How to Work with Other Investors Right
I was in Minneapolis a few weeks back, trying to explain to a room full of real estate investors how to leverage each other’s time and resources in a way that was mutually beneficial.
The problem that I’d stumbled on, AGAIN, was that the brand-new investors in the room were either afraid to talk to the experienced investors, or expected them to cheerfully give up a ton of time to “help out” the endless stream of unknown new investors that walk into that huge group each and every month.
And the experienced investors in the room all admitted that, while they wanted the new-ish people to succeed, they often felt overwhelmed by the “one quick question requests” 50 times in every 90-minute meeting, and had all had the experience of helping someone out, out of the goodness of their hearts, for many hours, only to have that person drop off the face of the earth with zero indication of whether all that effort had made any impact.
This is a super-common state in real estate associations: a vague, general mutual frustration among both new and experienced investors, because they’re not taught how to work with one another in ways that BOTH value.
So I decided to make a point: I asked who thought they were the newest investor in the room. A guy near the front raised his hand. I asked him whether he was really serious about doing deals. He assured me he was. I asked whether he wanted to learn from a really experienced investor. He said yes. I asked if he was willing to work really hard to get the undivided attention of someone who had a LOT of knowledge about how to make deals close. He said yes.
The I called on Glen, a guy I happen to know is both experienced and true to his word.
I said, “Glen, do you need more deals coming to you?” He assured me that he did. I said, “Glen, are you willing to sit down with this guy for 20 minutes and give him a list of what you’re looking for and in what neighborhood?” He said yes. I said, “If he brings you addresses of vacant and/or ugly houses in those areas, are you willing to pay to market to them, take the calls, and try to make the deals happen?” He said yes. I said, “Is there any limit to the number of these you’d be willing to process?”. He said No. “And if you get a lead from his efforts, are you willing to take him with you on the appointment, show him how you’re evaluating the deal, let him sit in on the negotiation with the seller, share the contracts you use, and do a post-mortem with him when the deal does or doesn’t close?” He said yes.
So I turned back to the new guy and said, “Do you know that Glen is one of the 5 most experienced investors in this room?” He said yes. I said, “Do you understand what this will do for you?” He said yes. I said, “Are you willing to drive for dollars tomorrow get Glen 100 property addresses, even if it takes 5 hours?” He said yes. I said, “Are you willing to look up the properties in the county website and find out who the owner is and what HIS address is?” He said yes. I said, “Do you understand that there’s no guarantee that 100 addresses will lead to a deal worth looking at?” He said yes.
I turned back to Glen and said, “If you close one of his leads, are you willing to pay him $500?” Glen said, “Depending on the deal, I might be willing to pay more than that.”
Then I asked the young man whether he’d also be willing to be PAID for a deal he generated that successfully closed. Guess what he said?
Both of these guys were really excited about this potential arrangement—because BOTH had the opportunity to get something they valued, and were willing to trade what they had (in Glen’s case, expertise and marketing money, in the new investor’s case, time and ambition) to get what they wanted (deals and knowledge, respectively).
The only question now is, will both of them follow up on this mutually beneficial deal?
Because either side could cause it to fall apart: I recently heard from a coaching student out of state that a leader in his group offered to help evaluate wholesale opportunities in return for half the profit, a deal that the student was happy to take. However, when he found what he thought was a hot prospect, the more experience investor basically ghosted him.
And it’s super-common that the less experienced investor doesn’t follow through, too: I constantly offer members of my local REIA opportunities to work with me. I’ve made the same offer I set up between Glen and the new member; I’ve offered to help renegotiate wholesale deals that weren’t working (AND sell them, once they’re ‘fixed’) in return for half the wholesale fee; I even recently offered a guy who was stuck on negotiating a seller finance transaction to do the whole thing, including have the contracts drafted, provide any needed money, and help with the exit strategy, which he also didn’t understand, in return for a minority ownership interest in the property.
Why? Because I want more deals, and I’m willing to trade pretty intense one on one training and resources for those deals.
And you know how many people have taken me up on it in the last 12 months?
This is largely, I think, because in order to “play”, the new investor has to be DOING SOMETHING—generating leads, putting properties under contract, actually FINDING deals that they need help with. It’s partly because our group offers so many resources that, with enough focus, it’s often possible to get answers without giving away any part of a deal. But I think it’s partly because new investors are—rightly—concerned about not understanding enough about what to expect (or, possibly, afraid of being taken advantage of).
So yeah, it doesn’t work for, or with, everyone.
Nonetheless, I’ve been thinking a lot about what it takes to successfully work with other investors, beyond just the “You have the money, I have the property” type of partnership that’s so common. Here’s what I’ve come up with so far:
- Both people have to understand and be good with the expectations. If you’re the new investor, and the main thing you want is a blow-by-blow account of what’s happening, and why, and access to every step of the deal, make this clear. If you’re the experienced investor, and what you want is specific deals to work on in specific parts of town, say so. Unstated, and therefore unrealized, expectations are probably the #1 reason that these arrangements go bad.
- Both people have to be willing and able to do the work. I’ve heard tons of stories that go, “I sent so and so 500 leads and never heard a thing” or “I put up the money and he was supposed to do the work, but it’s been 8 months, and it hasn’t even been started” or “She said that if I found a hot lead, she’s walk me through it for half the profit, but she won’t return my phone calls”. In some cases, the problem is that one person has just promised something he doesn’t have the time to deliver; in others it’s that they don’t have the SKILL to deliver it. It happens, and if there’s a significant investment of money involved, you’d better have an ironclad agreement up front about what happens if the other person doesn’t deliver. If not, move on and find someone who can and will deliver what you need.
- Both people must be ethical. It happens to both sides in these deals—experienced investors sometimes invest dozens of hours putting a deal together with a new investor, only the have the new investor sell the deal to someone and not “pay” the agreed-upon profit to the guy with the knowledge.
But mostly, I worry about new investors getting taken advantage of in these situations, because I’ve ALSO heard all the stories that go, “He said if I worked for him for free, he’d teach me all the ropes, but I spent 100 hours hanging bandit signs and all I learned was how to hang bandit signs”. And “He said he’d mentor me for free, but all he did was sell me a bunch of bad deals and tell me how good they were”. And “He said he’d mentor me for free and we’d split any deals I found, but then he sold one and made $10,000 and only gave me $500.” In some cases, I think these stories are user error or mismatched expectations, but in others I’m pretty sure they were unethical investors taking advantage of people. If you’re new, you should never, ever hesitate to ask other people about the reputation/experience of your proposed partner. It’s not insulting, and it’s not unusual, and if your wannabe partner tells you to keep what you’re doing together a secret, that should be enough evidence all by itself to keep you from working with them.
Don’t let the potential downsides keep you from trying to build these relationships, though: they’re extremely valuable, and can last a lifetime.