The True Nuts and Bolts to Building an Investing Business

From Cody Sperber, Clever Investor ...

Do you want to know the true “nuts and bolts” it takes for anyone to build an investing business?

And yes, I can say anyone because I am no real estate guru myself, but I managed to build my own multi-million dollar empire. If you don’t mind me “tooting my own horn”, I can tell you exactly how to do it…

The Basic Bolts: The 3 Main Types of Investments

There are 3 main types of investments that new real estate investors can focus on building:

  1. Raw Land is a piece of property in its natural state prior to construction improvements, such as sewers, streets, and lighting. Although it can be financially rewarding, it has a couple of drawbacks:
    • You can't typically generate income during the hold time and it may take a while to see any profit.
    • Expertise needed for such heavy due diligence usually takes years to develop.
  2. Commercial Real Estate is property used solely for business purposes. There is definitely a lot of money to be made, but experts will tell you it takes a lot of:
    • Time and effort to research, evaluate and identify the right market opportunities.
    • Focus on due diligence because of the risks associated with expensive properties.
  3. Residential Property is a type of property that derives more than 80% of its revenue from dwelling units. As a new investor, you should focus here because it is the easiest way to learn how to:
    • Create acquisition and disposition systems.
    • Make some damn money.
    • Identify opportunities within your market.

My Handy Tool: The Four Square Strategy Matrix

Now every single type of residential real estate transaction you will ever do is going to fit into one of these four strategy categories:

  • Wholesaling
  • Fixing and flipping
  • Creative real estate investing
  • Holding rentals

In one of my previous blogs, I created what I call my Four Square Strategy Matrix. Each one of these categories has a different combination of capital needed and cash flow returned, so in order to simplify things I made this handy matrix:

How do you learn which category you fit into? Let’s go over some resources that will help you learn your local market…

Five Resources that Connect you to Your Local Market (The Nuts)

Now, let's talk about how you can quickly get some help learning your local market using these 5 resources:

  1. Local real estate agents can help you quickly find the hot spots of a market. Find an investor friendly real estate agent that specializes in working with investors.
  2. Networking events such as your local real estate investor association or MeetUp.com... is a great way to network and learn what other investors in your area are doing to make a quick buck.
  3. Educational mastermind events like the ones I host a couple of times a year. You're going to meet investors coming from all across the country that may be willing to help your business grow by partnering on deals with you, sharing investing secrets or even lending you private money.
    • Tip: One of the best places to network, where you're going to find people with lots and lots of money is at an IRA custodian's lunch and learn event. These are being held all over the country by companies like Entrust, PENSCO, or Equity Trust Company.
  4. Get off your ass and go drive the neighborhoods that you're looking to invest in. Take any online research that you have done or that your investor friendly real estate agent has compiled for you and then go drive around. Take a pad of paper and a pen or a voice recorder with you when you do, so you can take notes.
  5. Pay close attention to the businesses surrounding the neighborhoods that in which you are interested. Do you see graffiti? Abandoned commercial buildings? Would you be scared to get out of your car at night? If so, you're probably in a war zone

So to continue talking about how to learn your local market, let me ask you a quick question…

Have you ever heard of the golden rule of real estate, which is, location, location, location?

I bet you have.

Well, what if I was to tell you that I personally make most of my quick cash and cash flow from flipping houses or owning rentals in lower income areas where location does not play a huge factor? Let’s learn…

Local Market Zoning

The local market can be broken down into four different categories:

  1. War Zones
    • WARNING: Detour.
  2. Low Income Zone
    • Typically 50-70% below the average home sales price for a given zip code.
    • The prices are low enough that cash buyers can quickly pull the trigger if they uncover a good deal.
    • The rent is still high enough that a buy and hold investor looking to pick up a good rental can still produce enough cash flow to go ahead and do the deal.
  3. Middle Income Zone
    • Typically 70-130% of the average home sales price for a given zip code.
    • Pretty much the same as low income, but now you're dealing with nicer properties that cost a little more, so your risk goes up.
    • Every investing strategy works in middle income neighborhood. With a couple of deals under your belt, I would suggest focusing on these types of properties, especially if you're going to hold any rentals.
  4. Upper income
    • WARNING: Detour.

My Secret Key to it All

So what's my secret to how I built a multi-million dollar real estate investing empire with no real estate knowledge??

It's the systemization of my entire investing business. From business setup, lead generation and marketing, follow up deal analyzation, and structuring and funding processes to the systems I use to hire virtual assistants or employees.

I created and perfected systems that allow me to fire myself as often as I can, slowly removing myself from the day to day processes that make investing feel like hard work.

Your Real Estate Power Team

So now that you know my secret, one of the first things I would tell you to do if we were best friends is to go out and start to put together a solid power team.

Now, what do I mean by power team? I'm talking about the individuals that are going to help bring you deals, provide you money, help you fix up properties, close and get paid:

Real Estate Investors are the first team mates you want to sign-up for your dream team. Go online and research local real estate agents that specialize in working with real estate investors.

Set up appointments with a couple of agents and interview these agents. Leverage their relationships by asking them to put you in touch with good title agents, mortgage brokers, hard money lenders, contractors and real estate attorneys.

Mentors are vital for your learning and development. My real estate mentor, Lyle, taught me that there are five things to look for when choosing a mentor. Find someone who has:

  1. Provable experience.
  2. The lifestyle you want to live.
  3. Honesty and integrity in their work ethic.
  4. Mastered market timing.
  5. Solid business systems in place that are easily to duplicate.

This is great advice and I highly recommend you follow those five tips when choosing a real estate investing mentor.

Get to Know Your Real Estate Investing Paperwork

Now let's take a quick second to talk about paperwork. I know it seems scary, but it isn't, really. As a professional real estate investor you should become completely knowledgeable with your paperwork.

I can't tell you how many times I was able to make extra money in a deal just by knowing how to manipulate the terms of a contract. But when I first started investing, it was the monster under my bed. This is completely normal.

So where do you find the right paperwork?

Easy. You just contact your local real estate attorney and tell them what type of investing you plan on doing and have them create your documents for you. After they create them for you, you know, have them show you how to fill out everything and then go home and practice, practice, practice…

The one thing I don't recommend is just downloading some free documents that you find online and just using them right out of the gate. Take those documents to a local real estate attorney to have them reviewed.

Now, if you're making offers on properties found on the Multiple Listing System, or MLS for short, you can have your investor friendly real estate agent create all your paperwork for you.

That's the benefit of relying on your power team members and it's the key to making your business grow and being successful. That's why I stress finding the right team members to help your business grow.

5 Take Aways that You Should Start on Now

  1. Begin building your power team. The two members I would focus on first is finding an investor friendly real estate agent and an investor friendly closing agent. The closing agent can be an attorney or an escrow officer, but it's really, really important that they are experienced when it comes to working with investors.
  2. Hang out down at the local foreclosure auction. This could be at a particular property, down with a sheriff, or it could be actually at the courthouse steps. There you are going to find tons of cash buyers, new and experienced real estate investors, and even some money lenders down at the auctions. It's a great place to network.
  3. Network and socialize with other likeminded people. This is the life blood of your investing business. A good place to find other like-minded people is at the local REIA meetings.
  4. Find a real estate investing mentor that has achieved what you want. This could be somebody in your local market that's willing to show you the ropes, or somebody national like me, or the people that you're going to find at my mastermind events, but it's really important that you find a mentor.
  5. Begin segmenting your local market into war zones, low income, middle income, and upper income areas. Mark out your target area that you're going to focus all of your marketing in and do whatever it takes to own that market segment. And I mean – OWN YOUR MARKET. The more you know about your target market, the more successful you will be in this business.

Well, this pretty much the nuts and bolts of how I built a successful real estate investment business.

I hope it gives you guys something to chew on.

Keep it real.

Cody

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