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How to Structure a Joint Venture Real Estate Deal

guy shaking hand

How to Structure a Joint Venture Real Estate Deal

Joint Ventures

Our first joint venture real estate deal was the very first property Dave and I bought together in 2001. We were dating at the time and pooled our resources to do the first two deals. I had excellent credit, $16,000 in savings and zero debt. Dave didn’t have any savings but he did have money in RRSP’s, which he cashed out to invest in our properties. We both had good jobs at that time, although I was leaving mine to do my MBA.

We moved into one of the properties so we could put less money down and still qualify for good financing.

After that, we were out of cash and I was now a student in Toronto so we had to find other ways to get deals done that didn’t require cash or bank financing.

Despite the cash challenge, we still managed to add another four properties to our portfolio in 2002 and 2003. Two of those properties were our first external from us and we did a joint venture with a friend. Dave also made some money off an assignment deal – finding a great deal and assigning it to someone else for a fee (also called wholesaling).

Since then we’ve largely relied on other people’s money to fund our deals.

During 2010 – 2012 when we were aggressively growing our portfolio and averaging one new house almost every month, the majority of our purchases were joint ventures.

The majority of these deals were structured so that we were the managing partners (finding the deals, negotiating them, hiring the teams and overseeing the renovations and overseeing management) and our money partners came to the table with financing capability and the initial investment capital required (e.g. down payment, closing costs, 2 month reserve fund).

It was a fabulous way to grow our portfolio quickly and reduce some of our future costs because our partners will split any future costs (and profits) with us 50% / 50%, but partners also can be limiting and always bring additional stress to handle when there are issues (more on that in a minute).

Options for Structuring Joint Venture Real Estate Deals

Structure JVs There isn’t one right way to structure a JV. Over time you’ll discover the way that is the most fair for you and your partners given what each party is bringing to the table (Also see – Real Estate Investors Checklist for Working with JVs).

We look to our partners to put in 100% of the initial investment capital (typically the down payment, closing costs, 2 months of a reserve fund and minor renovations) in exchange for 50% ownership in the property. When we sell the property, their initial investment is repaid first, then any capital we have invested, and then we split the proceeds 50% / 50% as per the ownership.

As long as we can reasonably suggest our partner is going to get 10-15% per year return on their capital and they don’t have to put in any effort, we believe it’s a fair exchange for them and for us. Those are our measurements, by the way, they don’t have to be yours.

It’s about the return and the limited amount of involvement they have in the deal – not the share of the deal they own. These folks are busy – usually successful businesses or careers, families and hobbies they want to focus on. They want to be in real estate but they don’t have the time or inclination to become experts. That’s where we come in. We’ve spent thousands and thousands of hours becoming experts. While we may only put 40 hours into getting a deal done for our partner, that doesn’t account for the $100,000 in education and 10,000+ hours we’ve put into learning what to do to minimize risks and maximize returns.

Remember all you bring to the table in your own business – whether it’s your first deal, or fifteenth. If you don’t feel you bring enough to the table then you need to build on what you have – take more courses, improve the quality of your team, get to know your area more by touring more properties and walking around. One of the most critical things you can do is become an area expert.

We prefer the traditional 50% / 50% structure, but that is far from the only option. You can create whatever structure you feel is fair given what you’re bringing to the table. For example, if you are new to the game, and are not bringing a ton of experience, perhaps a 30% / 70% structure is fair with you getting 30%. This is of course if your investor is putting in all the capital and qualifying for financing. If you both are splitting the capital contribution and qualifying for financing, then a 50% / 50% deal is more fair (again if your experience is limited).

There are endless options for how you can structure a Joint Venture Real Estate Deal but here are a few others we’ve done:

• 30% / 30% / 40% – if there are two cash partners and one managing partner or maybe one person is going to be a tradesperson offering their skills to renovate in exchange for a share of the property (essentially they are putting in sweat equity while someone else funds it and someone else is the managing partner). It’s always critical to lay out roles and responsibilities in your agreement but it’s even more important in an arrangement like this.
• 60% / 40% – we’ve done this two ways. Once, when we have had to put in some money and do all the work – we took 60% of the deal. Two, when we felt that someone was bringing more to the table than our usual arrangements we would offer them more equity. Perhaps they are funding a large renovation and leaving that cash in there and we need to increase their equity to ensure they get a great return, or maybe they are offering some skill in addition to the cash or if we were new, it could be how we get the deal done if we aren’t putting any cash into the deal.
• 75% / 25% – We’ve done this when we put the down payment in but couldn’t quality for financing. We gave someone 25% in exchange for their name on title and finance-ability. It would not be our first choice in an arrangement but we were in a pinch and had already lifted conditions. We needed to close on the deal and this got it done.
• 50% / 50% – Someone already owns the property and is unable to sell. They don’t want to hire a property manager for whatever reason. You can step in and offer to oversee everything in exchange for 50% ownership in the property. Their ‘initial capital contribution’ can simply be the equity they have in the property as of that date (get a property appraisal to determine this value relative to the mortgage owing). We did this when someone we met at a club meeting wanted to turn their property into a rent to own to sell it but didn’t know how. They also wanted to go away traveling and didn’t want any hassles.

Simple Structure Is Best

The most complicated structure we did almost completely bit us in the butt because one of the partners got divorced (the 30, 30, 40 split).

We brought two partners into one deal. We all brought money to the table but in different amounts. One couple put less in as they went on title and qualified for financing. Between us and our other partner we covered the remainder of cash. We split the deal with them 30% 30% and we got 40%.

A few years later the couple got divorced. Thankfully they were able to settle things amicably and were able to agree to keep the property. Had their divorce gone the ugly way of many, the property would have gone on the chopping block and we would have been put in the awkward position of either selling it prematurely to get them out, or having to buy them out, switch title and find our own financing. Not always an easy thing at the best of times, but we would have had the added pressure of making it fair given our other partner as well…

Thankfully it didn’t come to that and we all still own this property together but it was a good reminder that it’s best to keep your smaller deals one partner to one property. Every partner brings their own set of complications so why make it harder on yourself than you need to by mixing and matching?

Word of Warning: JV’s are Limiting and add stress – Use with Caution

One of our rent to own properties failed. The tenant buyers chose not to buy the property from us, as per their option, and rather than selling it in a slower market, we chose to convert it to a regular buy and hold rental property.

The property barely cash flows as a regular rental, but it’s a perfect property to add a legal suite to. It would potentially be one of the easiest places we’ve tackled to add a legal suite to because of the location of plumbing, electrical and the heating source. We approached our partners with the proposal to add a suite. We were going to split the cost of renovation with them, as per our 50% / 50% ownership with them because we have already owned it for several years. We would charge a small general contractor fee just to cover some of our costs of overseeing the work, but otherwise we were agreeing to take on a ton of work and time to improve the overall performance of the property. This move would have turned a neutral cash flowing property into one that is giving us at least $600 a month. Despite all the effort required to do this, it made perfect sense to us. If we owned this property on our own that is what we would do.

Our partners said no. Not because they didn’t like the idea, it was because they didn’t want to invest anymore cash into the deal.

They want to wait until the market is good enough to sell and then they want out. Getting them out now to make the change ourselves is more complicated and cost ridden than it is worth to us. It’s frustrating as we would much prefer it to be a solid holding property with strong cashflow, but it’s one of the limitations and issues with partners.

Joint venture real estate deals are a great way to grow your portfolio when you’re short of cash resources for down payments, struggle to qualify for financing, or want to work with other people who bring something to the table that you don’t have. They are long term business relationships, however, and need to be carefully considered to make sure it’s a fit and that the structure you select makes sense given what you are all bringing to the table. Hope this gives you a few new ideas.

Other Articles on Joint Ventures & Using Other People’s Money:

>> How to Write a Comprehensive Real Estate Investment Deal Summary (Business Plan for Real Estate Investors)

>> 5 Things Every Real Estate Investor Should Know about Money & Credit

>> How to Use RRSP’s to Fund Your Real Estate Deals

>> 5 Tips to Create Credibility as a Real Estate Investor

>> When to Sell a Real Estate Investment

Brad Price Specializing in Joint-Ventures

Brad Price Podcast Cover Photo

Brad Price is a Real Estate Investor specializing in Joint Venture Real Estate Acquisitions and Investment Management in the residential sector.

Brad has a number of real estate related businesses which he has either co-founded or founded, including Calgary based Commonwealth Home Ownership, a Canadian real estate investing education company that hosts networking events and provides tools and resources to help real estate investors build profitable portfolios. He is the President & CEO of REIBS Canada, a cloud-based bookkeeping company specifically designed to simplify and automate bookkeeping and accounting processes for real estate investors. Brad also manages BCP Coaching, a One-on-One coaching service for people looking to take that next step towards financial freedom. He highly values positive high-performance habits, a desire to breakdown the status quo, and an unwavering commitment to all of his clients.

In addition to Brad’s real estate related companies, Brad has extensive residential and commercial construction knowledge with over 17 years of experience in the industry. Brad’s most recent projects include two $100 Million commercial construction projects in Calgary and the development of $3.7 Million of residential investment properties in Edmonton. Brad’s next project is a $2.5 Million residential investment development in Calgary, commencing in the spring of 2020.

In our conversation Brad and I discuss:

The inspiration behind his start in real estate investing: “How much do you earn while you’re sleeping?” Educating yourself with the drinking from a fire-hose approach How to decide what real estate investing strategy is right for you Why he loves the joint-venture strategy for building a real estate investment portfolio Understanding what you are an expert in (as an investor) and communicating what your market has to offer Why it’s NOT all about market appreciation (in fact, why you should be hedging against downturns by holding strong cash-flowing assets) The basics of being a successful joint-venture working partner Advanced joint-venture working partner keys Highlighting the operational side of real estate that people often overlook, don’t know about, or just simply struggle with (bookkeeping, reporting, managing, systematizing) Finding joint-venture money partners – how to attract, communicate, and build relationships that lead to successful investments over time What Brad means by “people buy into you before they buy into a deal Telling, not selling, what you do The Joint-Venture Associate Program through Commonwealth Home Ownership Tips for investors looking to get started or take their investments to the next level

I hope you enjoy this comprehensive conversation with Brad Price!

Commonwealth Home Ownership: www.cwho.ca

Connect with Brad:

IG @brad.c.price

brad@cwho.ca

Connect with RevNYou with Real Estate

 

Questions, comments, feedback, or just want to get in touch? Send us an e-mail at info@revnyou.com

Thank you for listening and we look forward to welcoming you to the RevNYou With Real Estate Community!

Gary Spencer-Smith & The History of RevNYou

Gary Spencer-Smith Podcast Cover Photo


Welcome to the first interview episode of The RevNYou With Real Estate Podcast! Thank you for tuning in!

In the show’s inaugural episode, Doug catches up with fellow RevNYou team member and award winning investor Gary Spencer-Smith.

Gary was born in the UK and started investing in his native country during his time in the Royal Navy, He emigrated to Canada after 11 years of service, which saw him travel all over the world before settling on Vancouver Island. Investing on the island for over ten years now, Gary has won awards from Canadian Real Estate Wealth Magazine and The Real Estate Investment Network for his strategies and success, and been nominated for countless others. Gary enjoys the lifestyle investing in real estate affords him and has a passion for helping others change their financial futures by using real estate as the catalyst. “When I see people finally realize they can totally change their lives, it’s like a light goes on, then they know what is truly possible for their lifestyle and the future of themselves and those around them. That’s why I teach!”

Joint-Venture Investing

After getting to know Gary and his background story, the conversation shifts towards providing listeners with a primer on joint-venture investing before getting into the tips, techniques, strategies, and ways of being that have made Gary such a successful joint-venture working partner in his many years as a real estate investor.

Gary shares his knowledge and experience on:

  • How to screen your joint-venture partners to work with the right type of people, creating win-win relationships
  • Identifying opportunities to match with the right joint-venture partners
  • Communicating with various personalities and different communication styles from your own
  • Developing, managing, and strengthening relationships with your joint-venture partners for long-lasting success

Investor Resources

As the conversation winds down Gary also shares some great resources for investors looking to get started or for those looking to take their investing journey to the next level!

Resources mentioned in the show:

  • Julie Broad – More Than Cashflow: Understanding The Real Risks & Rewards of Profitable Real Estate
  • Robert Kiyosaki – Rich Dad Poor Dad
  • Don R. Campbell – Secrets of The Canadian Real Estate Cycle
  • CashFlow Game – https://www.richdad.com/products/cashflow-classic

Did you enjoy the podcast? If so, please let us know by clicking the subscribe button on the podcast platform of your liking.

Want to become a part of the RevNYou Community? We’d love for you to join our following on YouTube, Facebook, and Instagram for real estate investing resources, and to stay up-to-date on what’s happening in the RevNYou With Real Estate World.

5 Secrets on Finding Money to Buy Rentals

5 secrets to finding people with money

5 Secrets to Find Money to Buy Rentals

Raising Money

Have you ever wanted to invest in real estate but you don’t have the funds to start? We are here to tell you its no excuse! There are many ways to get started in real estate without using your own money.

#1 – Use the equity in your own home.

If you’ve owned your home for a while and you’ve paid down your mortgage and perhaps the house price went up a little bit, you might have some equity sitting there. Use what you’ve got to get what you want. You already have it, so why not put that to use? Otherwise the equity is sitting there doing nothing for you. It might giving you peace of mind, but it’s not helping generate anything for your life. So use what you’ve got to get what you want.

#2 – Do you have RRSPs?

There are two ways of using RRSPs if you have your own. You can lend it out as a mortgage through a soft direct account. And the other one is if you’re an investor, you can use other people’s RRSPs. Now there are a few rules behind this. They can’t be a parent or sibling. There’s various rules and we’ve got a video that explains about RRSP mortgages on our YouTube Channel, but you can also use other people’s RRSPs and you can have that as a first or a second mortgage on your property.  Typically we will do 8 to 10% on a RRSP for someone and that’s secured against an asset. This makes sure people are happy when they’re doing it and they’re happy to lend it. We usually do that for shorter term lender, not for long term lenders, but that’s what we use RRSPs for.

#3- Private Money.

This is sometimes called hard lending, but basically that’s somebody that has cash and they’re willing to lend it to you for a guaranteed rate of return. This can be high. I’ve done 50 to 60% of the deals that and we’re finding people that have money but they don’t necessarily have the time to put into a real estate deal. So we’ll use their money, we’ll put it in our time, and then together we will create a joint venture, then give them a return on their money. It’s secured against a solid asset. It’s in real estate. Most educated people don’t want to just put it in the bank, they don’t want to put it into a mutual fund. When the market crashed in 2007 2008 people saw the money just disappear. An example of who people may want to take it out and put it in a solid asset.

#4 – Be a Joint venture Partner.

If you might not be able to qualify for a mortgage, then we shall find my “friend Bob.” Thankfully, Bob has great credit and his ability to borrow to get the mortgage is possible.  Now you and your “friend Bob” with create a joint venture agreement for a real estate deal! There are many ways of getting into a joint venture. A joint venture is you and at least one other person are going into a venture together to partner up to go purchase some real estate and it’s gotta be a win-win.

You want to make sure everybody’s happy and you want to make sure that everybody has different benefits that they’re bringing to the deal. Someone might be bringing the experience, someone might be bringing the money, someone else might be bringing the ability to borrow from a lender, are a few to name. If someone has money for example, which you may hear the terms; a private money lender or a hard money lender would be one person in the deal. Someone with no money may borrow this persons money because they’re self employed or cannot qualify. Its kind of like fitting the pieces into the puzzle or the different people into the same deal. Usually if your the one borrowing the money your skill will have to be putting in your knowledge and managing of the project. If you need investor training go to Rev N You School and see our real estate investing courses.

#5- Presenting a Good Deal. 

And the final way, and this is probably one of the most important. One of my mentors said this to me very early on, they said, “Gary, if you find the right property and the right deal, the money will come to you.” Now I didn’t really understand what that meant. And then as I got further into the process of looking at properties, looking for deals, I then realized that you can’t say the wrong thing to the right person if your deal makes sense on paper and is simply a good deal! So what I mean by that is it, if you came up to me now and you were showing me the numbers on a piece of paper of this deal, and it’s a great investment. There’s lots of people I know, friends of mine, people in my narrow, they’ve all got great deals and when they show me on paper, I’m like, I would find the money for that.

For example, if I had a Porsche that was worth $150,000 you know it’s a really good one. And I said, Hey, you can have this push for $10,000 you might not have $10,000 in your pocket, but you’d find $10,000 pretty fast because you know that is worth $150,000. It didn’t matter if I was giving you the wrong information about the statistics of the brakes. It doesn’t matter how good the deal is, if it’s not the right person to invest and then not the right mindset, you could talk to them for three days. They will never invest. But if you have the right house and the right property, then the money will find you.

 

Finding Money Resources

BONUS TIP: Go to local real estate meetings and start to network and meet people! People are constantly connecting and finding joint venture partners by taking the extra time to go to events. It’s beneficial if you have a great deals ready to show people or talk about then follow up with them with more information.

Watch this video before you head to your next meeting.

How to Break Up a Real Estate Joint Venture

chain breaking

What if my investor wants out of the joint venture deal?

Our worst partnership was created when I was more focused on my new career after graduating from my MBA than I was on our real estate portfolio. It was 2004. Dave had begun to dream really big and had met someone to work with on these big plans.

This guy was a creator and innovator. He had started a company that was growing rapidly and was already winning some business awards. He was an idea man and was well connected to a lot of people with money who would be keen to put it into real estate.

The two of them thought that they could create a syndicate with this guy’s contacts and Dave’s expertise. Dave spent hours and hours meeting with him and planning the syndicate. They did a couple of deals together and planned to do a lot more.

I was busy with school and was not interested in a syndicate. I also didn’t think this was the guy to do it with. He was controlling and yet scattered. He insisted on being involved and yet was hard to get in touch with.

Dave was frustrated with the challenges he faced in working with this guy but continued to push forward as he saw the potential. When they had the first two under their belt, Dave found a couple of other ones. Dave made offers but Dave could not get him on the phone. He had to let those deals go (those deals promptly doubled in value so Dave was pretty upset he’d relied on this guy instead of doing them without him).

He couldn’t even get in touch with this guy to discuss the properties they already owned. Sometimes it would take 2 weeks before Dave would hear back from him.

Eventually Dave accepted it wasn’t working. So he needed to break up the joint venture.

This is the only time we’ve had to break up a joint venture. We quickly realized how important it was to only work with our ideal investors. So what are your options?

First, prevention is the best medicine.

You may pursue Joint Ventures (JVs) for flips, big deals like apartment buildings or commercial developments and your specifications of what you’re looking for may be different than what we do (see structuring real estate Joint Ventures). For us, we tend to look to private lenders for money for anything outside of buy and hold residential deals and rent to owns. There are a lot of reasons for that but the biggest reasons are the increased risks and the increased need that someone has to be on the same page as you for the future financial requirements of a deal (we’ll be teaching you how to find private lenders and joint ventures in April in Toronto). We prefer to handle those issues on our own and work with a joint venture for the more stable investments like small multi unit or single family buy and holds and rent to owns.

In those cases you want to make it clear that you are looking for a minimum of a five year commitment. You want this even for rent to owns because if the deal doesn’t close as expected it likely will be a property you hold for close to five years (or longer) (see why rent to own investing can stink).

In our agreement we state a minimum hold of 5 years or an increase in value of 25% before either party can exit.

Despite the prevention measures, life happens. If it’s time to exit, someone needs out or the relationship is challenging and you want out, what are your options? These need to be spelled out in your joint venture agreement, but here’s a few options for you:

Right of First Refusal – if the term has completed and one of you wants out the other partner has the right of first refusal to buy them out. This ensures that either party doesn’t turn around and try and sell the property from under the other party. It gives the other partner a chance to buy the person out before they sell it to the market (a third party).

What does that process look like? Your agreement needs to spell out how you determine fair market value. For most people you will get an appraisal done and if both parties agree with the appraisal or the value then the one party may buy it from the other for that price. We allow for the average of two appraisals to be taken to determine fair market value in the event that the parties don’t agree on the value of the first appraisal.

Splitting the Chocolate Bar – Now, if you have not reached the five year term, if that is what you agreed to, (or the value hasn’t increased by 25% as per our agreement) and one partner wants out, our approach to this is something we call “splitting the chocolate bar”. Other people might call this a shot-gun clause.

If one party wants out before the contractual time frame this is how we handle it.

Imagine you have a chocolate bar. One party breaks it in half and the other one picks which side they want first. If I am breaking it to share I am going to split it as close to the middle as I can so you don’t take a bigger piece from me.

If, however, I am a crazy person that doesn’t like chocolate, and I don’t want to end up with the chocolate bar, I should break the bar so that there’s a bigger piece for you to take so you are more likely to take it.

Taking this to the property to explain the concept: the person who chooses the value would be the one that wants to break the contract. The other person determines if they will buy the property at that price or sell it to you. If you want me to buy you out and you’re choosing the value, you would be wise to offer it to me at a slight discount so I am motivated to buy it from you (or it’s attractive for me to bring someone else in to replace you in the deal). I basically get the choice of whether I buy it from you at that price or sell it to you at that price. If you get too greedy I can tell you to buy it from me.

For example, I know the property is worth $240,000 but I want out. When I decide the value of the deal I might say $220,000 to give the other person an incentive to buy from me. If I say $240,000 there is a good chance the other party will say “Ok I’ll sell it to you for that!”

If you are in the position where it’s favourable to buy out your partner but you can’t qualify for financing or you don’t have the cash then you can consider bringing in a new person to replace your investor. If they have made the price attractive enough and it’s a good asset, you should be able to find someone to take their place. You could also look at private money if the cashflow is strong enough to cover the higher cost of a private mortgage. And, if all else fails and you can’t buy them out when they want out no matter how attractive they make it for you, you’ll have to put the property on the market.

How Do You Determine Fair Market Value?

It’s easy for us to determine fair market value for most of our properties because we are hands on and very active in the market. We know what is selling and for what price. But for the purposes of splitting off a partnership or where fair market value needs to be determined, we spell it out in our agreement how the valuation will be done.

You should include something in your agreement that spells out how fair market value is calculated. Our agreement typically states that each party hires an appraiser and take the average of the two appraisals.

Timeframe:

We have a term in our agreement that says that the property will be held until the property appreciates by 25%, or we’ve held the property for 5 years. When one of those conditions is met, either party has the right to sell – and the other partner basically can’t refuse. This is when the right of first refusal kicks in.

If one of you wants out before either of those conditions is met, for example if your partner wants to sell after three years and the property has only gone up in value by 5% it’s probably not advisable to sell. In that situation you would use the ‘splitting the chocolate bar’ method to separate.

One of the questions most people will ask you is when they will get their money back. As we’ll discuss shortly, the most important thing for you to do is align your investments and your strategy with the right people. In our case, buy and hold real estate investing, we’re always holding for the longer term. Our ideal partnerships are those that really don’t have a need for the cash anytime soon. We want to hold for as long as possible to maximize the return and profit. That can take more than seven years depending on where you bought in the real estate cycle. We would prefer someone who is continuing to generate income and is using this as part of their overall income strategy to grow their wealth. As a result they won’t need their money out until we believe it’s the best time to exit. But regardless, everyone wants to know when they will get their money out so having something in your agreement that shows them there is, in fact, a way to end and get their money out will give them comfort.

And since we’re talking about breaking up a joint venture, let’s talk about a darker subject.

What Happens If Someone Dies? The incapacity Event

This is a subject nobody likes to consider, but it is important.

For your own comfort and that of your loved ones, you should know what is going to happen to your properties if you pass away. For your partners assurance they need to know you have a plan.

For your assurance you need to know your partner has a will so the property doesn’t get tied up in probate hell for years.

We spell this out in our agreement and you should too. It outlines what happens if someone can’t make decisions anymore or they pass away.

In our case, if Dave or myself were to be incapacitated, the other would just take over. We run our business together and while Dave handles more of the day to day operations, I am capable of running the entire business. If we both were to pass away, we have a real estate experienced lawyer who is our executor and he would take over the managing role.

We have it spelled out that he would contact the JV partners and review the options.

One of my coaching clients was concerned about what would happen if she passed away. Her husband is not involved and she fears the amount of stress it would put on him if he had to manage the properties himself. My suggestion to her was to hire a property manager for at least one of her properties so that she built a relationship with someone who could take over all of the properties if something were to happen to her. I also suggested she create a spreadsheet that outlines all the important information for each property (including bank account numbers and passwords). Keep that locked in a safe and up to date.

It’s not a foolproof plan, but it’s much better than no plan at all.

If something happens to your JV partner and they’ve qualified for financing what is going to happen to their side of the deal? Does it transfer to a spouse? Do they have insurance that will pay out the debt? Just like you have to cover your side of the deal, you also need to understand they have their side covered.

In most cases, in the event of death, you’d probably sell the asset or the surviving party would buy out the estate of the passed partner. The important thing is that there is some commentary around that. Ensure you have that conversation with your JV  and with your lawyer.

As with every legal document there are a lot of areas to cover and this is not every single detail. I am also not a lawyer nor have I had any legal training. This gives you some critical elements to discuss with your real estate specializing lawyer when you get your own document drawn up but should not replace the advice of legal counsel.

Joint ventures are a great way to grow your portfolio but it’s a business relationship. It’s important you treat it like that and consider the ways to exit the deal as well as all the ways you’re going to find people to enter a deal with.

You are about to become a compelling conversationalist that attracts money right to your door.
Eliminate the fear you have around asking for money for your deals – forever.

Natural born salespeople need not apply – this is for folks who aren’t sure how to structure their joint ventures and lending agreements. This is for people who feel uncomfortable pushing their money raising agenda in front of people. And, this is absolutely for people who want to learn how to be comfortable AND confident when they talk about their deals with other people.

There’s no fancy techniques or slick selling tactics. What we teach is what we do … We don’t teach weird sales tactics. We teach you how to have people COME TO YOU!

You don’t have to register today, but you could miss out if you don’t.

Get the details and get registered right here ===>>http://jointventurerealestate.ca/

The Ultimate Guide to Creating a Real Estate Investment Deal Summary

happy working

Are you planning on raising money in a joint venture or from a private lender? Are you ready to have conversations to get the cash? Let’s just see …

Imagine you have $100,000 to invest in a deal. Who are you going to work with?

Meek Megan, who has slouched shoulders and lowered eyes, looking away from you frequently, saying:

“I know you’re busy so I want to thank you for taking time out of your day to meet with me. I would like to talk with you about borrowing $50,000. It’s for this deal I am working on. I think it’s probably a good deal. You know my realtor said it is probably worth about $300,000 and I am buying it for $275,000. I have tried everything to come up with the money. The bank says they will finance me if I can put down 25% so I have to raise that money. I know real estate isn’t your thing but it would be such a big favor to me if you loaned me the money for the deal.”

Or, Confident Courtney, who looks you in the eye, holds her head high with her shoulders back and says:

“I am so glad I had time to meet with you today. Thanks for your interest. This deal I am working on is pretty cool. I have an accepted offer on it for $275,000 and it’s worth $300,000. After a paint job and some landscaping which will cost less than $5,000 I believe we’ll get $2,000/month rent for it. It’s in a really great area and I already have a few tenants interested in it. I’ve got a lender lined up, I just have to bring in a partner who can qualify for financing and put in the initial $60,000 required for a down payment. I can’t make any guarantees, but based on mortgage pay down and cash flow, even if the property doesn’t go up in value a cent, the person I work with to fund the deal should make at least 10% a year on the deal each year, probably more.”

Clearly, Courtney is getting the money.

But, Megan and Courtney had the same deal to offer so what was the difference?

Coming into any conversation confidently is trickier than it sounds. Few people can fake confidence, so you have to build it from within.

I’ve always found that if you’re worried that someone is going to object to something or think you’re not experienced enough, that is the VERY thing they will say or think.

You have to believe in you and what you’re offering before anyone else will.

This has next to nothing to do with having the right documentation and everything to do with you, your expertise and your ability to communicate the offering. The right paperwork and marketing materials really aren’t part of a successful conversation, except to make you feel like a prepared professional. If you’ve taken the time to develop an extensive deal summary, or business plan for your investment property, you’ll have thought through what you’re offering and will feel like you are bringing a lot of value to the table.

So what do you need in a deal summary?

The first thing to prepare for any conversation are your answers to the 5 Why’s. These are the key points you’re going to cover in your presentation. And, they are the things you’ll figure out the answers to when you create your deal summary.

Those questions are :

1. WHY YOU?

2. WHY NOW?

3. WHY YOUR MARKET AREA?

4. WHY THIS DEAL?

5. WHY THIS STRATEGY?

This video walks you through these questions and explains, briefly, what each means:

Your deal summary, which is pretty much a business plan for an investment property, addresses these questions. Creating the deal summary is less for your prospective partner than it is for you!

<NOTE: You should never SEND this deal summary to a potential investor via email before you meet with them. It’s probably more beneficial to send it to a space station than it is to send it to a potential investor in advance. Emailing a deal summary – no matter how beautiful or comprehensive it is – does not raise money or uncover partners.>

You might expect that a business plan is important as a presentation tool but the reality is that the business plan is critical for you! You should rarely, if ever, actually use it during the course of a presentation. It’s great follow up material. It’s nice to mention in the conversation, but pulling it out in the middle of a conversation, will completing change the focus of the presentation. Try it … when it doesn’t work, go back to keeping it in your bag for the end.

We no longer create a deal summary for each of our deals. We don’t need to. We know what to say and we don’t even give a copy to our investors so it’s not necessary anymore. We have past deal summaries to show them as examples and we ALWAYS prepare an executive summary (1 page document with a picture and key numbers of each deal). But, when you’re first raising money, the deal summary is a CRITICAL piece of your preparation.

Doing the work to create one forces you to spend time thinking about each of these key questions. You will have to do research for your specific market area and deal types. When you carefully think through a business plan you will identify gaps in your plan, work to correct them and this process will build your expertise and confidence. When you write the deal summary you will also be crafting the answers to questions that will come up from partners and lenders.

Well thought out answers to questions demonstrates that you are a professional and have considered all the elements.

With that in mind, here’s a quick review of all the main sections that should be in your Deal Summary:

1. Introduction:
This should be no more than 1 or 2 pages and is a quick overview of who you are, what you are trying to accomplish, and what’s in it for the Partner (quick overview of the five WHY’s).

2. The Management Team:
Who are you? Who is on your Team? Why would I want to partner with you (vs. the competition)? “Money follows Management” so if you are light on experience, you have to be very strong in at least one other area (market area expert, huge network, relevant trade expertise, etc.). Then support that with a team that you can confidently boast about. For instance when you reference your team, you could say my realtor is the #1 investment property specialist in the city, my accountant owns over 10 investment properties himself so understands our investing strategy, or my brother has been a licensed carpenter for over 10 years and specializes in low cost renovations. Your prospective Partner is always most concerned with “what’s in it for them?” They want to work with someone who is confident, capable and has a great team (WHY YOU!).

3. The Opportunity:
Where are you investing? What are you investing in? And most importantly, WHY are you investing there? This section is where it’s imperative that you have done your market research. (Please note: we do not teach you how to properly conduct your market research in this program. If you wish to learn how to do your due diligence on a market, please contact us at info@revnyou.com for a special offer on our program.). Again, your Partner will want to know the What, Where, and Why of your opportunity. This section should include enough details to give your Partner an idea of where their resource (money, time, expertise) will be going without overwhelming them with pages and pages and pages of data. (WHY NOW? WHY THIS MARKET AREA?)

We have a Properties with a Cause Model that we follow and always discuss.

4. The Investment Analysis:
The “numbers” are not as important as you might think. Most investors just want to feel confident that you’ve done them. This section ensures that you have run the numbers carefully and have thought through the strategy. (WHY THIS DEAL? WHY THIS STRATEGY?)

You might be focused on how much your investor can gain but most investors are more worried about ensuring they don’t lose their money. Most people react to fear of loss or the threat of pain more strongly than they do the potential for gain. You need to show them that you’ve thought through the risks and are taking care to mitigate them where you can.

Once a potential investor has a basic understanding of what they can gain, they typically turn their attention to all the ways they can lose their money in this deal. The “numbers” in this section will demonstrate that you have covered all the bases of this investment opportunity. Include enough detail and clarity that the person can follow along and understand “what’s in it for me” from their perspective.

Also see, how to analyze your deals, and why you’re the only one that can.

5. The Joint Venture Structure:
This part of the summary clearly identifies each persons roles and responsibilities are for the duration of the joint venture. This article discusses JV Structure.

6. Exit Strategy:
When will I get my money back? How do I know this will work? Why are you using this strategy? What happens if it doesn’t sell?….we can’t rent it?….the market crashes? This section should be focused on answering these questions. Your investor really just wants to know that they and their money/credit/resources are protected (WHY THIS DEAL? WHY THIS STRATEGY?). This section really becomes a lot of the material you’ll use when you handle objections in a conversation (although, the more confident you are with your strategy and what you offer, the fewer challenges you’ll face from potential investors).

7. Appendices:
This is the last section of the Deal Summary and is not always necessary. We use this section to demonstrate our expertise and market area knowledge. It really supports what you’ve already demonstrated in the other sections. Here’s where you can include articles you’ve been featured in, references to awards you’ve won, key references in the media to your market area or your strategy, and anything else that would be useful to reference regarding the deal. Testimonials from other happy partners or investors are also a nice touch for this section. If you’re a renovator, before and after pictures can be a great piece to add here as well.

For us, if a potential investor goes through the Appendices in detail, it’s a good sign they are probably not our ideal investor. Most people will just flip through it to see if anything catches their eye.

The Appendix, for us, is a good place to keep really important credibility boosting pieces or high value articles, that you might want to reference in the future.  can really have anything you want in it but please check out the sample deal summaries we have included to get a sense of what we use. Make it your own and of course, make it useful!

Nothing replaces the face to face part of raising money. You have to have a lot of conversations to get cash for doing multiple deals. Having a high quality and well thought out deal summary will boost your confidence and reassure an investor, so it’s important if you’re new to raising money or investing, but it’s not the most important thing you can do. The most important thing you can do is become an area expert, have a great team, master your strategy and learn how to have a compelling conversation that you control.

If you need help with any of that … April 25th & 26th, 2015 we’re holding our final workshop on Funding Your Deals in 49 Days – the ultimate workshop for learning how to have conversations that you can use to have people ASK YOU about investing in your deals. You just might want to mark your calendar and plan to be there. Details coming soon.

Does Your Real Estate Website Suck?

website

Have you heard this story?

The sun and the wind were hanging out watching a man working in a field. They were bored so they decided to see who could get the guy to take his jacket off first.

The wind steps up and says “I am strong … you watch this”.

He blew as hard as he could. He huffed, puffed and gusted, but the guy actually zipped up his jacket and wrapped his arms around his body to hold the jacket tighter.

The sun smiled and said “I’ve got this.

He pointed himself right on the man in the field and started shining brightly.  Within a minute, the man wiped sweat off of his forehead. Then, a few minutes later, he unzipped his jacket. Soon, the jacket came off.

The wind is like facts and figures and the sun is like a story.

When you use facts and figures to try to convince somebody to do what you want, it often causes them to cling to the very belief you wanted them to shed.

When you tell a story that offers a different context, the listener doesn’t even realize you’re persuading them to see it your way; Their defenses come down and the jacket comes off.

Humans are not rational. We want to believe we are rational, but we are emotionally driven beings.

This is where the majority of real estate investing websites fail … and fail badly.

As an investor, you probably feel like much of your decisions are rational. The result is that you believe your website needs to speak to a rational person. That makes your website incredibly boring and like all the other boring real estate investing websites out there.

The problem is you’re trying to influence others by being the wind, when you need to be more subtle and persuasive like the sun.

So what else are you doing that makes your real estate website suck – and what you can do to make it stand out in the minds of your visitors?

Real Estate Website Mistake #1: Being Everything to Everyone

Too many real estate investing websites try to cater to a ton of different target markets. Your website shouldn’t be trying to attract JV money, home sellers and tenants all on the same site. Besides the fact that your tenants are probably not going to be too thrilled to see how much money you make off of their rent, it’s not going an effective marketing strategy to be everything to everyone.

Make your website focused and specific.

Yes, this means you’ll probably have to create three different websites – one for each target market. Or, maybe you don’t need a website at all. If the choice is a confusing website that tries to cater to everyone and no website at all, choose no website.

Real Estate Website Mistake #2: I am SO Frickin’ Wonderful

Your website should be about one person … that person, however, is not you.

Too many websites seem to cater more to the ego of it’s creator than to it’s prospect. Your website should be focused on what’s in it for your website visitor and what you want them to do when they arrive – not telling the world how great you are.

Take a look at your website and see if it’s first page is all about YOUR PROSPECT or ABOUT YOU. If it’s about you, it’s time to make a change, right now! You are great – I am sure of it – but the visitor is most interested in what you can do for them. Make it clear on the first page what you are offering to them:

  • On a rent to own website, instead of saying: “We have 7 years of experience helping tenants become home owners.” say: “Bad credit? Banks said no – again!? Home ownership is still possible for you – let us help!”
  • For a property management or your rental website, instead of saying: “Two time award winner of cockroach free rentals” say “No more dirty basement suites for you – beautiful well maintained homes with landlords that care at prices that fit your budget.”
  • On a website to attract investors money, instead of saying: “We own $6 million worth of real estate, have been investing for 10 years and have a track record we’re proud of” say “Sick of stock market roller coaster returns? Want predictable double digit returns on your investment capital in an asset you can actually drive by and see?”

There is a time and a place for talking about yourself, but it’s not the front page of your website.

Figure out what is important to the ONE prospect you’re focused on with your website, and speak to the pain they are feeling and how you can help them.

Real Estate Website Mistake #3 – Bad Pictures

real estate website bad picturesThere’s nothing funnier than a picture of a house for sale or a rental ad with a living room shot showing a hairy leg hanging off the couch or dirty dishes all over the counter. But, it is only funny when it’s your competition.

If those are the pictures on your website or the only picture of you was taken at a party with a drink in your hand and your arm around someone you’ve cropped out, it is not sending a professional message about yourself or your business.

You can hire a professional to take a great headshot for less than $100 in many markets. Get a professional headshot.

For your property, you can take amazing photos with your smart phone these days … just make the effort to get the property cleaned first.

It’s not about perfection, but it is about professionalism.

There’s also a fine line between showing that you’re into your family and making your website look like a family photo album. A photo here and there of your dogs and kids is fine, but if that is all your visitor sees, they may miss out on the important message you want them to take away from your site (see Mistake #1 – the website is not about you, it’s about the person you’re trying to help!).

Mistake #4 – Having a Website Just Like Everyone Else

There are a lot of rent to own and home seller attraction websites around that all look the same.

Sometimes they have a few different colours, but even the text used is similar. The only real difference is phone number and URL address. My guess is that a bunch of people took a course that sold website templates. It’s a lucrative business opportunity for the guy or gal at the front of the room selling the website. It is, however, not the best option for you as an investor. It seems like a simple way to get a website, but it’s not effective and it’s actually expensive compared to your options.

How are you ever going to stand out and be remembered if you look like everyone else online?

Hire someone to design your website. Get it set up on WordPress with your own hosting account. Spend a day writing some content. Now, you have your own original website.

If you have to pay someone to add your blog posts or post pictures, you’re on the wrong platform. These days, most investors are wise to hire someone to set up the design and template, but from there you should be able to do the updates yourself and hosting shouldn’t be more than $12/month. You don’t need to know any code with programs like WordPress. Writing posts and adding pictures is as easy as doing it in a Word Document.

Original content goes a long way with Google and with your leads. If you’re not sure where to start check elance.com or odesk.com for some good options on the website creation side.

Mistake #5 – Who the Heck Are You?

What is with the anonymous Canadian Rent to Own websites? The website is about your potential rent to own tenant, yes, but who are you? That should be on your website somewhere (this is what the About Us page is for).

Too many real estate websites are done anonymously or are made to look like you’re this huge corporation. Most real estate investors work from home – it’s part of the appeal of what we do. I am proud of the 16 stair commute that I have. Do you think my tenants care? No. Nor do my investors. If anything, most of our investors are happy that we run a lean operation. It shows we care about the bottom line.

Personally, I don’t want to do business with a company that hides who they are.

The About Us page is your chance to talk all about your self, build credibility and make people want to work with you. It still should be focused on what is important information for your prospect to know though (our About Us page differs on every website because, for example, our JV Partners probably like to know that I have an MBA in real estate and finance and Dave used to be a mortgage broker and market researcher for Scotiabank, but our tenants could care less about those qualifications. They are more interested in the fact that we have a great reputation and our past tenants recommend us).

What you should NOT have on your About Us page is an anonymous BS statement like “Our company has been working with investors for two years and continually find great properties to invest in. We make our partners a great return on their investment and can help you too. Contact us today.” Seriously – what website couldn’t say that?! Make yourself stand out.

If you’re making any of these mistakes, today is a great day to make some website changes! Remember, your goal should be subtle persuasion like the sun.

And if you have a website and just trying to build your audience, here’s some tips you’ll be able to use:

And, if you don’t have a website, and are wondering if you need one, this video just might help you:

 

Second Image Credit: © Masezdromaderi | Dreamstime.com - Messy Bathroom Photo

It’s Not What You’re Saying that is Ruining Your Deals

Thinking man by computer

It’s really simple. These are the factors we have to put in the model…” and then he would rattle off a bunch of things so fast I had no idea what he was saying. Nobody in our group did.

We’d usually just look at each other, shrug and follow his lead. He was one of the smartest people in our entire MBA class so following his lead was usually a safe bet.

The challenge was when someone else in the group had an idea. It was tough for him to persuade the group. He thought on a different level than the rest of us and he spoke so fast that his arguments weren’t compelling. We just didn’t understand what he was suggesting.

As a real estate investor, communicating in a compelling manner is critical to your success too. It’s rarely the first subject people talk about in the real estate space. It’s usually about hiring your team, finding deals, researching your market or handling tenants, and yet your ability to excel at all of those things comes back to your ability to communicate effectively.

In fact, your entire business relies on your ability to negotiate deals, hire the right people for your team (and communicate what’s expected of them), and raise the money you need to do fund your deals.

Sure, you need to run numbers, and that requires a spreadsheet more than your ability to communicate, but beyond that your success in real estate is all about you convincing people to do what you want them to do!

The scary part is that so much of what allows you be effective or ineffective isn’t about WHAT you’re saying. It’s about how you’re saying it.

Your voice – the pace you speak at, the tone you use to communicate, filler words, and the energy that comes through in your voice – are all impacting your ability to influence and impress other people.

Seinfeld Puffy Shirt A quick look back at some of the most famous Seinfeld episodes will confirm the importance of how you deliver your message. They’ve had fun with every kind of talker … the fast talker, the close talker, and the low talker.

Remember, how Jerry was ‘low talked’ into wearing that white puffy pirate shirt on stage at his show by Kramer’s low talking girlfriend?

Clearly, how you’re delivering your message is critical. So what can you do to ensure your message has the greatest impact on delivery?

Here are three things to ensure what you say is not getting ruined by HOW you say it:

1. Do you believe in your message?

Have you ever tried to convince somebody of something you don’t really believe?

How’d that work out for you?

The first key is to having an influential voice is to believe in what you’re saying. This is challenging for some new investors who are trying to build a team or raise money. They are telling a realtor about what they are going to do, but they haven’t built the belief that they will actually make it happen (you can also read my article about finding a good realtor). Or, they are speaking with a potential joint venture why 50% 50% is a fair split when they don’t really know if it is.

In Grant Cardone’s book, the 10X Rule he talks about the danger of not being fully committed to whatever it takes to achieve your goal. He says:

When you have underestimated the time, energy, and effort necessary to do something, you will have ‘quit’ in your mind, voice, posture, face and presentation…However, when you correctly estimate the effort necessary, you will assume the appropriate posture. The marketplace will sense by your actions that you are a force to be reckoned with and are not going away – and it will begin to respond accordingly.”

Belief and determination will shine through your voice. So before you try to convince and engage anyone, get connected with what is driving you to invest in real estate in the first place. Get into the mindset of ‘let’s do this – whatever it takes’ and pursue what you want with moxie. That alone will overcome a lot of the other potential voice issues you could face. People will sense your determination and your belief and will hop right on board.

Dave always talks about the power of looking someone in the eye and saying “I’m going to take care of your money because if we don’t make you money, we can’t eat. We only make money when you make money, and this is our primary business.”

That kind of determination and belief in what you do is powerful (and works to raise a lot of money)!

2. Record Yourself Speaking … And Listen Carefully

If you just groaned, I get it. Listening to your own voice is pretty painful for most people. It is, however, the best way to catch if you have any of these other potential voice issues that are making it hard for you to influence others.

Ideally record your side of a business call. Afterwards, listen for:

1. Vocal Tone – does your voice come through as a command or a question. If you’re asking a question – ok your voice should go up at the end of a sentence to indicate a question. Otherwise, a flat or even drop in your tone at the end of a sentence is much stronger.
2. Filler Words – Are you using them? You know, um, the ones, ah, like … right?
3. Vocal Pace – Are you speaking too fast, too slow, or are you just speaking at one pace and at one tone the whole time which will put people to sleep?

Have an honest friend give you input. Then, consciously work to change it!

3. What Do You Look Like When You’re Speaking?

This is an entire article unto itself. You can damage your credibility, look totally insecure or just not be likable to someone in an instant just by showing up in the wrong clothes or looking totally disheveled. Let’s be blunt … nose and ear hair really hurt your impact too.

You could also ruin any sort of positive message you’re saying with gestures like rubbing a beard while you’re speaking, constantly flicking your hair or rubbing your nose.

If you look nervous, the other person will feel nervous.

Besides the fact that these things are distracting, they don’t set someone at ease. In order to influence someone, they need to be comfortable.

The bottom line is that you need to look appealing in most cases so people want to look at you and feel comfortable doing so. It’s not necessarily fair or right, but the more attractive you are, the easier it will be for you to influence someone. You don’t have to believe me … you can just read Invisible Influence by Kevin Hogan and you’ll learn all about it.

People have to be ok to look at you while you’re talking so that they can feel comfortable and will easily engage with you.

Ask a kind but critical friend what you could improve. Hire a stylist. Video tape yourself speaking. Identify where you can improve your appearance and reduce the gestures you make that are taking away from your message.

If what you’re doing is working for you right now – you’re negotiating great deals, raising all the money you need, and work with a team you love, you could make a few tweaks I am sure (we all can I suspect!), but you’re probably actually good. If, however, you’re having trouble hiring the right people, your raising money efforts are falling flat and you never seem to get what you want in negotiations, it’s time to pay attention to HOW you’re saying what you are saying.

Good luck!

 

1st Image: © B-d-s | Dreamstime.com - Young Woman At The Desk Gesturing OK Photo
2nd Image: (& fun info about the Puffy Shirt episode) http://seinfeld.wikia.com/wiki/The_Puffy_Shirt

5 Ways to Finance All Your Real Estate Deals

money in light bulb

Imagine your company has one week to live unless you’re able to get a huge capital infusion.

You’ve already sunk a gigantic sum of money into the company.

You have about $40 million dollars you could invest, but to do that is to put your last dollar into a company few people believe in.

Bank financing is certainly not an option. Private funds aren’t an option either. Most people really think you’re crazy for pursuing this dream. Nobody will throw money into a venture they think is going to fail.

It’s not even a choice really. Not if you’re Elon Musk.

You put every last dollar you have in to the company.

If you’re not familiar with Elon Musk and his entrepreneurial and innovative journey to creating SpaceX and Tesla, I have posted a few of my favourite interviews with him below. He’s an inspiring and interesting guy who is changing our world.

He’s also the kind of person who finds a way to get things done even when everyone says it can’t be done.

It’s unlikely though that you’ll face anything quite like taking on the big car companies or NASA, but you might need to channel a bit of Elon Musk when it comes to getting your real estate deals financed.

There will be a lot of people who will tell you NO. There will be many who don’t believe it can be done. It’s up to you to persevere and find a way.

But sometimes you don’t know where to start, which is why I have pulled together 5 ways to finance your real estate deals:

1. Traditional Bank Financing:

Your own cash for the down payment (usually 20% or 25% of the purchase price) and a bank or credit union finances the rest. This usually offers you the best possible interest rate, but it’s also the hardest to qualify for. You need to have a good and stable income, minimal debt, patience to pull together all the paperwork and a great credit score.

2. High Ratio Financing:

If you are moving into the property, this is an option. It has even more restrictions than the traditional bank financing option (because it’s insured by a company like Genworth or CMHC), but it allows you to get into the deal with as little as 5, 10 or 15% down.

This is an excellent option for a brand new investor. You can put less down on a home with a suite, move in, and get your feet wet as an investor while you rent out the suite. You also will typically get the best possible interest rate available since you’ll be living there (the banks sees that as a lower risk than if you’re buying it for an investment).

In a few years, you can move out, keep this property as an investment, and do it again for your next one (NOTE: the rules are changing a bit on this so speak with a mortgage broker if this is your plan).

3. Equity in Your Home or one of your investment properties:

You might find yourself able to qualify for financing but short of down payment funds. In that situation you just have to find the down payment money to get your deal financed.

The simplest option is to access equity in your home or property via refinancing or a home equity line of credit.

You need to have a lot of equity in your property to do that though. You’ll need to speak with the bank that holds your mortgage to see what Line of Credit or refinancing options are available to you.

Most refinancing options will not allow you to go past 80% of the value of the home. You can also encounter snags in refinancing if your property assessment is low (the assessment is what your local city assesses the value of the property to calculate the annual property tax. It’s rarely an accurate valuation of your property but the banks still use it as a measure of value for refinancing).

We tried to refinance a property this year to renovate. The assessment value of the property is $260,000 but the real value of the home is closer to $350,000. The bank will only refinance to 80% of the assessment value so we weren’t able to refinance.

Think carefully before you use your own home to fund your real estate deals. I prefer not to lever everything I own just to buy more – especially when it’s the roof that is over my own head. Also, whatever you finance, be sure the cashflow on your new property is more than enough to cover the financing costs and it’s expenses.

4. VTB, RRSP or Private Mortgage:

If you don’t have 20% down, or you can’t qualify for bank financing private money sources are a good option. Private money sources includes VTBs, RRSP mortgages and private mortgages.

A VTB (Vendor Take Back) mortgage is when the seller gives you financing. An RRSP mortgage is when someone moves their RRSP funds into a self-directed RRSP account and then loans you money just like the bank. You can learn more about RRSP mortgages here. Private mortgages are just what they sound like, money from a private individual.These options have a lot more flexibility in terms of the amount you’ll need to put down, the repayment terms and the qualification criteria. In fact, a lot of these details are up to you to negotiate and set up. One of our clients, has funded 100% of the purchase price of more than a dozen deals using private lenders who hold mortgages for up to 15 years. It’s all in finding the person who is a fit the for the deals you want to do.

You can use VTB, RRSP or Private Second Mortgage in first or second position mortgages. First and second position simply refers to the order in which a lender will be repaid in the event the property is foreclosed on. Because the first position mortgage gets paid first, the risk is lower for that mortgage holder therefore you’ll usually pay them a much lower interest rate than you will a second position mortgage holder. If you have bank financing for 65%, for example, you may want to find some secondary financing to get you up to 80%. That’s where you might be able to put a second mortgage on the property using the seller as a lender or an RRSP or private lender.

It’s important to note that most banks will not qualify you for financing if you can’t show you have the whole down payment yourself. They will not accept secondary financing as proof of your down payment. This means you will need to have the money somewhere even if you’re not using it for the down payment (if you aren’t sure what would work as proof, discuss it with your mortgage broker).

Many mortgage agreements also contain a clause saying you can’t ever put secondary financing on the property at all so read your agreement carefully before you do this to raise the funds for your down payment.

If you pursue secondary financing or a higher ratio financing option, it’s also important to stress test your portfolio to see what happens if interest rates rise quickly or values dropped overnight. Where will that leave your cashflow and your overall portfolio equity?

5. Joint Venture Deals (JVs):

When you lack the funds for a down payment and you do not qualify for financing with the bank, joint venture deals are a fabulous option. A joint venture agreement is basically where you and another party come together to pool your resources. There are many potential joint venture structures. In our case, we do the work, find the deals, and bring the expertise while our partner will bring the finance-ability and the down payment capital required.

Our first two deals in 2001 were versions of option #2 – high ratio deals on our own properties that eventually became rental properties.

In 2002 we sought out a lot of creative strategies, with a few VTBs and Private Mortgages to get the money for our deals. In 2003 we started to do Joint Venture Deals (JVs). From there, we’ve done just about every combination of the above that you can think of. The majority of the last 25 deals we’ve done, however, have been joint ventures. It was the simplest way to add great properties in good areas at the best financing rates available on the market.

There are a lot of options to fund your deals and grow your portfolio. No matter what strategies you use, there is no replacing your own hard work and diligence in saving money for down payments, taking care of your credit score and being good about the debt you take on (see 5 things every real estate investor should know about money and credit).

These steps will make you more appealing to banks, private lenders and even sellers who may give you financing.

Every choice has risks and costs to consider. Make sure every rental property you buy has strong positive cashflow, is well positioned to attract good tenants and has multiple exit options. There are also costs beyond cash flow, interest rates, repayment terms and leverage ratios to consider as well.

Elon Musk’s ‘All In’ approach to business takes guts, determination and belief. His high I.Q. and photographic memory probably don’t hurt either.

You don’t have to be just like Elon Musk to access capital for your deals. You just need to have some dedication and belief that there is a way to do what you want to do. Even when the banks are saying no – you have options. And, just because one person or bank says no, doesn’t mean someone else won’t say yes. The money is out there – now, go and get it.

Elon Musk: How I Became the Real Iron Man 

How to Create the Perfect Script for Raising Money

perfect script for real estate deals

How to Create the Perfect Script for Raising Money

Joint Venture Partners

I want to help you raise money for your real estate deals. And to do that, I’m going to give you the five questions that you need to answer in order to have an investor give you their cold, hard earned cash. So those five questions, get that pen and paper out.

#1 – Why me?

#2- Why now?

#3- Why this market?

#4 – Why this deal?

#5 – Why this strategy?

Now, there’s some key elements under each of those questions that you need to answer and you’ll also need to know that I’m not encouraging you to memorize a script to answer each of those five questions because the other person you’re talking to doesn’t have the same script. So if they don’t ask you the questions they’re supposed to ask you or follow the format that you’ve practiced to follow, then you’re going to be all messed up.

I recommend you get comfortable with the key points that you want to cover and know that those generally are the five key areas that you’re going to have to discuss. Somebody has a comfort level in what you’re doing. Now the key point and the point that a lot of people mess up is they memorize bullet points of facts and then they regurgitate them and… it’s not horrible, but it’s not a very engaging or a very influential way to communicate. Let me give you an example from a client that I was working with. Although I’m going to make up neighborhoods for the sake of protecting the hard research that she’s spent most of the year doing in the city of Toronto. She got on the phone with me to practice this cause that’s one thing we spend a lot of time helping our coaching clients do is refine their five why’s. If you want one on one coaching involving joint venture partners go to our coaching page. We would love to help you out.

She was working on these elements and one of the things was why this area, why this market? She picked the Albert area and how she’s picked Albert area after a year. She went on to tell me there’s 450,000 people working in downtown Toronto and they have high paying jobs in the financial industry, healthcare professionals and professional services. And those are good tenants because they have high paying jobs. This area is also mostly houses where as a lot of areas in Toronto are now totally condos. And she also said that it’s a 12 minute subway ride to downtown, so it’s really easy commute for people.It was a good family neighborhood. She gave me these facts and it sounds good, right?

Oh, I forgot one of the key elements, the price of houses in that area. It was still possible to find houses for under $500,000 and the layouts of them were conducive to adding a second and sometimes even a third suite so you could turn a single family family home into a duplex or triplex. So those were the facts and it’s good information but it’s not that engaging or interesting. So I made a little change and I basically said, okay, it’s good information. So now here’s how you want to tell somebody. You know what? I have spent all year finding the perfect area for investment. And for part of the year I was really excited about Lulu town and Francesca Ville because those two areas had the house layouts, they’re close to schools, they had good transportation. And I really thought that I’d be able to attract good quality tenants to those areas. But I wasn’t satisfied with the price of homes. I didn’t feel like there was enough opportunity there with the price of home that I wanted to buy and to be able to add suites. So I kept digging and I dug and I put hours and I’ve spent my Saturdays going into these areas and I finally found “Albert area.”

Albert area is perfect. I’m so excited about the area. I can find houses for under $500,000 I can put a little bit of money into it, $85,000 – $100,000 to turn it into a duplex or triplex and that house now has the potential to be worth $700,000 but I won’t go too far into the numbers I want to tell you about this area and why it’s so cool because it’s a 12 minute subway ride to downtown. There’s people commuting an hour or two hours into downtown Toronto for work and these folks, they can live in a house, not a condo, which is what a lot of people want, a lot of professionals want and they only have a 12 minute commute. The areas, the sub pockets of Toronto always get discovered. So I’m certain there isn’t that much time to act on this area because it won’t be too long before people realize that there’s still houses for under $500,000 that we can make a lot of money on.

She still has more information to convey, but she’s going to stop, right? You’re not going to do your whole spiel. She’s going to stop there and see if they have questions, comments, and then she’ll engage a little bit more. Maybe ask them if they’re familiar with the area and go from there. So it is a conversation you don’t want to get too enthusiastic and get too carried away and talk too much, but you also really want to turn it into a bit of a story. So I tried to turn it into a story of how she found the area, and I haven’t even gotten into the fact that she has a killer team that knows this area, that has insider access to city of Toronto information and a few other key details, which she would then work the rest of the conversation.

It’s a big subject and something I love working on. I love taking the facts that people have and helping them create an influential and story with impact that will help others raise money too. But for now, start thinking about your answers to those five why’s so that you can start crafting your own stories and creating your own conversations to raise money for your real estate deals.

 

Joint Venture Resources

One on one Coaching with the Rev N You Team

What is the Right Split for a Real Estate Joint Venture?

What is the right split for a real estate joint venture deal?

What is the Right Split for a Real Estate Joint Venture?

Joint Venture Partners

Today I got a question coming in from one of my followers. They asked what’s the right split when you’re looking to someone to do a joint venture and they’re putting in all of the investment capital. My answer is that there is no right split. There are many ways to do a joint venture. It’s one of the reasons why we love raising money, not just joint ventures but private money, vendor take-backs, RRSP mortgages. The world of real estate is pretty phenomenal when you understand how to get the investment capital you need to do the deals you want to do. Specific to joint ventures, how we do it is we look to our partner to put in the initial investment capital, usually somewhere between 65 and $80,000 for the houses that we did in 2013. NOW it will be higher then that around $250,000 plus in 2020!

Then we have a reserve fund in place, which is usually two or three months of expenses. And we buy the property as we own it, they put in the initial investment capital. We own it 50 50 because my husband, Dave and I are doing all the work. We find it, we negotiate it. We’ve been working in the area for, well we’ve been buying in our main investment market for 12 years now. So we have area expertise in the team. We oversee it, we make sure it’s making as much money as possible every month for the life of our holdings. So that’s what we do in exchange for our 50% going forward if any money is required. So sometimes a tenant moves out and you think it’s time for an upgrade. Sometimes something goes wrong.

You might have to put a few thousand dollars in. When that happens, we split that 50 50 so 50% of whatever the expenses comes out of our pocket and 50% comes out of our partner’s pocket. When we sell, our partner gets their initial investment capital out first. Whatever’s left over, hopefully there’s lots leftover, either way it is split 50 – 50. Cash-flow that comes in is split 50 – 50, or goes to build up a further reserve fund depending on what’s going on in the property. So that’s how we do it. However, you can do it in all kinds of ways. We have joint ventures where our partner owns 25% and we own 75%. They didn’t put much money in, they just qualified for financing. We have partnerships where our partners own 60% and we own 40% or vice versa. Today we don’t deviate from our model, but in the past we weren’t as sophisticated.

We would work with whatever came our way and try to come up with a deal that everybody was happy with. So there isn’t a right way to structure it. And if you’re brand new, this is one of your first deals or your first joint venture deal and you’re trying to build a track record, you may want to give up more. You may want to put in some money, whereas in the future you might not want to or you may want to give up a higher percentage just to make it appealing to somebody to work with you when you don’t have an established track record. The only caveat I’ll put on that, or a word of caution is that you can pretty much expect they’re always gonna want that deal going forward. Even if you clearly communicate that this is a one time thing, I’m just doing it to build my track record.

It’s what you’re going to be happy with, what you’re comfortable with and what works for the resources you’re bringing to the table versus the resources that your partner is bringing to the table. It’s kind of a complicated subject, but hopefully that all makes sense and helps you a little bit. If not, we will be happy to get back to answer your questions.

 

Joint Venture Resources

Rev N You with Real Estate Watch on YouTube

How to Find Your Ideal Joint Venture Partner or Lender

Finding ideal joint venture partner

How to Find Your Ideal Joint Venture Partner or Lender

Joint Venture Partners

One of the things I talk about all the time when I’m on stage giving talks about raising money, in our workshops or our live training about raising money for deals is; What you need to focus on when finding your ideal investor. I do this for two reasons. One is because it takes the focus off finding the money and kind of puts the power back in your shoes, right? Cause you’re no longer looking for money, you’re looking for somebody that is a great fit. And of course it’s critical to find somebody who is a great fit because if you don’t, it’ll be a pain in your butt. It’s very important to do that and it’s something a lot of people don’t do!

Many people think, I need somebody with money and then they can give me the money for the deal so I can buy more property. But there is more to it, you want to find somebody who’s a great fit and everything gets easier if you do that. But how do you know what is a great fit? It can be really hard to think about that and figure it out.

So here’s what you do.

  • Take out a piece of paper,
  • draw a line down the middle.
  • One side will be for what you DO want.
  • The other side will be what you DON’T.

All you’re going to do is make a list of everything do and don’t want an investment partner. So when we did this, we thought, okay, well we don’t want somebody who’s active. We want to be the only cook in the kitchen. So dinner turns out perfectly. We don’t want somebody who is an active investor. We don’t want somebody who asks us a billion questions. We don’t want somebody who only has a small amount of money. We don’t want somebody who wants their money out quickly.

Those are kind of things we started to write. And by doing that, we’re able to very clearly see who we do want. For example, we want somebody who’s hands off, they don’t want to be involved in the day to day decisions. They’re going to rely on us in our expertise and experience. To do that, we want somebody who has the financial capability of doing multiple deals. We don’t want this to be their last $50,000. We want somebody who can afford to do multiple deals. We want somebody who will ask some good questions to make sure their investment is secure, but they’re going to trust us and rely on us to make the decisions. They’re not going to challenge every little thing like, why did you buy that dishwasher?

So once you go through and you figure out what you don’t want, you can clearly figure out what you do want. Once you know what you do want, you’re able to sit across from somebody and ask really high quality questions to figure out if they’re a fit for you to work together. You can ask them, have you ever invested in real estate? Do you currently? Why or why not? Right? Find out if they’re active investor, what are you looking for in an in an investment, right? Do they want to be hands on? Do they want to be involved? Those are some of the questions that you can now ask because you know what you’re looking for, so hopefully that helps you raise money for your deals.

Finding Your Ideal JV Partner Resources

Go to local real estate events and start talking to people, build relationships and get to know them. A lot of people jump into a real estate deal with not much knowledge about a personal behaviors.

Watch more videos on Rev N You’s YouTube Channel.

When Bad Body Language Kills Your Real Estate Deal

Bad Body LanguageOne lovely morning last week when we didn’t have any early meetings, we strolled along the seawall towards Starbucks. As we were attaching the leashes to the fence outside the shop another fellow walked up with a dog. We smiled, motioned to our pups and suggested he tie his dog up on the other side of the outdoor sitting area to keep things calm while we all went inside to enjoy a coffee.

He nodded and stopped where he could tie up his dog at a nice distance from ours. All was well.

Inside, as we were waiting for our drinks to come up on the bar he commented on what good dogs we have. I smiled and gave a silent thanks that they were in fact being good at that moment.

I commented on how good looking his dog was and he started telling us the story of how he came to have his dog as part of his family. It was a good story. He’d rescued his dog from a bad situation in the middle of the winter. I was smiling and nodding – encouraging him to go on – until he took a step towards me.

He’d moved into my space and had made me completely uneasy. I couldn’t end that conversation fast enough.

He probably had no idea what happened. I was totally into it one second and running away the next.

Unfortunately the same thing happens to so many people when they are raising money, presenting offers or even showing properties to tenants. When you are trying to build rapport, engage someone in a conversation and ultimately influence their action you need to be aware – very aware – of what you say and do and how it impacts other people.

The words you use are important but your message is impacted DRAMATICALLY by the things you do more than anything else. Where are your hands? What are they doing when you speak? Where are your feet pointing? What is your posture like?

Your Body Language Can Kill Your Real Estate Deal

I have spent a lot of time observing and thinking about body language in real estate. I’ve had the pleasure of meeting and learning from someone who is a worldwide known expert on body language, influence and persuasion (more on him in a minute). And, after hosting 10 different live workshops across Canada on raising money for your real estate deals, I’ve seen a lot of bad body language in action. When someone tells me they have been struggling to raise money, a quick look at what they do when they are talking about their deals can reveal a lot.

Here’s three of the most common things I’ve seen that kill deals (and while these things are most obviously going to impact your attempt to raise money it absolutely will impact your conversations with tenants, sellers, buyers and anybody else in your life that you’re trying to influence in any way!). Check to see if you’re guilty of any of them.

Body Language in Real Estate Tip One: Ignore that itch – scratching makes you look nervous!


In our workshops, when I walk up to a pair who are practicing their money raising conversations I can usually tell within 5 seconds who is the one presenting a deal and who is the one listening. The person presenting is often scratching or rubbing something.

We rub our arms to self soothe which means you’re uncomfortable. Itching anything makes you look nervous.

Get control of those hands. You’ll look and feel a lot more confident.

In Kevin Hogan’s newest book Invisible Influence  he pointedly says NEVER touch your face. “Do not touch your face. It is never perceived as professional or attractive and can indicate deception.” (Kevin is the influence and persuasion expert I mentioned above. This is his 22nd or 23rd book on influence, persuasion and body language. You’ll find that gem on page 163 along with six other body language tips. This book is an excellent read by the way! I highly recommend it)

Body Language in Real Estate Tip Two: Where are your feet pointing?

Influence is about engaging and understanding the other person’s point of view. Most of us struggle with that because we are very focused on ourselves and the message we have to communicate. The most important person to focus on when you’re influencing someone is that person. Listen to them. Your entire body – right down to your feet – needs to show them that you’re engaged and really listening.

We first learned this one from Elliot Hoppe (links to a video) at a body language course we took. Where your feet are pointing is a good indicator of where you want to be. If you’re engaged in a conversation you’ll usually find your feet are naturally pointing to the person you’re speaking with. If you’re bored or annoyed or just ready to go, your feet will naturally point to the door or an exit.

You may think that it doesn’t matter because most people don’t know about this but the reality is that a lot of cues are processed subconsciously and the other person may not know precisely how they know you are (or are not!) listening to them, but they will just know you are.

Body Language in Real Estate Tip Three: Sit Still – Especially When Someone Asks You a Question

Bad Body Language for Real Estate InvestorsI had a boss that used to lean back and then cross his ankle over his knee when I asked him a question that made him uncomfortable. It happened every single time.

I didn’t know anything about body language at the time, but I knew enough to realize that I was about to get a story when he did that. It was a defensive reaction. He didn’t want to answer my question so he’d tell me a story. He had great stories but most of the time the story didn’t answer what I was asking.

The point is that I knew it was coming. I also knew that he wasn’t being open and honest. He was hiding things from me.

I would walk out of the meetings where this happened irritated. I was getting a line and I knew it. He would probably feel good that he handled the situation well and told me a motivational story in the process.

When someone asks you a question that makes you uncomfortable pay attention to what you do in reaction. In our workshops the most common reaction is what I call a human pretzel move. Most people cross their arms or legs or both! And they do it without realizing they are doing it … and it’s almost always in immediate response to a question that makes them uncomfortable.

Think about what you are telling the other person when you do this. You are sending their unconscious mind signals that you want to hide the truth, you’re uncomfortable with the question and you’re not confident.

Not being confident is a deal killer every time.

Just like the man at Starbucks who stepped into my space, every single one of these things can kill rapport in a second. Once rapport is gone it’s hard to get back. You may wonder why your tenant never complies or why you can’t raise money … so take a look in the mirror, ask a friend and start paying attention to the little things you’re DOING that are making your influence attempts difficult. You just might find that you’re saying the right things but not following them with congruent actions that DO the right things.
First Image Credit: Julie Broad
Second Image Credit: © Odua | Dreamstime.com

Getting the Money for Your Real Estate Deals

Money

Getting the Moeny for Your Real Estate Deals Even after 4 years of running our real estate investment business full time, eleven years of history of never missing a mortgage payment on any property, and a substantial net worth, we still find it challenging to finance our investments. In September we bought an beautifully cash flowing triplex. In order to finance it with the bank we had to show 3 years of mortgage and interest payments just hanging out collecting dust in a bank account. That’s on top of the 25% down payment that also has to be sitting in a bank account for 30 days before we even apply for the mortgage.

We bought it for $325,000. In order to even apply for the mortgage we have to have about $130,000 in cash just sitting around.

If you are starting to think about becoming a full time real estate investor and leaving your job, I encourage you to finance as many properties as you can while you have what the bank perceives to be a secure job. You’ll also want to start planning for your funding and financing future (one of the best ways to do that is to join us for one of our Fund Your Deals in 49 Days LIVE training events – we’ll help you build a funnel of sources for funds!).

The good news is that you do have some options when the bank says no or you don’t happen to have hundreds of thousands of dollars sitting around so the bank will say yes.

No Money Down – No Bank Needed

If you watch late night infomercials you’ll probably feel some attraction to the no money down, no qualifying at the bank strategies. We’ve been right there with you … not once but twice. We’ve invested almost $40,000 into learning “no money down” and no bank needed investment strategies.

The biggest lesson I can share with you is that just because you can do deals with no money down doesn’t mean you won’t need money.

Sandwich leases are a popular one these days for Canadians that want to do no money down and no bank needed type deals. A sandwich lease is simply where you find someone who will allow you to lease option their home from them and you turn around and offer it as a rent to own to someone else. You pocket the difference in monthly cash flow and option fee.

In theory this is a great strategy. The reality isn’t as pretty. It takes a lot of marketing effort to find the deals. It also takes a lot of effort to educate and explain what you’re doing to the seller. Finally, you’ll find the houses are generally in a state of disrepair and need some investment to improve them so you can attract good rent to own tenants. How much money do you want to put into a house you don’t own? The final issue is that it rarely works out that your lease option term aligns with the term that your rent to own tenants are able to buy within. It’s tricky. Your upside is limited in this type of deal and while you CAN do it without the bank, we find most investors get into this type of deal really excited and work hard for a year or two and then look for something new because it’s so much work for a minimal pay day.

Generally when we did creative deals – whether it was a sandwich lease, wrap mortgage or some sort of seller financed strategy – we ended up with problem properties and challenging tenants. We basically created a full time babysitting job for ourselves. That is because the kind of deals you can do creatively generally are not the great properties in good areas. They don’t attract the best caliber of tenant nor do they have minimal maintenance requirements.

The no money down and no bank needed strategies work but they didn’t work for the life and business we wanted to create.

The strategies we use to fund and finance our deals include Vendor Take Back Mortgages, Private Money, RRSP mortgages and joint venture partners. Sometimes we use a combination and other times we just use one. These strategies allow us to focus on doing great deals in areas that attract the best tenants. Our tenants typically love their homes like they were their own, apologize when they are late with rent or give us a heads up that it might happen, and rarely call us with problems. That’s because we focus on doing the deals that allow us to create a business and life we love instead of doing deals just because we can do them creatively or with little money down or no banks.

4 Great Ways for Getting the Money for Your Real Estate Deals

Vendor Take Back Mortgages

Seller financing, more commonly called a VTB or vendor take back mortgage is simply where the seller (Vendor) of a property is willing to provide some (or all) of the mortgage financing on that property.

Seller financing can take several different forms. We’ve done deals where the seller provided the entire mortgage, which amounted to 80% of the property value. We paid her 6% interest amortized over 25 years for a 3 year term with no prepayment penalties and an option to renew. She was able to sell her house in a slower market and made more money from it than she otherwise would have through three years of interest payments. We also have used seller financing to top up traditional bank financing.

Private Money

Private money is simply money from an individual. It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.

The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. That money is expensive thought. The upfront fees on those funds alone are usually1-3% of your mortgage amount. On a $250,000 mortgage that means up front you can start off with a $7,500 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but our preferred source of private funds is to raise them ourselves.

We find that a lot of folks have paid off their homes and are willing to put a line of credit on the property and loan that money out for a premium. One of our favourite strategies is to borrow $350,000 from someone’s line of credit to buy and renovate a property. We paid them 5% + their line of credit costs. (See an example of a property we’re doing this on right now in our video series on adding a legal suite to a property).

RRSP Mortgages

Mutual funds and stocks are not the only investments that are RRSP eligible. A mortgage can be held in a self directed RRSP (or RESP, LIRA, or RRIF) account. This is probably the largest untapped source of funds available to real estate investors because very few people know this option exists.

Master this and you’ll always be able to find the funds for your deals. With no management fees or advisor commissions to pay, RRSP holders could be making a stable and predictable 6, 7, even 10% or more return on their money inside their RRSP.

There are some additional rules around using RRSP funds though. For example, you can’t borrow funds from your immediate family to fund your investments. It needs to be arms length. You also can’t use the RRSP funds for a down payment directly on a property. You’ll need to put the funds on a different property as a first or second mortgage and then use those funds on the new investment.  **We now cover using RRSP funds in our Fund Your Deals in 49 Days Live Training**

Joint Venture Partners

This is the most powerful strategy in our investment tool box. It’s the strategy that has allowed us to comfortably add a new property to our portfolio almost every month.

Our joint venture deals typically are structured so that we find the deals, oversee all work and management and split the proceeds 50% / 50% with our partner. In exchange for all experience and efforts, our partner puts in the cash required to close on the property and puts their name on title so they qualify for financing from the bank.

If anything goes wrong with the property and requires cash we are partners and split the costs 50% 50% just like we split the proceeds.

Busy people love this option. They don’t want to spend the hundreds of hours we’ve spent learning an area, building a team and digging up deals. And they definitely don’t want to take calls from tenants or handle issues around the property management. They can get into real estate without the hassles of being a landlord.

There are a lot of ways to fund your deals – even if the banks say no. The key is to know where to look, what to say, and what choices make the most sense for you and your goals.
Photo Credit: © Charles Knox Photo Inc. | Dreamstime.com

The High Cost of Real Estate Investing with Family and Friends

Rev N You Man

The biggest thing holding me back right now is lack of money for deals. I’ve done some joint ventures but I am struggling to raise more money,” shared a real estate investor I met recently. As we continued to chat I asked about the joint ventures he’s done. His real estate investing success to date has only been by raising money with immediate family members.

real estate investing with family and friendsAnd it actually took him 3 years to convince his sister and brother in law to work with him in the first place! The toll that is taking on his confidence and his emotions is huge. It’s so huge he doesn’t even know the price he is paying but I could see it written all over his face.

One of the worst things you can do to yourself and your family (and even close friends) is try to raise money from them.

We’ve learned this the hard way – and it took us years to clue into the price we were paying.

When you try to raise money from people you love and who love you, you’ll find that one of three things happen and each one comes with a GIGANTIC emotional price:

 

  1. They don’t want to say no and hurt your feelings so they avoid you or avoid the subject. It becomes awkward and strained.
  2. They say yes only because they want to support and help you. Subconsciously you KNOW they are investing with you because of your relationship and it plays enormously on your confidence and your ability to raise money outside of the family.
  3. They say no and you feel hurt. “Why don’t they trust me? Why don’t they believe in me?”

This is all assuming things actually go well on the deals you’re doing too. The price you will pay if something goes wrong can be monumental.

The Even Higher Cost of Real Estate Investing with Family When Things Go Badly

One investor I know got into investing with his brother. He spoke so fondly of how the two of them brought their big families together every year for major holidays. All 40+ family members would pile into a warm, love and laughter filled house to celebrate the season and each other.

This happened for many years until a real estate deal the two brothers did together turned bad and suddenly they couldn’t stand to be in the same room together.

Now, the entire family is torn apart and there are no festive get-togethers anymore.

This is not my story, but it is a true story. The investor that generously shared this story with me in the hopes that others learn from his situation said that “When we first got into REI, looking back on it, I was blinded with excitement about getting into the game that I really didn’t step back and figure out whether my values and goals matched up with my family members. I really wish I would have figured that out sooner, as I soon found out that my idea of an acceptable rental property was not their idea of an ideal rental. The way I handled tenant-landlord issues was also different. I always found myself defending my decisions … and at the end of the day I felt like an employee, not a partner, so I really had no choice but to leave.

He seemed so sad and regretful. I can promise you he wishes he had never mixed family and real estate.

I recently met someone else who brought his parents into a deal four years ago that cost his parents an unstated sum of money as the deal ended up totally falling apart. All money invested into the deal vanished. The money was definitely a loss but the real cost of that situation in my view is the tremendous guilt this guy feels about the mistake. It weighs heavily on him every single day. I am not saying he wouldn’t feel guilty if he’d lost someone else’s money but I am suggesting that the guilt he feels over his parents is far greater because he knows they invested in HIM more than the deal.

Investing with family members can be tremendously rewarding when things go well but there are a lot of areas where things can go bad. I believe the RISKS of raising money from your family are higher than with anyone else you can work with.

That is what you have to watch out for. Most of us would much rather have our familial relationships than a few extra bucks from a real estate deal.

Before you even get into a business relationship – whether it be a loan, a partnership or a corporation – with any of your close family members:

1. Is there really a good fit? Is everyone bringing something of value to the table? What is most important to each person? Is there alignment in that?

A lot of times the ONLY reason you’re lending money/borrowing money or working with someone IS because they are a family member. That is absolutely the WRONG reason. Philip McKernan (author of two best selling real estate books and business coach) suggests that borrowing money from close family is not a good idea because they can never clearly evaluate the deal or the risks. They are blinded because of their close relationship to you.

Have an open discussion about risks, problems and the kinds of deals you’re going to do. If you aren’t on the same page about what types of deals you’re going to do and the kind of tenants you want to work with, it could be a huge horror story. You’ll find you are always butting heads and constantly working harder than you need to just because of the drastically differing opinions.

2. Discuss roles and responsibilities – then put them in writing

This is one of the challenges we faced over the last few years with our corporation. When we first started my Mom and Dad provided our new corporation with some short term loans. Dad was handling nearly 1,000 calls from potential seller leads, my Mom was overseeing renovations, and Dave and I did everything else around negotiating, managing and raising money for the deals.  After a year or so Mom and Dad started getting tired of working so much and were not interested in putting more money into the company – short term or otherwise.

That left Dave and I to fund anything that the company couldn’t fund itself AND do all the work. Even though we knew this would be the case when we started the corporation, Dave had some hard feelings about this for awhile. It could have festered into a big issue but we had a corporate meeting and revised our roles, responsibilities and compensation levels.

At the start of investing together as a family, we had a legal contract for our business drawn up and had some roles and responsibilities laid out in that agreement but we hadn’t CLEARLY outlined roles, responsibilities and compensation. We’ve now done that and, quite frankly, we may just get to the point where we come to an agreement to buy my parents out in the near future.

In any company, roles, responsibilities and compensation have to be clear and fair or there can be hard feelings. Family is no different.

3.   Treat the business relationship like a business relationship. It’s very common to go easy on a son or daughter or even a parent when you know their personal struggles. It can also be possible that you’ll take advantage of the fact that someone knows your struggles to use as an excuse to not live up to a commitment you have made. But a commitment is a commitment in business – and it has to be the case when it’s family.

One investor I know put $20,000 of his own money into a few troublesome properties because he didn’t want to make a cash call to his relatives. He put MASSIVE financial strain on his wife in order to save face with his parents and siblings.

It all stems from the fact that the core of the relationship is an emotional one not a business one. If these were non family investors who evaluated the deal and the investor on it’s business merits versus invested in the deal because it was their brother or son the cash call would have been easier.

4. Create Work / Home Boundaries

My biggest pet peeve of getting into business with family and even friends is that sometimes social get togethers become impromptu business meetings. I live, work and play with my business partner so it can be REALLY hard to separate work and home. That gets exponentially more difficult when we visit with my parents. We try to set the boundaries so we know when a lunch is a meeting versus a family catch up time. We create agendas for our meetings and take care to ensure that get togethers aren’t impromptu business meetings.

5. Communication is critical. Assuming is deadly.

This could be an entire book and it probably is somewhere, but the big thing is that you can’t assume that you KNOW what someone is thinking just because you’ve known them all your life. Ask for each person’s view and LISTEN. Watch for nonverbal cues that someone is holding back and be prepared to push for honesty. Be as quick to express positive results and outcomes as you might be to point out issues and challenges. Finally, focus on one issue at a time. Make sure expectations and plans are clearly articulated before moving on to the next issue. Write it down for even better results.

Creating a successful business requires all of the above regardless of who your partners are. It just becomes a slightly different situation when you’re working with family members because of the blood ties and lifelong relationships you have.

It can be fun to work with your family. It can be satisfying to come together and create something great together. There can also be enormous challenges if you aren’t partnering with the right folks for the right reasons. Hopefully you’re now ready to take a step back and decide with different eyes. For me, it’s not about telling you NOT to invest with your family (I do and I have!). What I am saying is there is a BIG price and you must weigh that carefully before you proceed.

 

Published April 18th, 2012

Image Credit:©Julie Broad

 

2 Things That NEVER Work When Raising Money For Real Estate Investing

 

Raising Money for Your Real Estate DealsQuick – you need to get $25,000 for a renovation on one of your rental properties. That renovation will allow you to add another suite and increase your monthly positive cash flow by $800/month. It makes great business sense to do the work but you don’t have the cash.

Your line of credit is maxed out because you used it for a down payment and now the bank isn’t interested in lending you any more money. What do you do to raise money for real estate investing?

There are lots of options to get money for real estate investing but unless you can (or want) to tap into equity in your home with a refinance, all the options you have require that you raise some private money.

Private money is simply money from an individual (instead of a bank or credit union). It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.

The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. Most mortgage brokers work with a few wealthy folks that have money to lend or they will refer you to a mortgage broker with private money connections. If you have decent credit and the property generates a solid cash flow you should be able to find money this way, but that money is expensive.

The upfront fees on those funds alone are usually 1-3% or a minimum of a $2,000 fee (whichever is greater) of your mortgage amount. On a $25,000 loan or mortgage that means up front you can start off with a $2,000 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but there are much better alternatives. And those alternatives are usually found by reaching out to friends and family for referrals or getting out there and meeting some other folks interested in real estate investing.

The goal is to get a face to face meeting with people.  In that face to face meeting you can look each other in the eye and determine if there’s a good fit to work together, you can assess what each person brings to the table and make sure you’re offering a deal that makes sense for both of you. In ten years and millions of dollars of other people’s money raised for our deals, we’ve only ever ONCE raised money without a face to face meeting. In that one case it was with someone we had a long standing relationship with and, quite frankly, we gave him the best deal we’ve ever given anyone because we found ourselves in a bit of a last minute bind.

Generally you have to have ONE face to face meeting to move your money raising efforts forward. But most people never get to that face to face meeting because they do one of two things that cause you to fail almost every single time. How do we know?? We messed up dozens and dozens (ok probably more like a hundred) opportunities before we figured out these deal killing mistakes. Today I am going to hand them to you on a silver platter to save you a lot of trouble and a lot of headache from banging your head against the wall wondering why things aren’t working!

2 Things that NEVER Work to Raise Money for Your Deals:

1. Email
I don’t like the telephone. Unless I am expecting a call I don’t answer the phone. My preferred mode of communication is in person, or via email or text. So to get to the in person meetings I tried REALLY hard to find a way to raise money via email. I used all my writing skills to write compelling emails. I spent hours writing people personal well thought out messages. I sent dozens of emails.

The result? I felt lousy because EVERYONE ignored me except a few really polite friends or family that would send back some very awkward email saying “thanks for thinking of me I will review this later.”

Then I started to get annoyed at how rude people were … until I realized it wasn’t them … it was ME!!

Email does NOT work. I don’t care if you have the HOTTEST deal to hit town in a decade, email is going to flop 99% of the time.

Email only is an effective tool after you’ve met with someone and they have indicated that they want to work with you. Save yourself time and embarrassment and DON’T EMAIL PEOPLE your deals and ask them to work with you. Yea – email feels easier at first because you avoid having people say no to your face but the reality is that all people will do is ignore you so it’s ineffective and a waste of time.

2. Spilling your candy in the lobby
Spilling candy in the lobbyThis was the lesson Dave learned. He LOVES to talk on the phone. He loves to catch up with his friends and family and learn what people are up to in their lives. He also gets pretty excited when somebody asks what we’re doing. So … he would get on the phone with someone he wanted to set up an in-person meeting with and when they’d say “What are you up to these days Dave?” he’d proceed to basically tell them everything about what we’re doing with our investments negating the need to get together. The problem is that you pretty much HAVE to get that face to face meeting to get the deal done.

Dave wasn’t sure what he was doing wrong so we called up our friend & private money raising expert Patrick Riddle (www.mustknowinvesting.com) and asked what we were doing wrong. He simply said “You’re spilling your candy in the lobby and there’s nothing left for the show.”

You want to give people a reason to meet with you and if you tell them everything that you’re doing on the phone then there’s no reason to meet. You have to keep the call brief and interesting. Give them a reason to meet with you and then get the date and time set up.

One of the best ways to do this is simply say “Jason I’ve been driving by your car dealership and I keep thinking that I really admire and respect what you’ve built with your business. I’m working on a few things and I would really appreciate your opinion. Have you got time next week so I can pick your brain and buy you lunch?”

Nobody ever says no to that kind of invitation and next thing you know you’re having a lunch, learning and finding money for your deals!

Of course … now you might be wondering what you say when you get to the in-person meeting but that’s a little trickier than we can cover in one little article!! Simply stated your objective is to get an understanding of whether your investment program is a good fit for their needs. If it is, confirm their interest and let them know that you will follow up when you have a specific deal that fits their criteria (or present your deal!). If it isn’t, then ask if they know anybody that might be interested.

Image Credits: Dreamstime

Published November 1st, 2011

5 Tips to Create Credibility as a Real Estate Investor

Create Credibility as a Real Estate investorI believe there are few things more important to your success as a real estate investor than credibility.

When it comes to raising money for your deals confidence and credibility make a dynamic almost unstoppable duo. When it comes to negotiating your deals and hiring your team, credibility makes the whole process go a little smoother.  Whenever someone has to decide whether to do business with you – in ANY capacity – credibility plays a big role in their choice.

I recently read a formula for credibility:

Expertise + Trustworthiness = Credibility

(Thank you Kevin Hogan for this!)

So how can you create credibility no matter what your level of real estate investing experience? I have a lot of ideas and suggestions on this subject, and will be expanding on each of these at our upcoming Joint Venture Presentation Workshops, but here are 5 simple ones you can begin to apply and use now:

1.Practice What You’ll Say:become a clear and concise communicator. You must know your subject matter (your deals, your market area and your strategy). You must be able to communicate this without stumbling on your words or following a written script. Have a few key stories, words of wisdom and tidbits about what you do that you can deliver quickly and clearly to anyone interested in learning more about the business of real estate investing that you’re in.

2.Back Up Your Statements:Credibility is quickly established when you can show that you’ve done research and you’re staying on top of what is important to you as a real estate investor. For example, instead of saying “the city is growing and the rent rates are increasing” say “According to research conducted by Ipsos Reid, there are 50,000 new people moving here every year. And CHMC just put out their annual rental rate survey and rents in this area have gone up 8% year over year.”

3.Smile: I’ve talked about this before but experts in persuasion like Kevin Hogan and Robert Cialdini all suggest that you need to be likable to be credible. If people don’t like you it will be much harder for them to see you as credible. I think one of the easiest ways to be liked is to smile and be friendly.

4.Shine the Best Possible Light on Yourself: In other words, find a way to present the expertise, education and experience you have in the most positive way. I could say that I am a real estate blogger, but anyone could be a blogger. Instead I say I am an award winning blogger (because I have in fact won several blogging contests). Instead of saying you own two properties you could say you’ve been investing for four years (assuming of course you bought them in about 4 years ago). Find a true and authentic way to take what you’ve got and present it very positively.

5.Borrow Credibility: When we did our first rent to own a lot of prospective tenants asked us how many we’d done. We simply said “we’re working with two guys who’ve been involved in hundreds of rent to own deals.” That was true, Nick and Tom Karadza had been involved in a lot of rent to own deals and they were coaching us through our first. If they pressed we would tell them it was our first but most just wanted to be sure we weren’t making this whole thing up. We weren’t going to lie but also wanted to provide assurance that we knew what we were doing. If you’re working with a coach – borrow the credibility and experience of the coach.

Remember being credible is nothing more than being believable. It’s an important part of being persuasive and being a person people want to do business with but it’s not nearly as complicated as we make it out to be.

Become a market area expert and be trustworthy. Neither one requires you own a certain number properties before you become credible nor does it mean you need an MBA or masters in anything. Build your expertise and be trustworthy. Credibility will follow.

And if you’re wondering what to do to build your expertise, here’s a few resources that might help:

Market Research Checklist:
https://revnyou.com/Rental_Property_Location_Research_Checklist.html

Questions to Ask Before You Buy a Condo:
https://revnyou.com/Questions_to_Ask_Before_You_Buy_a_Condo.html

Housing Boom? Housing Slump? Housing Recovery?
https://revnyou.com/Housing_Boom_Housing_Recovery_Housing_Slump.html

Published October 14, 2011

One Powerful Tip for Raising Capital In Real Estate Deals

Powerful tip for real estate deals

Raising Capital Tip

Hey there, it’s Julie broad with Rev N You coming at you with a real estate investing video tip. And this one’s quick, but I’m going to make a very big, big point when it comes to raising money for your deals. Here’s how a guy approached me recently and he was like, I found this deal and it’s a duplex and it needs a bit of work, but I think we can get it for X price. I want to figure out why I’m not able to raise money because I need to get these deals done and I’m finding good deals. I don’t know exactly what he said to me, but my point is this might’ve been the best deal on Vancouver Island, which is where I live and invest. It might’ve been the best deal, but no one is going to work with this guy on this deal.

And it had nothing to do with the fact that he was a little nervous. It had everything to do with the fact that this guy had no energy. He was like, uh, you know, if I talked to you like that on this video, you would’ve clicked away like 45 seconds ago. So if you’re out there in public, and I hope you are talking to people, generate some energy, slap on a smile, show some enthusiasm. If you want to be in the real estate business, you’re going to have to show that you like it. And if you don’t like it, why are you in it? Because it’s going to be a rough ride. There’s times when you won’t like it, even if you love it. So get out there and meet people. I highly encourage you to do that, especially if you’re raising funds for your deals, but you’re going to have to have energy and enthusiasm for what you do. But you know, why did he do that? If you make that effort to smile, to be enthusiastic, to be positive, you’re going to find that it’s quite a bit easier to raise money for your deals. And you might even find a few cool opportunities that find their way to you. And you weren’t even trying. So smile, be energetic and have fun.

 

Raising Capital Resources

Watch more videos about raising capital on Rev N You’s Raising Money Playlist.

Raising Capital Section in the Course Real Estate Achievement Program.

How to Overcome the Biggest Obstacle with Joint Venture Real Estate Deals

So let me get this straight. You’re putting in $5,000 and I am putting in $65,000 and then we’re splitting the deal 50% / 50%? I am just getting stuck on this concept.” says Jane*.

Joint venture partnerships in CanadaJane is a busy business owner with two kids. She has some money, would like to get into real estate, but hasn’t had time. She contacted us to see if we could help her with a joint venture partnership. We presented her with one of our upcoming deals. This particular deal is one of the best deals we’ve ever had – we’re getting it significantly under market value, it’s in our target market area where we have the highest demand from rent to own tenants, and it’s a gorgeous property. The curb appeal and condition of the home is excellent.

When it comes to the deals we do, this is pretty close to as good as it gets.

When we first began speaking with her she was thrilled that we were projecting a 16% per year return on her investment, but now she’s long forgotten about that and is hung up on the fact that she puts in most of the cash and we still split the deal 50% / 50%. Her return is still going to be a bit better than 16% per year, but she’s stalled out now that she’s seen what the deal looks like on paper.

She’s not alone.

This is the single biggest objection you’ll hear when you start presenting deals to potential joint venture partners.

It’s actually a funny objection when you think about the fact that many of these same people also invest in mutual funds where they pay their advisor whether the advisor makes them money or not, and the mutual fund manager is also making money regardless of whether they do. In this scenario the ONLY way we make money is if our partner makes money. In other words, if the deals aren’t making money, we’re not getting paid at all.

When you’re faced with a similar situation you may want to shake the person to wake them up. I know that’s how we feel sometimes, but that isn’t the best way to handle the situation. Here’s what I recommend:

#1 – Know Your Value as a Joint Venture Partner

We have invested hundreds of hours into becoming area experts. We have invested thousands of dollars into marketing so people call us when they have a home they are thinking of selling. And, in this specific case, this deal FINALLY came to fruition after six months of communications back and forth with the sellers AND only because we were the only party able to make the deal happen in 24 hours when they found a house they wanted to buy in their new city. If this was the only deal we did this year and we split the deal 50% / 50% with her, we’d probably be making less than $5/hour for our efforts.

In other words, it is our partner that is getting the tremendous deal on this property. We bring enormous value to the table and her contribution to match all the effort and experience we’re putting in, is to only the majority of the funds for the deal.

If you’ve gone to all the effort to educate yourself on real estate investments, find a great deal, and get it locked up I should not have to tell you how much you’re bringing to the table when you offer someone a great deal. Not to mention, your work is not done. You’re going to place tenants, oversee the property and ensure things run smoothly.

Be confident in the value you’re bringing to the table. If you aren’t, make a list of EVERYTHING you have to offer in a partnership. The list is probably bigger than you think.

Real estate investing takes time, effort and expertise. It’s not easy. That is worth more than money if you ask me.

#2 – Look for Fit -not everyone with money is a good prospective joint venture partner

Think about who is your ideal joint venture partner. Our ideal joint venture partners want to be hands off because they are very busy, have at least $60,000 to invest, can qualify for financing, and are likely to do more than one deal with us. We are looking to build long term relationships with our partners. Most of our partners are repeat partners and that is exactly how we like it!

What are you looking for? Make sure you know and then you spend time qualifying them.

In other words, you’re not asking anybody for money, you’re offering a specific person a great opportunity to invest in real estate and make a great return on their money, without having to worry, work or wonder what to do next.

Some people with money want to do the work. Some people with money will be a pain in the butt. Don’t be afraid to be a reluctant partner … and when you are, you just might find people are more eager to work with you and are less concerned with the 50% / 50% split issue.

#3 – Desperation Stinks

No begging for joint venture partnersOne of the worst things you can ever do to yourself is come across as needy. Think about it from the perspective of dating. If someone asks you out on a date and you hesitate, and then suddenly they are offering you all kinds of incentives and concessions to get you out with them, you’ll probably never go out with them.

I just wrote about this for Diva Money Club in a post about gaining celebrity like status. Human nature is such that we want to chase, not be chased. We want things we can’t have and we don’t place any value on things that are too easy to get.

If you’re speaking with a joint venture partner who has reservations about splitting the deal 50% / 50% with you, remember they are human. If you seem desperate or too anxious you will not help them overcome their objection.

#4 – Remember: Money is a Commodity

Remember“Money is a commodity that is available in a thousand places, and that it’s the same no matter where it comes from.” ~Oren Klaff

I’ve said it dozen of times but MONEY IS NOT YOUR BIGGEST OBSTACLE. Yes, you’d love it if each prospective Joint Venture Partner says ‘yes’ to your deal but at least half of them will say no. That is ok. If things aren’t going well with the person you’re speaking with, keep yourself from feeling anxious and coming across as desperate by reminding yourself that there is only one of you and there are plenty of people with money.

Know that someone else’s money is going to work just as well as the money of the person you were just speaking with.

#5 – Remind Them About Their Return, Reinforce Your Value and then Work on Finding Someone Else

With the important mindset elements in place you’re ready to sit down with your prospective partner and basically say to them:

When we met you were really excited about the return of 16% per year. That is still the same. Are you no longer happy with that return? Keep in mind that I will be taking care of finding the deal, negotiating the deal, handling all the documents, hire and oversee the renovation and repairs, prepping the property for showings, advertising, taking tenant calls, showing the property to tenants, handling their calls, emails and text messages, collecting rent, finding repairmen as needed, communicating with the accountant to prepare the annual statements for the accountant as my side of the deal and all you need to do is sign a few papers, open a bank account, and deposit the money for the down payment. After that I will handle everything and just keep you updated.”

You could even present them with a written and lengthy list of things you’re responsible for if you’d like to really reinforce your value. [Not to scare you, but that list of things is at least a page long compared to probably five things they are responsible for.] It’s a powerful demonstration.

After that, if they are still hesitating, walk away. They may come to their senses, and because you weren’t needy, they will want to work with you. Or, they may choose not to invest with you. That’s ok too. Just move on and find someone who is a good fit for you, and who is happy with a 16% return on their money regardless of what you’re making or investing.

 

Pitch Anything Book Review

20 Minutes to More Money

A mini ‘Pitch Anything’ Book Review

20 minutes to mroe money\" align=The phone rings. When you pick it up there’s a pause and then someone asks for “Mr. or Mrs. Penook” (or whatever badly pronounced version of your last name they come up with).

Immediately you feel yourself bristle. I equate it to when hackles go up on a dog. Somebody is in your territory and they want something from you.

That bristling; that immediate resistance you feel the second you realize the phone call is from a telemarketer and not a friend or family member, is the same feeling the private lender, the joint venture partner, and even the home seller feels when you’re sitting down to meet with them. Even though they’ve agreed to meet with you, they have anxiety as they are wondering what you want, how much time you’re going to take and whether they should trust you or fear you.

Pitch Anything Book ReviewIt’s a lot to overcome right from the start. And getting over the initial resistance that is present is a bigger subject than we’re going to cover today, but what I am going to share will help. It is my own personal application of a 20 minute pitch that Oren Klaff presents in his brand new kick butt sales book: Pitch Anything: An Innovative Method for Presenting, Persuading and Winning the Deal.

First of all, calm your own anxiety when you feel the prospects tension. Remind yourself that you have already done something right because they agreed to meet with you and then start putting the 20 minute pitch to work immediately. Oren suggests youavoid small talk. It does nothing for the anxiety and can even give the person you’re meeting with power and control over the meeting. Instead begin your meeting with something like this:

Let’s get started. If I spend about 20 minutes giving you the essential details of what we do then we’ll have a bit of time to talk it over before I have to leave for another meeting.”

Something like this puts your prospect at ease because you’ve just let them know that you’re not going to take all day, you know exactly what you need to say and you are busy/in demand (If it looks like you have nothing else going on they aren’t going to want to do business with you – kind of like nobody wants to eat in the empty restaurant they’d rather wait in line at the busy one).

So how’s your 20 minute pitch look? Here’s the outline:

  • Introduce yourself & the big idea (the reason for the meeting) – 5 minutes
  • Explain WHY (depending on what your meeting is about you are getting into WHY you, WHY this offer or this deal, and WHY now) – 10 minutes
  • Make your offer – 2 minutes
  • Stack the ‘frames’ for a hot cognition – 3 minutes

You really need to read Oren’s book to get a good grasp on frames and how to control the frame in a conversation but simply explained frames are basically our own perspectives and how we try to control a conversation. Some will have an analytical frame, others a power frame and some others will be busy and have a frame around time. Regardless, you need to identify the frames that are coming at you, and learn how to respond in order to have YOUR frame be in charge of the meeting.

If I am applying the 20 minute pitch principles to a joint venture partnership presentation here’s how it’s going to look:

Phase 1: Introduction

In less than 60 seconds I’ll explain our big wins. In our case I would emphasize our recent award from Canadian Real Estate Magazine as Best Investor and Best Investing Website, our consistent results in providing our JV partners about a 15% per year return on their investment, and our Better Business Bureau top rating. For fun, I might also mention the fact that a local news reporter that interviewed Dave recently, called him the Donald Trump of Vancouver Island. That’s it. I could say a lot more about our depth of experience, education and even the related jobs we’ve held. But, I won’t.

In your case, highlight your greatest real estate related accomplishment and your greatest strength. Resist the urge to go on and on about yourself.

Next, move onto the deal or concept you’re presenting (if you don’t have a specific deal). Address the unspoken questions about whether real estate is a good investment, why you are the person to do this with, and why it’s important NOW. At this point I would also remind them that the reason for the meeting is to explore whether they are a good fit for what you offer. Remind them that they need to prove themselves to you.

Then, and this is the powerful piece we’re going to improve in our own presentation, outline the market forces which create a perfect opportunity for the deal right now:

  1. Economic Forces: explain what’s changed in the market financially to make this the right time to do the deal you’re proposing (for example, the economic forces that are behind the future potential of your area).
  2. Social Forces: explain the emerging consumer behaviour or general sentiments that are supporting your idea or making it the ideal time to do your deal (in combination with the economic forces explain why general sentiments not favouring real estate right now is actually a positive thing as an investor – buying low when others aren’t)
  3. Technology Forces: explain anything else in the market that is creating an opportunity.

Finally, still keeping to the time limit, if you have a particular deal you’re presenting explain the back story of it. JV partners LOVE to hear how you discovered this gem and why others missed it or how you used your ninja negotiation tactics to get the deal.

Phase 2: WHY

Oren calls this the secret sauce and the budget. For me, it’s answering the big WHY questions.

Explain your idea. My introduction to a JV partner would be something like this:

What we offer is for people who are unhappy with roller coaster returns in the stock market and mutual fund managers that make money no matter what they make. We offer great returns and unlike many investment alternatives out there we only make money when you do. This particular deal is a typical deal we do in terms of location and type of home – but it’s special because we negotiated an extra $10,000 off the already under market purchase price in exchange for a firm deal in 48 hours. Not many people in the market could do that which is why they called us to do the deal.

During this phase of your presentation create novelty to maintain attention. Short demos (pictures!), new ideas or smart metaphors can all create novelty which will improve the results of this phase.

At this point there may or may not be much interest from your prospect and that is where you can implement push / pull tactics.

You’ll say something like:

You know, we probably aren’t right to work with each other, <PAUSE>, but then again, if we are we could combine to _________ (focus on their most important benefit which is money or wealth or time or legacy). 

This pushes them away and pulls them in, creating tension and attention. You need that right now if you’re about to invite them to do your deal.

Phase 3: Offer

At this point your describe clearly what they are going to receive if they sign up to partner with you on the deal. Explain what they will get, when and how. Quickly lay out the roles and responsibilities (which I shared a bit about a little bit when I shared how to overcome the biggest challenge in doing JV parntership deals).

This part is short and to the point. Avoid deep dives into details. That will cool the meeting off faster than a dip in the Pacific Ocean in January.

Phase 4: Stack ’em and Rack ’em

Most of the time, the data we have collected about choices and alternatives and options aren’t used to make a decision anyway. They are used to justify decisions after the fact” p. 132

In this phase you build intrigue, flip the frame so the prospect is chasing you for the deal not the other way around, lay out the time deadlines, and finally hold your position as the authority figure as you leave the door open for them to run through it after your deal.

You cannot, under any circumstances, come across as wanting something from them. You will lose your authority position and you’ll turn them off.

This is my version of Oren’s 20 minute pitch. If you’re making offers, meeting private lenders and considering JV partnerships I highly recommend you pick up a copy of this book.

Remember the telemarketer? When you feel yourself getting needy or being boring, remember how you feel when the phone rings with a telemarketer. If that doesn’t help you focus back on the 20 minute pitch and keep things light, interesting and to the point then I am not sure what will!

Real Estate Investors Checklist for Working with JV Partners

“I made a list of the happiest periods in my life, and I realized that none of them involved money. I realized that building stuff and being creative and inventive made me happy.”

~ Tony Hsieh (CEO of Zappos.com)

MoneyMoney is a funny thing. It’s an object of much desire. It’s the number one marriage killer. And it doesn’t seem to matter how much money you have, you probably want more. At least you will want more unless you’ve come to realize that money is simply a tool not an end result.

I know – it’s a bit of a deep thought – especially for Wallstreet movie fans who are taught “Greed is Good!” but my point is simply that too many people believe money will make them happy instead of realizing that money can facilitate the time and space to do the things that make you happy but will not, by itself, fulfill you in anyway.

What’s this have to do with real estate investing?

Everyone has a different goal around money. And before you get out there and start talking to prospective JV partners, it’s a good idea for you to get a good understanding of what your thoughts around money are and why you’re investing in real estate (is it just for money or is for freedom or for comfort in retirement or some other purpose?).

I’ve met a lot of real estate investors in the past 24 months that are miserable. These are people who have bought 30 or more properties at a rapid pace. They achieved their cashflow goal or their goal to buy x number of properties by x date. They have, by the goals they set for themselves, achieved success. Yet, they are miserable. In speaking with some of them, I realized many failed to ask themselves a lot of these questions before they took the investing world by storm. And now they are cleaning up a mess or anxious to grow further because achieving their first goal still has them feeling empty.

It’s kind of the same thinking that was behind a comment made to me by a real estate author on a blog post I wrote. He said “if you did it the way I do it, you could be buying 4 or 5 houses a month instead of just the one per month you guys are doing.”

I disregarded the comment because more isn’t better.

More is just more.

And, in fact, more could just mean a lot more problems! A couple of guys I met at a conference earlier this year had some serious headaches because they had a different joint venture partner for each property, tenant troubles and quite a few properties that were worth 20% less than they had paid for them. More properties meant a lot more stress!

I share all this because it’s really important to think about what you’re doing and WHY.

If you’ve set a goal to buy 3 properties in the next year, make sure you understand WHY.

A clear and powerful WHY will help guide you when you make your decisions, will bring you confidence when you speak with joint venture partners and lenders, and it will enable you to align yourself with the folks with money (or with the deals) that fit perfectly with your REASONS for doing what you’re doing not just the numerical goals you’ve set for yourself.

If you have thought this through then you’ll find yourself working with the right people, creating the right deals and probably doing it with a smile on your face most of the time.

So – here’s the checklist. Here are the

7 Things to Ask Yourself Before You Work with a JV Partner on Any Deal

(and while we tend to take the viewpoint of a JV partner who is doing all the work looking for a JV partner who will bring the cash to the table – this checklist can apply no matter which side of the equation you are on.)

  1. Do you need a Joint Venture partner?If you chose to grow your portfolio slower, could you do it on your own? Sometimes when you do the math it might be better to do fewer deals but do them on your own.
  2. What value do you add to the partnership to exceed their expectation? What value do you need your partner to add to make the deal easy for you to do?
  3. What are your core values? For us, we only want to work with people who share our core values.
  4. What is your time horizon for the investment? You want to know this so you can align yourself with people who have the same or similar expectations.
  5. How actively involved do you want to be in this investment? How actively involved do you want your investor partner to be?
  6. Are you seeking anything beyond just a financial return from your investment? Is your investment partner? (sometimes our partners are looking to learn from us in addition to earning a return, sometimes we’re looking for some connections or a longer term relationship with that person).
  7. How comfortable are you with changing strategies mid-deal or using creative strategies to acquire real estate? Do you expect that same level of comfort from your investment partner? For instance, are you okay if you change from a Buy N Hold strategy to a Rent To Own strategy mid-deal? Will your JV Partner also be comfortable with the change?

After one failed partnership years ago and a snafu with a partner last year that nearly cost us two deals, we’ve really spent some time asking ourselves these questions. And after Dave meets with any new joint venture partner we review these questions for ourselves and with respect to the new prospective partner.

We know not every person with money to invest is a good fit for us.

We’ve learned over the years that it’s more work to try and put a deal together with someone that isn’t in alignment with what we’re doing and why we’re doing it than it is to just keep looking for someone that is a good fit. And the beautiful thing we’ve discovered is that when you find someone that is in perfect alignment with what you are looking for and with what you can offer you’ll have a long term partner. We just closed on deal number three in 12 months with one such partner. What she’s looking for works perfectly with what we have to offer. And she has basically committed to doing at least a deal a year with us for the foreseeable future as a result.

Published October 11th, 2010

 

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