So you’re considering embarking on a journey of real estate entrepreneurship. Congratulations! Whether it’s a part-time project or a full-time endeavor, either way I believe you are choosing a path that will help you grow as a person, improve your own resilience, and help you reach your goals in life!
One thing that you may be wondering about–or may even be worried about–is the unknown and uncertainty. Well…welcome to entrepreneurship! While I can’t eliminate that for you completely, I can definitely offer you some insight into what the road ahead should look like for you.
Please Note: Each of these individual topics could easily be a long essay or seminar by itself. We will cover each topic briefly below, but please remember this is not an exhaustive discussion of each topic.
What It Means to Be a “Real Estate Entrepreneur”
First, I wanted to explain one bit of context, because it influences my perspective in the advice below. You’ll notice that I choose to think of myself a “real estate entrepreneur.” Others may look at me and my business and use the terms “investor,” “landlord,” “developer,” or even “flipper.” I guess all are accurate in a way, but each term seems too narrow and limiting to me. I consider myself an entrepreneur first and foremost, operating in the industry known as real estate.
Here’s what I love about being an entrepreneur, rather than any of those other more narrow terms: Entrepreneurs are great at looking at something, and instead of seeing what IS there, they see what COULD BE there. In other words, we see opportunity, and we figure out how to convert it–regardless of what type of deal it is.
What You Should Be Doing
As you get started along your path, how should you fill your day (or allotted time)? Here are several key focuses to direct your energy and time toward.
Studying Your Market
It’s all about knowing your market inside and out. After all, it’s basically impossible to identify opportunity if you don’t have an excellent handle on the lay of the land in which you are working. A few critical things to study are:
For every neighborhood of your market, you should be studying what current retail sales prices are. 3 bedroom, 2 bath 1200ft2 1978 ranch houses in neighborhood A are selling for $x. Over in neighborhood B, remodeled 1920’s bungalows go for $x/ft2. Look at lots and lots of sold properties, study them, and begin calibrating your sense of what the market prices (total prices and prices per square foot) are for properties in your area.
Similar to sales prices, rents vary from area to area, from type to type, and from size to size. A 2 bedroom apartment over here rents for $2/ft2, but a zip code to the south you can barely get a studio for that price. Know these numbers. Test yourself–find a listing for a rental, look at the specs of the unit, and guess the monthly rent. Check the answer, and file this data point away in your head.
Zoning–Current and Future
What parts of town are currently zoned for what? Where are the residential neighborhoods, the small commercial areas, the industrial areas, the multi-family areas, etc.? Don’t just trust your eye–go to your city planning office (or their website) and pull up the maps. Understand what the city has zoned each area currently. Then, do your research to find out when those zonings will be changing. When an area changes zoning, it can be a source of great opportunity. Know what’s happening.
What’s Going On In Each Neighborhood
Every area has a storyline. Get out of your office and go spend time in each area, and you will be able to see parts of this storyline with your own eyes. Read the local news, and talk to the people who live and work there. Storylines come in unlimited varieties, but many include gentrification, increased density, falling or rising prices, high or low rental vacancy rates, redevelopment happenings, etc.
Telling People What You’re Doing
It’s important to tell the people in your world what you are doing. For some reason, for many people–including, frankly, me–this can seem uncomfortable. In the book I recently read, “Getting the Money: The Simple System for Getting Private Money for Your Real Estate Deals” by Susan Lassiter-Lyons, the author talked about how often people have “secret identities” as real estate entrepreneurs; for some reason, they don’t tell people what they are up to. You’ll definitely have a head start in your business if you tap into your existing network of friends and family to start creating the connections you will need to have.
Stirring Up Acquisition Opportunities
Your main job is to stir up opportunities to buy properties. There are multiple ways you can do this, and you will want to have multiple ways going at all times. Some of the key things to get started on include:
Networking–Tell people what you are looking for, and ask them to refer you. It’s as simple as that.
Get Out Into Your Market–Physically get outside and spend time in the areas you want to be buying in. I call this “Street Time” in my business. Get out there, walk around, observe, take notes of properties you see where you feel there’s opportunity, and talk to people.
Direct Mail Letters–Build a list of properties you would like to buy, and send them a letter. This is a whole unique topic by itself, but suffice it to say that I believe you should strongly consider sending regular old snail-mail letters to the owners of properties you are interested in buying.
Finding Potential Money Partners
Another key priority is to begin finding sources of financing you will be able to use when you create a great deal. This can take different forms, from private individual “partners” who share equity in a deal with you, to other private individuals who will act as lenders, loaning you the money needed to buy properties. It can also include interviewing bankers and hard money lenders, to understand their parameters for making an investment or a loan. Any way you cut it, it’s important to have as much of this as possible lined up and figured out before you need it.
Finding Buyers, Assigns and Tenants
No matter what type of deal you are doing, or whatever investment strategy you have for the property, you will almost always need to have someone to become the end user of the property. If you are buying a rental property, you will need tenants. If you are buying a house to remodel and resell (“flip”), you will need a retail buyer to buy it from you. If you are creating a great deal to buy a house to flip, but you are planning on assigning it to another rehabber for a fee, you need to know who those buyers are and what they are looking for. If you are buying a piece of land for someone else to build on, you will need developers or builders. Just like with your financial partners, you want to have these people lined up well in advance of needing them.
Meeting People In Person Whenever Possible!
Not only should you be trying to find and connect with all of these people….you should ideally be meeting with them face-to-face absolutely as much as possible. Why? Because real estate entrepreneurship is a relationship business, and there’s no substitute for in-person interaction when you’re building a relationship. You will be able to build mutual understanding, trust and rapport much, much better in-person than you will be able to over the phone, email or text message.
Practicing Talking to People and Making Proposals
The other important part of getting together face-to-face with people is that it gives you practice in talking to people, making them comfortable, building rapport, eliminating objections, proposing solutions and otherwise paving the way for a business relationship. This is quite possibly the most important skill a real estate entrepreneur can have. The more times you speak with someone in person, and the more solutions you propose to them, the more comfortable you get with it…and the better at it you become.
Practicing Analyzing Opportunities
Each different type of deal has a different analysis technique you will need to become familiar with. Each analysis has slightly different thought processes, with slightly different mathematical calculations to perform. For instance, your analysis of each of the following types of deals will be different:
- Single family rentals
- Multi-family rentals
- Single family flips
- Commercial real estate rentals
- Land development
- Assignments of properties to flippers
Practice makes perfect. Every time you come across a potential opportunity–even if it’s not one you feel you will be pursuing–take a moment to do some analysis. This will help you get comfortable with the analysis process, the tools needed to do so, and help give you a good feel and intuition for how the numbers relate to each other. In other words, you’ll start to develop a good sense for what deals will work, and which ones won’t, which will be very helpful in the future as you sift through more opportunities.
Building Your Team
Real estate entrepreneurship is absolutely a team sport. To be successful in this business, you will need to have excellent relationships with several different categories of people. This list may include some combination of the following:
- Escrow officer
- Real estate attorney
- 1-4 unit residential lender
- 5+ unit commercial real estate lender
- Inspector (and sewer scope technician, radon detector and other specific due diligence team members)
- Real estate agent
- Property manager
- Contractor (big projects) and handyman (smaller projects)
Get out there and introduce you to people in these categories, and determine which of them feel like they would be a fit for you, personally and professionally.
What You Will Likely Experience As You Do These Things
In the first several months of your pursuit of real estate entrepreneurship, as you do the things explained above, there are several things you will likely experience. Here’s a rundown of some of the main ones you will likely encounter.
A Lot of No’s
If you’re doing this right, you will hear “no” a lot–from sellers, lenders, buyers, and everyone else. Don’t take it personally; in fact, take it as encouragement. This is a good thing! Why? Because that means you’re out there having conversations and making proposals! Nobody says “no” if you don’t ask them to do something, and asking them to do something is the basis of your business. So get out there, meet people, make proposals, and get used to hearing ‘no,’ because every ‘no’ gets you closer to a yes. If nobody is saying ‘no’ to you, you’re not making enough proposals and having enough conversations.
“Dealitis” is a nasty disease that real estate entrepreneurs get. Be careful, it can be contagious, and you can catch it from others! “Dealitis” is the condition of wanting to do a deal so badly that you compromise your standards just to make something work. You’re tired of hearing no, itching to get a deal in contract, and eager to make some money. So you fudge your analysis, turn a blind eye to an obvious issue, or otherwise bend the rules you’ve set for yourself, just to make it work. Deep down you know this is a bad idea, but you do it anyway. You will regret letting ‘dealitis’ get to you–just as I have!
Feeling Like You’re Not Making Progress
Building a real estate entrepreneurship business takes time. It’s not typically a game of instant gratification, and at times you may feel like you are not making progress. But let me assure you, if you are doing the above-recommended things as much as you possibly can, then you ARE making progress.
When you become an entrepreneur, you pass from the “time economy” (trading time for money) into the “results economy” (trading value created, and results achieved, for money). That means you have to get out there and create great value before you get paid…and creating value takes time to build toward.
Let’s face it–a bunch of great, lucrative deals are probably not going to just deliver themselves to your doorstep. You’re going to have to work–hard–and let’s be honest, here, it’s going to be difficult. Just like those frustrating feelings that you’re not making progress, there may be times during these first few months that you start to doubt yourself. You may start to feel you’re not able to do this, and you may start rationalizing that with statements like:
- I’m just not cut out for this; it’s just not who I am
- This just isn’t my skill set; I’m better at other things
- I should just quit and refocus my career on my existing strengths
It’s going to be tough, but I implore you to please fight through these moments of self-doubt. I’ve had to battle through these self-defeating thoughts myself, and trust me, it’s been worth it. Here’s the best advice I can give you: