It’s an all too-common story – you have the perfect deal, great cashflow, awesome equity, and a plan with details so perfect it rivals a military handbook. You confidently show your plan to the banker and BAM! It’s over. They may not physically laugh in your face, but the effect is the same. You go home defeated, knowing you are going to miss out on another great opportunity because of the tight lending standards today.
I don’t need to say it, but I will anyways: bank financing is difficult to get. For some, its simply impossible. Sure, if you have a stable job, huge income, a nice smile, and boat-loads of money in the bank your banker is going to be your best friend. Chances are, however, all you have is that smile.
How can investors overcome this? How can we get the bank to say “YES”?
Okay, sometimes it is possible. There are many good articles on BiggerPockets that will help you get your bank to say YES to you and your request. However, in the end – the bank is probably going to still say “NO.” So where do you go? Do you shut off your brain, turn on Dr. Phil, and focus on your next great idea?
I want to talk briefly about one strategy I use to bypass the system and make it work. I am not going to tell you this is the world’s greatest investing system (that you can learn for just four easy payments of $999.99) but this is just one tool in an arsenal of many that you should have in your bag of tricks. No, I am not the first to use this, nor the last. I don’t claim any special supernatural powers, nor do I say this technique will work for anyone. It is simply one more tool to invest in real estate with.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Let Me Introduce You To Bob:
Bob is responsible. Bob pays his bills. Bob even has a good job, good credit, and a nice smile (optional). Bob is a banker’s best friend.
There’s only one problem:
Bob is not a real estate investor.
Bob doesn’t find deals, Bob doesn’t go to seminars, Bob doesn’t even know the difference between front-end and back-end debt-to-income! (Okay, most seasoned investors don’t know even know that one, so if you want to set yourself apart, go figure it out!)
You, on the other hand, find the deals, you go to the seminars, and you can tell the difference between front-end and back-end debt to income. You are everything Bob is not, and Bob is everything you are not. Together, you and Bob form a superhero team that even Batman would be jealous of.
Okay, you’ve heard this before. Partnerships.
So why bother reading the rest of this?
Because I am going to teach you three ways to use partners that you probably haven’t thought of.
Because you aren’t moving forward. You are struggling to get bank financing and losing deals. That needs to stop. Besides, this is more than just a partnership. This is growth through relationships.
Investing in Real Estate is Cool.
Let’s face it – real estate investing is cool. If the world was a junior-high playground, investors are the kids with the Air Jordan’s.
Every kid wants to be cool, and every adult wants the same. While the classification of “cool” has changed, the concept remains the same. Everyone wants to be cool.
Bob looks at you and see’s “Cool.” He sees that you are out there, wheeling and dealing, and are making things happen. You are going places. You are fighting “The Man.”
Bob wants to be cool, but he does not have the time. Bob wants to invest in real estate, to see his money making money, but he simply cannot. Or will not.
By joining forces, you and Bob can become unstoppable.
How to Find Bob
“Bob” is everywhere. Chances are, most of your family and friends are a “Bob.” Most of the people you run into at the grocery store are a “Bob.” Your doctor is probably a “Bob.”
I am not suggesting that you go out and ask all your family and friends for money. In fact, quite the opposite. I don’t recommend ever asking for money. You don’t go to Wal-mart and find the employees standing around asking you for money – but you pay them. Why?
Wal-mart has something to offer. They have a product to sell, something that sets them apart. Whether its convenience, price, availability, or functionality – something made you decide to pay Wal-mart for that product.
In Gary Vaynerchuck’s book, “Crush It” he speaks to the importance of turning yourself into a “brand.” Chris Clothier mentioned this book several weeks ago in his excellent review of his top five books that keep him motivated as a real estate entrepreneur. I believe developing yourself as a recognizable brand is the number one way to attract money to yourself and your business. I’m not suggesting a national brand, but rather a brand within your community and your network.
How do you build your brand?
Your brand consists of two parts – yourself and your product. You might buy Oreo cookies because of the name “Oreo” but also because you were in the mood for a sugary chocolate cookie. The same is true with your real estate investing. You need to develop yourself personally as well as the product you are offering. Let’s look at both those parts in more detail:
- Yourself – how do you “brand” yourself? Through reputation, knowledge, and experience. When you know what you are doing, and you are out there doing it, you build all three of these areas. You personal brand is strengthened with every book you read, every blog you devour, every meeting you attend, and every house you look at. You can also build your personal brand in other, more indirect, ways such as blogging, hosting free (or not) seminars, commenting on the forums on websites like BiggerPockets.com, going to your local investor’s club, and simply knowing people and building relationships.
- Your Product – you need to have a product worth selling. Oreos did not become huge because they tasted bad. They are (in my opinion) simply incredible. Your deals need to be the same – incredible. If you are having difficulty financing a deal – you need to ask yourself if it really is a deal. Additionally, and just as important, you need to package your deals correctly. When you talk about a deal, do you mention about how great it might be, or do you have a five page written analysis of it, complete with repair estimates, color photos and recent sales comps?If you build your brand, you can believe the money will follow. When Real estate investing becomes your life, you will find that you can’t help but talk to everyone about it. In turn, those people you talk to about it might talk to their friends about you. Brand loyalty can spread like wildfire if you take care to continually fan the flame. Bob will find you – and when he does, it’s time to make him “cool.”
What to Do With Bob:
You’ve found Bob. Perhaps a neighbor heard you talking about a recent deal, or your sister’s boyfriend’s aunt heard about your skills and wants to get involved. There are many ways in which I currently work with “Bob” to benefit both of us, and the type of business relationship depends significantly on the case-by-case situation you and “Bob” are in. However, here are three ways to use “Bob”:
Three Strategies for Partnering to Find Success in Real Estate Investing
- “Bob” puts down the money needed for a down-payment. This is typically 20%, but can differ slightly depending on what lender you use. Bob gets the entire mortgage in his name alone, but Title is taken in both names. (Most lender’s do allow this, but your state may not. Always check with a lawyer and/or tax professional.) You split the cashflow and future equity in whatever split you agree upon (I like 50/50).
- Bob invests for solid returns – You offer Bob a solid interest rate on his money. His money becomes your money. In essence, Bob has become your own personal hard money lender. Bob protects his interest with a lien on the property and you are able to buy it and do what you wish with it.
- Bob uses his credit only – no cash involved: You use a hard money lender to purchase a property, including repair costs. If the deal is good enough, this should be feasible. If not, you probably shouldn’t be buying this deal. After the home is rented and producing good month-after-month cashflow, Bob refinances the home into a fixed rate, long term mortgage. Just as I mentioned above, Bob will probably be able to have the loan in just his name while the house title is in both yours and his.
I have used all three of these strategies to invest in real estate, and all three have worked out magnificently. Yes, I am giving up 50% of my profit and cashflow to someone else. However, 50% is better than 0%. Without Bob, I am often stuck up a creek without a paddle. Bob gives me the security I need to sleep at night, to keep moving forward, and to do what I do best – putting together deals. It also lets other people learn how to be cool and gain a huge foothold in getting financially ahead.
Partners are not for everyone, and not everyone will make a good partner. However, when you can use a partner to move your business forward close more deals, they are invaluable to have. Real estate investing is a relationship business and without others – you will never succeed.
Have you tried using a partner to move forward on a deal?