Capital Needed for Investing in Real Estate

Dated: September 22 2019

Views: 581

Capital needed for Real estate Investing

I’m running out of all three kinds of capital.

“No Money Down!”  “Take this course and you will be rich in a year!”  We have all heard and seen the late-night infomercials promising to make us rich while we deal with insomnia. Well, there may be such a thing as no money down, but there is no such thing as nothing down. 

When I am compiling the capital for a large investment project, potential investors are looking to see that the sponsors have “Skin in the Game”.     IN fact just guying a home for my rental portfolio, lenders want  “skin in the game” in the form of a substantial cash down.

Actually, for me, there are three kinds of “skin”:

Money, Time, and Brain Power.

Unfortunately, I’m and short on all three.  Of course, we all have a limited amount of each, but for each category you can "outsource" and help relieve some of the pressure on you. If you are heavy in one category, you can get by with less in another category, or you can go out and RAISE SOME CAPITAL.

                "I don't have enough money; how I can I buy real estate?" I get a form of this question often. There are as many ways to finance real estate as there are deals out there. Without time and ingenuity, however, all you would need to do is have money. In the real estate market I get approached every few days by would be investors that have money to invest in real estate. I am always worried; however, when all the investor has to contribute is money. I want additional forms of capital.

Let me give you an example. Last New Year’s eve I went to a New Years Eve party with close friends. We sat around a fire in the cool evening, had a few drinks, and talked. Conversation got around to foreclosed home investing. I told Jacob about the opportunities to buy properties for cash, fix them up and resell as financed homes in the retail market. He commented that he had some money to invest and could I please call him if a good opportunity arose; he would be happy to participate.  I told him that I needed more than money. I needed help in finding the homes, making decisions, and supervising repairs.  In fact, I wanted more than a financial buy-in. I wanted an active investor.  I invited Jacob to come to our weekly meetings where opportunities are often presented and traded.

In our business you have to kiss a lot of frogs, kick a lot of dirt, and make a lot of offers.

Jacob came a few weeks later and offered to inspect some properties on my list.  A week later we had closed on one with Jacob and he was active in its acquisition, and if not for Jacob, we would not have bought that house.  It’s went back the market and will meet my 20% return in 90 days objective.  But if Jacob did not participate to more of an extent than cash, he would not be in the deal. He helped contribute all three forms of capital. I, in effect, outsourced not only some of the money needed, but also the time and brain power.

Real estate investors are fond of the term LEVERAGE. The standard in home buying leverage would be by putting 20 percent cash down and borrowing the balance from a bank. In the above example, however, I also leveraged time and brain power.  So money is the first kind of Capital, let’s talk about time and brain power.

 

               

                Time: we all have the same amount of this precious commodity. It's how we use it that is different. Use your time wisely to immerse yourself in your task. You can free up time by using outside resources wisely. I believe the key is to spend YOUR valuable time setting and defining your objectives - then share them with those that you can delegate to. I try to set not only the goal, but the path needed to reach that goal and the steps on that path.  If I can prepare the map, another can follow it. One little trick I use to make better use of my time is to ask one of my associates of partners to go with me to inspect properties. We use the travel time to share thoughts, set objectives, and share maps, so to speak. The more I can share about what I am trying to accomplish the better chance I have of saving time. But let’s talk about brain power or ingenuity.

                Ingenuity: Some of you might not think this "resource" is much different from time.  I disagree. When I spend brain power solving, planning or deciphering - I have less available for other projects.  I may be able to allocate time and money by outsourcing, but I have a problem with the brain power part of it.  This is because I am limited by the number of key people I rely on.  My wife is my constant and a wonderfully reliable barometer for me, and then there are the experts like accountants and attorneys that I can turn to for specific problem solving.  Be careful, however, experts tend to fix things with the tools that they are experts in.  For example, if you go to a surgeon with a medical malady, he will operate, go to a chiropractor, he will manipulate; or go to a psychiatrist and he will talk you through it; and go to a family doctor and he will medicate. Accountants may be good advisors in determining the profit, but not how to earn it.  Lawyers will keep you at of trouble and in most cases keep you OUT of deals, not in them.  Find a group of like-minded investors and network with them. I have been known to call one of my competitors with a weighty problem I have on my mind and am often given a new perspective with which to analyze it.

                Learn how to leverage all three kinds of capital – oh and buy real estate. They aren’t making any more of it.

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Gregg Fous

Real estate has been my passion since I took my first Al Lowery class on real estate investing in the 1970’s. I vowed during that class that I would buy one property a year. Over the next five ....

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