What it means to invest.
We as brokers have the perfect opportunity to broker and invest. I constantly keep an eye out for good deals. I figure out how to make problem properties or difficult deals work. I end up with a lot of properties that I show to my clients and they don't like them. Usually I have done all the homework so it ends up being a fast and easy decision. Always ask their permission to buy something that you showed them.
Because of my experience, I run off of gut feeling and i'll know when I walk in if I can make money on it. I also build street credit with current clients by telling them about my investments and where the opportunity is and teach them that this is not only a home but an investment.
Build a network of other brokers that can tell you when they have a good deal and/or a motivated client. Every time you talk to another broker ask them for deals or off market properties. There is money to be made in just about every market because there is always a bottom and a top in every neighborhood.
You probably already have a list of contractors. although the list does need constant refinement, these are the people that you currently refer out to your clients. Keep a ready to go list and keep the good contractors on it.
Different types of investments
Fix and flip- Add sweat equity
Wholesale- simultaneous close or buying and flipping without doing anything. Typically need a buyer already lined up.
Development- Build equity by having the right people on your team. A GC will typically cost 50k-10% of build cost and take up to a year.
Self Directed IRA investing. - Non recourse loan usually means 40-50% down but a great way to access capital that is just sitting there.
Lowball and look for motivated sellers. Make lots of offers and plant alot of seeds.
You also can structure Partnerships, OPM, Options, Owner Carries and/or private money.
There is also a lot of no or low money options. It doesn't always take your money to be an active investor.
There are also crowdfunded investments like Fundrise and patch of land. Can return 10-16%
How to analyze
Fix and flip- purchase price+fix up costs- sales cost = profit. Make sure the comps support the After Repair Value (ARV)
Wholesale can run on tighter margins with smaller profits.
Development. Know how construction loans and budgets work. Allow yourself an accurate timeline. Timing in this market is key. Don't go to over saturated neighborhoods or bad locations.
Many deals can work because of such low interest rates.
Helping other people invest.
Look at their total assets and equity. A client recently had 200k equity that they had in a property and they were making $300 month. This is less than 2% return on their money. We put in place a plan to use 100k down on a 400k property for long term with cash flow of $1,000/month and then the other 100k for fix and flips with the goal to double that 100k every year. We should see a 110% return and be diversified by the end of the year. I don't think other brokers will go this financially deep with clients but they should! They will appreciate it if you do.
This weekend I was at a house warming party for some clients. They got a 83k bid to remodel their kitchen. I offered to sit down with them for an hour and show them how to do it for 20k. I think I just earned a client for life!
The beautiful thing is most people can do this on the side of their real job. They do have to be motivated and have a little free time, but keep them interested by sending them good deals, telling them of you and your clients experiences and helping them make a better future for them and their families.
I preach that this is not for short term cash flow but more for long term wealth building (the nut at the end). Short term cash flow really only allow you to keep the lights on. The Help them make a plan for college education and for retirement.
Personal Investment strategy
Develop property a year, look for and do investments that double my money every year or have at least 500k profit longer term.
The more you are in and out of properties, the more you will make. One other simple principle is to buy when everyone is selling and sell when everyone is buying. I also love that its residual income. You make money while you sleep. Most importantly, put a plan in place.
Go through an acquisition phase and try to get at least 1 yr of ownership (cuts tax bill in half).
Use 1031 exchanges as much as possible.
Because we are a licensed community, the commission and public hold us to a higher standard. A lot of full time investors that I know don't get their license because it give them the flexibility and less liability to do the deals that they want. Otherwise its all about disclosure. 1. need to disclose that you are licensed and buying/selling to make a profit. 2. When you do work, make sure it is all permitted and to code. Or disclose that it wasn't. 3. Take environmental hazards seriously. 4. Screen your tenants and never be desperate to rent. Make sure whoever you put in there will take care of your investment and will call when there is an issue. 5. Know which hat to where when meeting with potential clients, sellers or buyers. Disclose if you are acting as a buyer/seller or broker.
I encourage you to continue to invest and advise your client to do the same. Not only will you make more deals and commission happen but you will earn clients for life!
Also, If you have any off market deals, motivated sellers or properties that need repair, please let me know. And if you have money sitting in the bank, we should chat about a game plan to start making that money work for you!