Real Estate Investment Financing Strategies : Leverage

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A buddy of mine, Andrew Turner, is building an integrated web based platform for students, parents, and college advisers. His new company, CollegePlanningU, provides things like free SAT prep, the most advanced college planning software on the market, and a mortgage pay down acceleration program all based on cutting edge web 2.0 technology. Andrew and his team have been laboring endlessly to push the company forward, but there are only so many hours in the day. Andrew knows exactly what he wants done in the business and feels that everything is currently at a tipping point.

He is considering leveraging his company to put it on the fast track. Over the last few years, he has operated straight cash and carry. Zero debt. This is a big step for him so he approached me for some advice.

I have recruited millions of dollars from private investors for my company over the years and was happy to help. One of the first things that came to mind was the speed of business today. Nike comes out with a brand new shoe and less than a week later, you can buy the exact same shoe on the streets in China for a fraction of the price. Andrew already knows precisely what needs to happen to get the company’s web applications ready for market. If he were to do it all himself, it could take years. With leverage and the right team of service providers, I asked him to think about the value he would receive from the funds in relation to the importance of speed in business today. Andrew is definitely a minimalist and good financial steward as well so I told him to go for it.

From my experience, I told him that recruiting investment capital was a simple process. We made a power point presentation to guide our investor meetings. It consisted of a business plan, our business model, why it made sense for us to recruit them as an investor, and finally, what we were offering them. Once we had the presentation, a simple formula, “Ask Until” was implemented. I told Andrew to make a list of 10 to 15 people, figure out exactly what he wanted to offer investors, and simply, “Ask Until.” That is all I ever had to do to get funding for our company. Every single person that I met with, regardless of whether or not they invested at that time, was a seed. Many of which took a little while to germinate but have invested and reinvested many times.

Andrew already has a formal business plan and a very professional power point so he is really just a couple steps away. Decide what to offer an investor and “Ask Until.” His enthusiasm alone would get funded if all he did was get out there are start asking.

Real Estate is a big ticket item. Leveraging has been a vitally important tool for our company. Both from private investors and banks. The main thing that anyone has to get over is their fear of rejection. A “no” to me just puts me one more step closer to getting a “yes” and plants one more seed in the soil. The money has been there, is there right now, and always will be available to every motivated, enthusiastic, and organized entrepreneur willing to ask for it.

Using leverage can put you and your company on the fast track. Ask and you shall receive!

Posted in Real Estate Investment Financing Strategies | 1 Comment »

Real Estate Investment Tips and Strategies: How to Motivate Your Team

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In his book, Predictably Irrational, Dan Ariely wrote, “Should you give an employee a gift worth $1,000 or pay him or her an extra $1,000 in cash? Which is better? If you ask the employees, the majority will most likely prefer cash over the gift. But the gift has its value, though this is sometimes ill understood—it can provide a boost to the social relationship between the employer and the employee. Think of it this way: who do you suppose is likely to work harder, show more loyalty, and truly love his work more—someone who is getting $1,000 in cash or someone who is getting a personal gift?

This reminded me of something that we did for our team (our head contractors, employees, attorney, etc.) a little while back. I designated a random week within our company “Appreciation Week.” We sent flowers to a couple offices, gave out gift cards to favorite restaurants (which we had elicited the week prior through a careful line of questioning), and gave out a couple rounds of golf. We hand wrote and signed a thank you note to each individual member of our team.

What an investment! And we only spent about $50 per person. The success of “Appreciate Week” was in part because it was so random. It did not coincide with a holiday or the time of year. It was simply a “thank you for all of your hard work. We recognize and appreciate your efforts.”

I can’t imagine handing them $50 and having a remotely comparable experience. John Dewey said that the deepest urge in human nature is “the desire to be important.” By showing appreciation (especially through a gift as opposed to some cash), our team gained their feeling of importance, and it showed through their hard work.

Posted in Tips and Tricks | No Comments »

How to Get an Upfront Contract in Your Real Estate Negotiations

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An upfront contract is an agreement that is structured with someone BEFORE taking someone through your sales process. It is a technique developed by David Sandler and is extremely powerful. Use an upfront contract and you’ll be playing by your rules, not be theirs!

The following script will show you how to effectively set up an upfront contract (the example below would be if you were meeting with a private money prospect).

Me: Thank you so much for meeting with me today. How much time did you see us spending together today?

Investor: Well, I don’t know. How long do these meetings usually last?

Me: We can be done and have all your questions answered within an hour. So, it’s 3:15 now. Let’s imagine that it’s 4:15, your walking out of here thinking that it was a great meeting and really worth your time. What would we have to cover for that to happen?

Investor: Well, I guess you would go over A, B, and C.

Me: Naturally, you’ve got questions, A, B, and C. A lot of people have similar questions. I’ll make sure to go over all of that. Obviously, I’ve got some questions too, D, E, and F. Are you OK if we go over those questions today?

Investor: Sure.

Me: Typically, there are several different outcomes that could come out of our conversation. If at any point, I figure out that we’re not a fit, do you mind if I go ahead and tell you?

Investor: No, not at all.

Me: Good, I appreciate that. Now, if you figure out that we are not a fit, would you tell me?

Investor: Sure.

Me: Thank you. I appreciate that. A lot of people aren’t comfortable saying “No” and my biggest fear is when people say things like “Call me next week” or “Let me think it over” when they really just mean “I’m not interested.“

On the other hand, we may find that we are a fit and that it makes sense to work together. Now, we’re not even close to that yet but if we were to get there, what would you see us doing next?

Investor: I’m not sure.

Me: Well, the next step would be to write us a check to get started investing with us. Anything less than that, I’ll just take as a “No.” Are you OK with that?

Investor: That sounds good.

Me: Great. Out of the things you mentioned earlier A, B, and C, which one would you like to go over first?

That’s it. An upfront contract has been established. I showed appreciation for the appointment in the first place, quantified the time we would spend together (don’t you hate appointments that drag on and on and on to no apparent end), discussed what questions would be covered during the appointment, and established an agreement so that by the end, I get a clear “Yes” or “No” to my offer. “Let me think it overs” will drain the life out of you. Handle that objection before it comes up!

And by the way, DON’T try to reinvent the script! Just memorize exactly what it says and you will improve your closing ratio by a million percent.

Posted in Negotiating | No Comments »

How to Build Rapport : “How To” Real Estate Investing Class

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You have probably noticed before that sometimes, you just click with some people. Let’s say you are at a networking event. There is always that one person that you strike a conversation with and everything just flows. You both seem to enjoy each other’s company and the entire experience is effortless. On the other hand, you have also experienced those people that are like a brick wall. You can’t get anything out of them. Personally, I find those people a joy to talk to now because I take it as a challenge. How do I have to communicate in order to break through to this person and establish a meaningful connection?

There is a science that explains why you click with some people and not with others. Neuro Linguistic Programming (NLP) is the science of how communication, both verbal and nonverbal, effects the nervous system. One of NLP’s tenants says “the meaning of communication is the response you get.” Soooo, if you are not getting the response you want from, let’s say a seller, the fault is in your communication. What an empowering thought! By taking the blame for the situation, you retain control. Change the way that you are communicating and you’ll change the response that you will get.

And now for the “Meat & Potatoes.” People like people who are like themselves. The question becomes, “How do you become more like someone that you want to connect with?” Matching and mirroring is one of the strategies from NLP used in order to establish that bond and build rapport.

There are many different ways to match and mirror. For instance, your meeting with a potential client at Starbucks for coffee. He orders a tall coffee, sits down and crosses his legs, leans back in the chair, talks slow and lightly sips on his coffee. Here’s what not to do…tell him how much you hate coffee, sit on the edge of your seat, and talk a mile a minute.

When I am with someone or talking on the phone, I will pace my rate of speech to match theirs. If they are a fast talker, I’m a fast talker. If they talk slow as molasses, I’m going to do the same. You can also match their tonality and pitch. I listen out for key words and phrases they use often and toss them into conversation casually. The most important thing to remember here is that all of this must be done under the radar. Imitation, as Shakespeare once said, is suicide. In the past 4 years that I have been studying NLP and actively mirroring and matching, I have yet to have a negative experience.

And speech is just one area. Body movements, demeanor, facial expressions, energy level, and mood are all things that can be mirrored and matched. Pay attention to the details and remember that the whole point of all this is to come across as someone that they know very well. Someone that reminds them of themselves.

Posted in Negotiating | 2 Comments »

Vacancy Hurts…Should We Fill the Property with This Tenant?

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We have a property that we recently got back after an eviction. We had to go in and do some cosmetic work, but it wasn’t too bad. The property has now been on the market for a little over a month and is still vacant.

We are marketing the property on a lease option and started off asking $1,975/mo and $6K down. We are now down to $1,675/mo and $3K down. We lowered our asking prices because vacancy is too expensive. Check out our website to see some of our listings. The subject property is 140 Ryton.

There is a woman that really wants the property but cannot afford what we are asking. She can put $6K down, which is good, but can only afford $1,200/mo. For each additional $1K that a tenant puts down, we lower the monthly payment by $25. So that would mean that her monthly payment would be $1,600 with $6K down, and she can only pay $1,200. Still pretty far off.

After discussing this with Dusty, here is what we may do. First and foremost, we will run her credit to see what kind of person we are dealing with. In the past, we have filled properties based on down payment and not credit. For example, $6K down…you’re approved!! On this one, we want a closer look. Also, instead of signing a year lease and option with her, we are only going to offer her a six month term. She can extend her agreement for an additional six months if she is willing to pay $1,600/mo from then on.

If her credit looks descent and she agrees to our terms, we get a good down payment, get rid of a vacancy, and ultimately, still get what we want.

Posted in Property Management, Real Estate Investment Selling Strategies | No Comments »