Putting the deals together—a Six month review.

There is a pretty consistent pattern of distinction here at TCI between Articles and Forum posts. Articles tend to be about some successful strategy/program/method and Forum posts are about questions. Articles tend to be longer and don’t have questions at the end. Forum posts tend to be brief.



I’m hoping that this Article will actually be a little of each. In other words, I want to tell you about some things I have been working on and that have worked and then ask you to help me with ideas for new directions and initiatives.

Six month Review



Well here we are in the middle of July and I thought I would sit down and look at my first six month marketing performance for the year. You should probably know a little about my business so you can see what I was trying to accomplish:



I do small (for the most part) commercial properties: $500,000 to $5,000,000. Frequently I do only a deal or two a year. Sometimes I even take a year or two off (usually because I am developing something which takes a lot of time—renovating an apartment building, that sort of thing). In fact for the last 3 years I’ve pursued other interests so I hadn’t done any real estate transactions in that period. Last spring I decided it was time to put the nose back to the grindstone for a year or two and really “crank some numbers”. With the portfolio I already have I figured after two or three years like that I could pretty much retire, cut back to a couple of deals a year again and spend a lot more time traveling.



Suddenly gearing up to that volume of business, however, I knew that I would have to do some of these deals with investor partners who would come up with the money and/or the debt. So, in addition to kicking the acquisition business into high gear I was also going to need to look for such partners—a part of the business I’d been out of for 15 years.



Most of this I decided in the spring of 2004 and I had been working pretty diligently when the end of 2005 rolled around. I had a couple of transactions closed and a couple of things poised to close early in the year but I really was not happy with the way things were going. I realized that I needed to make a major boost in the volume of transactions I was working on if I was going to meet the two year goal of having enough portfolio to kick back and relax. So I thought I would make some New Years Resolutions.



The New Years Resolution



I’m not usually one for New Years resolutions and if I was I’d have to always resolve to stop procrastinating because I usually decide what my New Years resolutions are sometime around the first of March, but this year was different. This year I made a resolution in January to close a deal a month. I figured that such a goal would get the volume of business that I needed to meet the two year goal. I take resolutions like this very seriously.



To make that goal happen I also started doing a bunch of stuff that I frequently don’t do when I’m in “normal” mode. I can be a pretty disorganized guy. I have a very high tolerance for chaos and I tend to keep everything (including my calendar) in my head. But now I knew I was in for a couple of years of disciplined endeavor so I went into disciplined mode:

• I dreamed up a new filing “tickler” system for keeping track of leads, offers, deals under contract, etc. and I came up with a list of daily goals to make sure I was working every day at the heart of the business not frittering away my time on something that might or might not pan out.



• I came up with a daily review scheme to make sure I was focusing on the core business every day and not getting distracted with peripheral issues.



• I also got to work on a number of marketing initiatives that were designed to find me more properties and more investors.

The point of my July mid-year review, then, was to figure out which of those initiatives was working and which were not so that I could put more energy in the second half of the year into the things that have produced results and dump the programs that don’t seem to be paying off.



I sat down with a big sheet of paper and listed all the transactions that are closed or reasonably close to closing and so far I’m on track for my 12 deal year. I’ve closed 7 deals and have another 4 well into the pipeline. If I keep doing what I have been doing I’ll probably make my goal. But I figure its still worth some analysis to figure out what I could be doing even better.



So I started counting where these transactions had come from—what part of my marketing plan was working— and I started thinking about what I had spent time on that hadn’t paid off in terms of closed transactions so that I could stop doing those things.



Two sides to every deal



A transaction for me typically has two sides—locating the property and locating the investor.



Locating the property includes such things as analysis to make sure it’s a good deal, due diligence to make sure the numbers are as reported by the seller and-- since a lot of what I do is development-- this also includes a plan for how to lease the property. But for purposes of my 6 month review I didn’t worry about that “underwriting” stuff. These were all deals that had passed muster in terms of the numbers working. The only thing I was analyzing was how I first heard about the deal.



The other “side” of a transaction is finding the funding. Typically in these transactions I worked in one of two ways, either I found an investor to buy the property with me (a partner) or I flipped it to someone for a profit. So the other issue of importance to me was where I found the investors for the funding side of the transaction.



There are 7 closed deals (a total of 14 “sides”) and 4 in the pipeline (since there’s no investor yet these deals only have one “side” done) so there are a total of 18 “sides” done to date in 2005.



Some of the deals were really small (The smallest was a house I bought and sold one day on the internet without ever having seen it. Made $5,000 on the flip and figured that was a pretty good day for not having left my living room.) But some are pretty good size too. (Biggest closed, $2.5 million. Biggest in the pipeline, $5.5 million).



The Marketing Inititatives



When I made this resolution I had four marketing initiatives going. Each of these was designed to locate more properties and/or investors and each of them has, to some extent paid off (more about that later) but during the period in question I added two more initiatives



The four initiatives I had going at the beginning of the year were:

• TCI

• Brokers

• Teaching

• Driving around

And the two which I added during the last six months:

• Meetup.com group

• Direct mail

I will now turn to each of these “initiatives” in turn and tell what I did in that method and how well it scored in the 6 month review.



TCI



As it turns out TCI was one of my best sources of transactions in the first half of 2005 with three “sides” to its credit (16% of the total). Let me try to tell you the ways I used TCI to build my business.



The easiest way to understand is the use of the properties for sale database here (one side) I found a property which seemed to me to be under priced and negotiated a contract to purchase it via e-mail. I then turned around and sold it via e-mail to another investor I met through TCI. So that deal was a total TCI transaction. I never left my living room, never looked at the house, did the whole transaction via e-mail.



But as it turns out perusing the properties data base was not the method that produced the most results for me. The best thing about TCI is the community it builds. Two sides (11% of the total) of my 18 were the result of knowing what people do as a result to reading their posts here on TCI. One of those “sides” was a fellow who contacted me for help in putting a deal together and the other was a fellow I met here who is an investor and who bought that house deal I wholesaled to him. As a result of understanding what other investors do it is possible to approach them with appropriate transactions without violating the TCI restrictions on general advertising—and you learn what they do by paying attention to their posts.



The fellow who contacted me from TCI is the only transaction that actually has any of my money tied up in it (and even that is a really small amount of money). This investor called me to say he had identified a property which he thought had potential but needed help in negotiating the buy (which turned into a 99 year land lease rather than a purchase). With phone and e-mail we negotiated a 99 year lease on a development property where the finder is a minority shareholder in the Corporation which owns the lease. Now we are searching for a tenant so that we can develop the property but in the worst case we will probably build out a gas station/convenience store ourselves.



The beauty, from my point of view, is that this fellow knew me from my posts here. So he knew the kind of property I was interested in. He knew that I had done deals before and that I specialize in commercial development opportunities. So I didn’t have to convince him I know what I’m talking about, I didn’t have to tell him I don’t do single family homes, I didn’t have to educate him about who I am. That means that all that time is available to put into the transaction. From where I sit that’s a huge time savings.



The other TCI “side” was an investor who bought a property I wanted to flip. I knew about John’s investment criteria because of our exchanges in the forums here but we also had a fairly extensive e-mail correspondence. This made it possible for me to e-mail him when I found a deal that he might be interested in and to put that transaction together quickly. So it is a good thing to “chat” with people who you think may be doing the kind of transaction you’d like to do even if you don’t have a specific deal right at the moment.



Real Estate Brokers



My most common method of finding deals, at least in the first 6 months of this year, was to have a real estate broker bring it to me (3 “sides” for a total of 16% of all the transactions). Unfortunately this method is useless for finding investors (0 sides). Although an interesting thing did happen this year that I’ve never had happen before: I looked at a deal at a broker’s suggestion and turned it down saying, “I don’t have an investor to place it with right now.” The broker then attempted to negotiate a deal with another of his clients who had liked the deal but didn’t really know how to manage it—in effect playing investor matchmaker as well as real estate broker. That deal didn’t come off but it has got me thinking of ways to use real estate brokers to find investors as well as properties.



The secret to dealing with brokers, at least for me, is a very brief description of what you are looking for so that they bring you appropriate deals. Very few of the listed properties have any interest for me. I don’t do houses as a rule and even apartment building deals have to be pretty astonishing to get me very interested these days. So I have this little two-line description “I buy underutilized and obsolete properties that no-body else knows what to do with; and I figure out uses. So when you have a deal you are ready to throw your hands up on, call me.” This eliminates 99% of all the listed properties—and allows me the pick of what’s left.



Teaching



Another method that has worked very well for me is a class I offer at a local “school” called the Discovery Center. Two sides of the current transactions have been filled in this method and I have a pretty good number of investor leads from this source. Lots of people are offering seminars, of course, but I make two distinctions between what I do and what I’ve seen anybody else do. First, my class is almost free ($60 for four two hour sessions) and I don’t take any of the tuition money myself (it all goes to cover over-head of the school). Second, my only interest in the class is to do deals, i.e. to find students who want to find properties or investors who want to invest in real estate. In some ways this is a lot like the forums here at TCI. An educated investor is a better investor so it makes sense for me to take time to help educate others so that they can be better investors. Frequently that means they choose to invest with me either as a partner or as a buyer of a wholesale property or by bringing me deals they think I will be interested in but this is a method that I am finding a lot of fun as well as a source of transactions.



I’m thinking, though, that I might re-format this course a little to make it more about passive investing. What I’d really like is more people willing to invest in my deals, not more would-be investors looking to get started. So maybe in the fall I will add a course on Investing in Real Estate Partnerships.



Driving around



Oddly enough one of my best methods of finding properties for sale is still just driving around. I found 2 such properties in this period (11% of the total “sides”) and I’ve been too busy to do it much.



I pick an area I think has potential and just spend a day in the truck driving up and down looking for deteriorated, vacant, or under-utilized buildings then I contact the owners and we are off to the races. Unfortunately in the past 6 months I’ve been a little too much nose-to-the-grindstone on the other methods and haven’t spent much time in the car. But I have two “sides” through this method anyway. Maybe I should figure out a better way to do the follow-ups. My notes seem to say that I’ve lost track of a number of leads that I started on this way but haven’t followed up on.



New methods



Oddly enough the very best method of finding investors in this period wasn’t even something I was thinking of as a strategy. I got 4 “sides” (22% of the total) through contacts I have in a couple of social service groups I am involved in. These were places where I wasn’t even particularly looking for deals or investors but when people found out what I do they wanted to buy in. I don’t quite know what to do with this information except go out and join a couple of charity boards but I have done that in the past without much success so I guess I’m looking for suggestions on how to systemize what has been a pretty unsystematic approach.



I also started organizing a real estate investment club in this period. I recruit members to this club through two methods: one here on TCI and the other on www.Meetup.com. So far the meetup source has been much more active. Unlike most “clubs” this is not about introducing guru’s who have product to sell. We have no monthly speaker and no agenda except to try to make transactions happen. And this method did produce one “side” in the first six months which I consider very promising for a new initiative.



The other new thing is a direct mail campaign which is just about ready to launch. No results yet but perhaps at the end of the year there will be a review of the success of this approach as well.



Your best practices:



So I would love to hear what you are doing that is working. How do you find leads on properties? How do you find investors? What practices and initiatives seem to be producing results? I’m looking for the innovative here—not more bandit signs and cold calling foreclosures lists (not that those are bad things—just we’ve heard it before). What do you do that produces results?