This is a re-post of a guest blog I did for Joanthan Twombly’s, The Mortar blog. I wanted to share it with you directly as I think there’s a lot of good food for thought in here for aspiring real estate entrepreneurs. If you haven’t read the Mortar, I highly recommend it.
I spend a lot of time talking with real estate entrepreneurs who have successfully closed a few deals and built their company infrastructure. While they knew it would be difficult, they’re always surprised by what it takes to build a company. The ability to source, underwrite, and execute real estate transactions is a small piece of running a real estate investment firm.
Based on the countless conversations I’ve had and from my own experience with Atlas, here are 10 things you need to do before doing your first deal. This list was also inspired by the advice from my latest eBook, what 20 real estate operators wish they knew when starting their firm.
1. Cultivate a support network: Going off on your own is going to be an emotional roller coaster for the first few years. You give up your steady salary and come out of pocket for start-up business expenses, and you’re going to have to skip those after-work happy hours and weekend dinners. You won’t be able to go on that west coast ski trip this year or do a summer share in the Hamptons. Make sure to have a network in place of people who understand what you’re going through and can offer advice/support. It’s going to be a grind for a long time, but it will be worth it in the long-run.
2. Create a board of advisors: One of the most challenging aspects of doing your first deal is winning the deal with no track record. Why should an owner/broker award you the deal instead of the group with a big balance sheet and a history of executing deals? Yes, you can show the track record of deals you’ve been involved with at your previous shop, but I recommend you form a board of advisors who can provide advice and who have a track record you can piggyback off of.
3. Understand the holes in your skill set: Before going after that first deal, spend some time with your partner(s) analyzing what “holes” there are in your combined skill-sets and personality traits, the biggest potential risks to your business model, and what a downside scenario might look like. Once these issues/risks are identified, it’s a good idea to take it one step further and think through potential ways to mitigate these issues upfront, or how to best address them if they do arise in the future.
4. Devise a business plan and understand your competitive advantage: As a new firm, you have to differentiate yourself and give a client or investor a reason to work with you as opposed to with an established player. That requires you to form a strategy or viewpoint that might be contrarian or showcases your expertise executing a specific strategy. Early investors will be betting on you as well as your specific strategy.
5. Work with an established attorney and accountant: When working with service providers you typically get what you pay for. If you can afford it, find a quality attorney and accountant who can help you get your business set up, put proper systems in place, and ensure you’re doing things the right way. It’s a lot easier to do it now rather than later on down the road. You can use a service such as LegalZoom to save on costs.
6. Cultivate a network of investors: One of the fallacies I hear most often in real estate is “you can always find the money if you have the right deal”, a phrase that may hold true for established investment firms, but couldn’t be further from reality for rookie investors. Call everyone in your professional and personal networks and tell them about your new idea and how you will create value while mitigating risk for your investors – key points which we forget to emphasize while we’re stuck digging through the weeds of the acquisition. You can start to build your investor database by contacting your CPA’s, lawyers, existing clients, RIA’S and wealth managers, lenders, and friends and family of means, all of whom are seeking to allocate capital or have clients seeking to allocate capital in real estate.
7. Understand your company culture: Even with just two or three people at the company, you should be talking about culture. You should be very deliberate on creating culture every day. You cannot go back in time once you are a successful business and “make up a new culture or establish one for the first time.” Culture is born and grows and lives, just like your business, and you need to put it in place at the beginning.”
8. Partner with a good 3rd party marketing firm: When starting out you need a company name, logo, business cards, and a website. You can save on costs by using sites like 99Designs or finding freelancers, but I recommend working with a high-quality 3rd party marketing firm that has done work with other real estate investment firms. I have worked with several groups that are affordable and understand the real estate space – feel free to reach out if you’d like an introduction.
9. Find a partner with capital if you don’t have any: It’s going to be impossible to cover start-up costs, fund deposits, and sign on debt without a net worth. If you don’t have capital, find a partner who does. This is probably this biggest barrier to successfully execute your first deal and the reason many investors start with bite-sized deals.
10. Get your first deal done: Ignore everything I just said and execute! Get your first deal done and use it to learn, put processes in place, and build your track record.
This list is in no way exhaustive but provides a good sense of things you should be thinking about as you prepare to go off on your own and do your own deals.
What else would you add to this list? Enter your thoughts in the comments section below.