A few months ago while on vacation in Hawaii, my wife Suzi and I had just sat down for breakfast at one of our favorite restaurants. As we were perusing our menus, a man walked by our table talking on his cell phone and was seated at a table nearby. I saw him but thought nothing of it. Suzi, without even looking up from her menu, immediately recognized the man’s voice and looked up with wide eyes and whispered to me, “Oh my gosh, that’s Magic Johnson!”
I’m not good with faces and names, and I don’t follow sports except NASCAR, so my failure to recognize one of the most recognizable sports figures of all time sitting just feet from me comes as no surprise to me. It’s also not surprising that Suzi would recognize him without even looking; she can pick out anybody from anywhere, and she’s been a sports fan her whole life.
Would you recognize a good deal if it were right in front of you?
I get asked a lot about how to raise money to buy apartment buildings. The question usually goes something like this: “I found a great deal on an apartment building. I don’t have the money so how can I raise a million dollars to buy it?” I ask about their previous experience in multifamily. “I don’t have any experience, but I found this really great deal…”
Here is the problem. I don’t follow basketball, and thus I didn’t recognize the most famous basketball player of all time right in front of me. If you have no multifamily experience, chances are that you wouldn’t recognize a great deal if it was seven feet tall. When you have reached a certain experience level, you will know a good deal instinctively, just like my wife can recognize a famous person without even looking up from her menu.
Cut your teeth before your investors cut a check.
It is easy to think that you know everything there is to know and have learned everything there is to learn, but the truth is that every year you will be proven wrong when you realize how much better you are at what you do than you were the year before. This is why organic growth is the key to long-term success. As you get better at investing in real estate and after you’ve made your mistakes, you can grow into larger deals in a safer manner. Going too big too soon means you’ll make your mistakes on larger deals, where they will cause you (and perhaps your investors) greater injury. So my advice is to mess up small so you can grow big.
You are an added risk. Your journey is to mitigate that risk.
Many high net worth folks are looking for alternative investments so they can diversify their portfolios. They’ve worked hard to get to where they are in life—such a place that affords them the financial resources to participate in opportunities that most people can’t. They are looking to take calculated risks, and most view real estate as a fairly safe bet. If they are inclined to invest passively, i.e. in a deal that you find and control, there is an additional risk component—you.
These savvy investors want to mitigate that risk. In other words they want to know that you can perform. That you can do what you say you can do. That you know a deal when you see one. Their confidence comes from what you’ve done—your experience, your track record, how you’ve performed in the past. This glance in the rear-view mirror is what gives them clarity to see through your windshield.
Prove your worth.
As you progress through your career, document your accomplishments. Develop a spreadsheet of your deals and their financial performance. Make before and after photo exhibits. Show your initial projections versus your actual results. Prove to your investors that you not only know a deal when you see one, but that you know what to do with it when you’ve found it.
The saying that “if you find the deal, the money will follow” isn’t true anymore. You also have to prove yourself. It’s time to change the saying to: “Perform for your investors, and the money, in increasing amounts, will follow.”
Finally, if you see me in a restaurant and say hello, please don’t be offended if I don’t recognize you, even if you’re seven feet tall and one of the most famous people in the world. If you are, you should probably say hello to my wife instead.
Have you successfully raised money for a big multifamily deal? What advice would you give to newbies?
Let us know with a comment!