investing by “finding the deal and the money will follow.” But is it really true?
Let’s say you have some real estate experience (SFH flips or rentals) and you decide that you want to get build an apartment building portfolio to quit your job in the next five years. That’s a great idea, and many people have achieved their dreams with this strategy.
So far, so good.
You focus your energy on finding, analyzing and making offers on deals. No question, this is a most valuable skill. Especially these days, finding good deals is a challenge. With some persistence, and after looking at many deals and making offers, you finally get a live one. The deal looks great on paper, and the broker is willing to negotiate at a price that makes sense. You start getting excited.
Then you realize that you have no clue what to do in the off-chance the seller might actually ratify a contract with you. You don’t have the capital needed to close. But you remember the mantra that “if you found a good deal, the money would follow,” and so you don’t worry too much about it.
You somehow succeed in putting the deal under contract, and now you start looking for the money. After a couple of weeks, with your due diligence period expiring in the next seven days, you have one investor committed, but you’re still $200K short.
If you’re smart or have an experienced mentor or adviser around you, you would see the writing on the wall and terminate the contract before the due diligence period expires so you don’t lose your earnest money deposit.
You’re baffled. You found a smoking-hot deal, but the money didn’t follow.
What’s Up With That?!
What’s up is that if you find the deal, the money WILL follow — but not overnight. It takes time. You have to cultivate investors long before you actually do a deal.
Because you bought into the lie, you wasted a lot of time, almost lost your earnest money deposit, and started to build a reputation for not being able to perform.
What Could You Have Done Differently?
To get started with apartment building investing, you have to start building relationships with investors from day one. By all means, start looking for and analyzing deals. Even make offers. This is great practice.
And if you do come across a smoking hot deal but don’t have the investors lined up yet, then wholesale the deal or partner with a more experienced investor.
Worst case, if you can’t do the deal yourself and you don’t have a way to wholesale or refer the deal to someone, you quickly tell the broker that you’re not quite ready yet and that when you do put a deal under contract, you want to be 100% certain you can close. It’s better that you’re honest and up front. The broker will respect you for it.
By all means, start looking for deals today. Don’t delay; take action. But also focus on the other aspects of apartment building investing from day one: Build the team you need and meet with potential investors. That way, when you do get that smoking-hot deal, you’re ready to go!
Newbies: What steps are you taking to get your finances lined up before you find great deals?
Let me know with a comment!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.