When it comes to mitigating risk when investing in real estate, everyone knows that partnering with someone who has a skill or resource that you don’t is a great way to go.
However, many newer investors only think of their partners as equity or private lenders. In my experience, this mindset puts people at a huge disadvantage. Opening your mind to who your business partners are and how you can all win will change your trajectory in a major way.
How to Choose (and Keep) Good Partners
Traditional thought tells us that most investors start hungry for the deal, ready to work, and put the necessary time in to create an opportunity, but funding is the biggest holdup. So they spend time looking for private money and owner-carry options—both great things to look for that can help you make a deal work. However, that’s just one of many partnerships that you should create during your investing journey.
You should view, quite literally, everyone who works with you or on your property as your business partner. You will win or lose together. When you lose sight of this concept, you are much more likely to lose the game and money along the way.
For example, you find a great deal on a property that needs rehab, so you start meeting with general contractors to get a feel for costs and personality fit. You get a few bids, but one stands out to you that you like. Their pricing seems fair, and they seem to be honest and come with recommendations from people you trust.
In most cases, the first thing an investor does is try to negotiate the price down. When there’s a change order because a surprise is found behind a wall? Make the contractor eat it. When you go over budget because of poor planning and preparation? Push the contractor to lower their pricing.
Put yourself in that contractor’s shoes: Should they pay out of pocket for an issue that came up at your property that no one was aware of? Of course not. Should they cut their margins because you went over budget? If you were the contractor, would you do that?
Of course, you wouldn’t. After all, this is a business, and you are in it to make money. Well, so is the contractor. They have bills, subs, and a family, too. You should win and lose together, just like any other partnership.
Besides, this might be a great contractor (I know that’s a loaded assumption, but it’s possible), and if they are great and you are constantly pushing them and demanding that they lose money on your deal, they won’t be answering your call the next time you need help.
Property managers seem to be another pain point for newer investors. They want the best service at an extreme discount and proceed to micromanage their PM every step of the way.
Trust me: I know there are plenty of bad property managers out there, but the good ones don’t need or want you to manage them or their processes. They’re doing just fine, thank you.
If you get a referral for a great property management company that charges 9%, don’t start the relationship by telling them you are going to be buying lots of properties and want them to start you at 5%. That’ll go over like a lead balloon, and legit investors don’t nickel and dime their partners.
A little anecdote for you: I have a guy who calls me every spring to complain about his property manager. His property is always vacant, and on the rare occasions that he does have a tenant, he says he’s positive that his property manager is stealing from him, padding invoices, making unnecessary repairs, and getting his palms greased by the contractors. His property manager only charges 5%, and if we match that rate, we can manage his property.
Every year, I tell him no, our fees are what they are, and he replies that there’s no way he will pay more than 5%. And so the cycle continues. Pretty ironic.
This can be extended to other professions as well. As an investor’s Realtor, I have new investors constantly telling me that they think agents are commodities and completely interchangeable, and they just want me to bring them a deal. Well, my team has plenty of deals to go around, but when we aren’t treated as a valued member of someone’s team, we’ll just take those deals to our clients who already know and trust us.
By no means should you be signing a rep agreement with the first agent who buys you a sandwich. But you also need to recognize that a good agent can be the gateway to all the resources that you need: private lenders, contractors, property managers, etc.
Final Thoughts
Here’s the painful truth: Highly effective contractors, Realtors, property managers, landscapers, and lenders don’t need you as much as you need them. That’s not to imply that you should expect poor service—quite the opposite, actually.
That being said, people in these trades have been successful by bringing true, measurable value to their clients by being great at what they do and having connections with others who do the same. Starting a relationship by telling them that you don’t value the cost of that expertise or the time they’ve invested in becoming an expert in their field is a great way to get shut out. Treat those people like your partners, not your children, and you’ll find your network, and the number of opportunities presented to you will expand exponentially.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
