In this post, we will take a look at all of the moving parts that are required to make a real estate deal work. Before we start exploring what we have to know and do when purchasing a property, let‘s talk about people whose financial resources we may need in order to buy more or bigger deals. These people are called investment or money partners. Not every real estate entrepreneur needs money partners. If they are financially able to invest alone, that‘s great—they won‘t have to split their profit with anyone. On the other hand, chances are they will run out of money and/or credit very quickly, and their portfolio will be small and stagnant. 

Sharing the profits with investor partners allows us to grow our portfolio much bigger and faster than we could on our own. Astute real estate entrepreneurs under stand that it is much better to own half of a property and share in the profits rather than own 100 percent of nothing! In this kind of partnership, the roles are clearly defined: the money partner provides the money and/or credit to obtain financing, while the real estate entrepreneur brings their expertise in finding, buying, and managing profitable properties. Any income from the venture is divided either 50-50 or according to a fair and clear agreement between the parties. This post pertains to both scenarios: Real estate entrepreneurs who go solo, as well as those who work with money partners.

There are many things a real estate entre preneur must do in order to buy the best pos sible property—one that will generate the best possible return on investment. Let‘s begin. 

Step #1:  Searching for the Right Investment Property 

Finding the deal is done in many ways. The most common one is through a real estate agent. Agents have access to the Multiple Listing Service (MLS) and can easily search for the specific kind of property that the real estate entrepreneur wants. Although this is the easiest and most convenient way to find properties, it does not usually lead to the best deals. That‘s because everyone can see what is on the MLS, so the really good deals don‘t stay available for very long. Fortunately, there are many proactive ways to find deals. This includes putting up signs, advertising in newspapers, sending direct mail, scouting different properties, or hiring so-called bird dogs—individuals who will scout properties for us. 

The Internet is a wonderful resource as well, with many different online classified ads on sites such as Craigslist, MLS, and numerous other sites that have real estate search engines. But before we actually make an offer on a property we are interested in buying, we must investigate the current market conditions and prices of other similar properties in the neighborhood. Also, if the house needs any improvements, we need to calculate the cost of fixing it up to see whether potential renters would offset our costs. Remember: This is an investment, so it should generate income for us. 

Step #2:  Making Offers 

We found the property we like, and now it‘s time to make the deal. This process involves writing the initial offer and negotiating favor able terms with the seller. Making offers is a multi-faceted skill set which involves a lot of negotiating. Part of this process is having the property inspected by a professional so we know what, exactly, we are getting into before we close the deal. 

Let‘s say the property needs a lot of work. At this point, we have three options:

1) walk away,

2) ask the owners to make the necessary repairs, or

3) renegotiate the initial deal and get the price reduced.

Step #3: Getting the Financing Lined Up 

Nowadays, the banks and other lending institutions require a lot of information and paperwork from their borrowers. So we have to get all our ducks in a row before applying for mortgage. The financing should match our needs and goals, as well as those of our money partners.

Step #4: Setting Up the Proper Legal Structure  for the Deal 

Depending on the type and size of the deal, there are many different ways to set it up legally between the real estate entrepreneur and the money partners. This could be anything from a joint ven ture agreement to a co-tenancy agreement to setting up a separate corporation. The way this is done depends on the kind of property we are purchasing, the financing structure, and the final exit strategy. As with any investment venture, it is important that you get professional legal and accounting advice as to what best serves you. 

Step #5: Handling the Day-to-Day Operation of the Property

Once the Purchase Is Completed, Congratulations, we now own an investment property! This is a good time to plan tasks such as maintenance and repairs, paint ing, landscaping, and taking care of any tenant problems that may arise. 

Step #6: Reporting on the Progress to Investor Partners 

If we have investor partners, it is our responsibility to keep them up to speed on how the deal is rolling along. That includes keeping proper records of all income and expenses, as well as creating easy-to-under stand reports and financial statements on a regular basis. (By the way, the jurisdiction or municipality where the property is located will also require proper documentation.) 

This on-going communication with our money partners is necessary to make sure that everybody is on the same page and knows what‘s going on, but without bogging anyone down with excessive details. This is about developing that delicate balance between providing great information tasks such as maintenance and repairs, paint ing, landscaping, and taking care of any tenant problems that may arise and providing too much information. (Of course, the super-analytical investor partners may actually like to be bogged down by piles of data!) 

Step #7:  Finalizing the Deal for a Smooth & Profitable Exit 

This involves marketing and selling (or refinancing) the property for the maxi mum value with the minimum cost. Again, depending on the style of investment and everyone‘s objectives, this may be a short term real estate transaction—something in the three to six months range. It could also be a medium-term venture, lasting between one and five years. Or, it could perhaps be a longer deal: say, five or more years. 

Whatever the timeframe, the focus should be on maximizing the return on investment for our partners and ourselves. Likewise, we should have a good exit plan: is the property going to be sold for a profit or is it going to be refinanced? Whatever option we choose, everything must be done properly from both a legal and an accounting point of view. If we have investment partners, we need to provide them with a simple statement of account that can be used for their tax returns at the end of the year. As you can see, a real estate entrepreneur has many responsibilities. 

Now, let‘s look at what the roles and responsibilities of the money partner are. First of all, the money partner must decide if a particular deal is the right fit for them or not. This step involves getting independent legal and financial advice, as well as doing their own due diligence about the real estate entrepreneur with whom they are going to be investing.

Questions money partners should ask are:

Does this deal meet my financial requirements, either short- or long-term?

Am I comfortable with the level of risk involved?

Do I understand the pros and cons of the particular investment strategy and the market I will be investing in? 

So there you have it: all the steps that a real estate entrepreneur needs to take in order to find, buy, and close the deal whether alone or with a money partner. 

Summary: 

Let‘s review. The process involves: 

• looking for properties through various offline and online sources, 

• getting the proper inspections and nego tiating the price and terms of the pur chase, 

• obtaining the financing, 

• setting up the legal framework, 

• managing and maintaining the property, • reporting progress to money partners, and 

• making plans for an exit or refinancing strategy. 

In the next post, we will look at the different professionals who help an entrepreneur buy and manage an investment property. 

In the meantime, if you have further questions about the material covered in this post, please contact us.

“Ninety percent of all millionaires become so through owning real estate.” 

Andrew Carnegie