How do you become a passive investor in great cash flowing deals?
We’ve talked with hundreds of investors one-on-one.
Oftentimes, people just don’t know how to get started.
Looking at and analyzing deals can feel overwhelming.
We have a simple three step strategy that can help you get started.
1. Education First
The first thing I tell people is to get educated.
You need to get yourself comfortable with whatever you invest in.
We’re not talking about getting a degree.
We’re not talking about lengthy training sessions.
Listen to podcasts and read articles or books.
Talk with other passive investors or attend webinar events to learn more about areas of interest.
These are all things you can do wherever. There are SO many free resources available.
All of these things create an education around investing and build a foundation around you.
The most important aspect while educating yourself is asking questions.
You can ask questions to potential sponsors and/or other passive investors, like:
“Is there anything you would do differently on your deals/investments?”
“What are the mistakes you made?”
“Have you faced any serious challenges?”
Those are great stories to hear.
There’s the old saying that a wise man learns from their own mistakes, but a genius will learn from the mistakes of others.
These questions give you the opportunity to learn from other people.
However, you should always be aware of potential bias.
If we share information with you, it’s always going to be a little biased towards our investing preferences and experiences.
2. Know Your Investing Goals
You also need to be clear about your goals.
Are you looking for cash flow? Tax reduction? Appreciation?
What are you trying to do?
Once they get their first job, some people start putting money into their 401k plan, maybe put some into the market, some into alternative assets like real estate.
As life gets busy, fewer people stop and consider what are their investment goals; myself included when I was solely focused on climbing my way up the corporate ladder.
Determine how much of your portfolio you are planning to allocate to real estate or other alternative investment asset classes.
Know your risk tolerance. Different real estate asset types have different risk profiles.
For example, investing in a new ground-up development deal may have more risk but should also have more of stronger upside.
On the other hand, a triple net lease asset (one where the tenant covers all of the expenses) and you charge them rent with an annual escalation, has less risk but less potential for appreciation.
After determining these answers, find the people you want to get close with and get on their list.
People join our list to hear about our deals in multifamily and other types of alternative assets.
We also share those deals with our prospective investors.
3. Review Potential Opportunities and Invest
After educating yourself, you should review potential investment opportunities.
You can find them by signing up for those investor lists.
A lot of these deals will have webinars where you can ask questions, or you can email the sponsor’s team to ask them questions directly.
We have an amazing resource of questions you can ask when reviewing any investment opportunity here.
After analyzing the five to ten deals, you’ll learn so much.
You might even find exactly the deal you’re looking for!
But how do you analyze the deal?
I tell our community there are three pillars in analyzing any deal, no matter the asset class.
The first pillar is the market, followed by the operator, and finally the deal itself.
We capture many of these areas in our free deal analysis resource here.
You start with the market.
Market is referring to the geographic market.
Is there population growth, job growth, and income growth?
If we buy in an area with all that growth, the deal will almost always turn out fine, even when things go wrong. It greatly reduces your investment risk.
After you’ve analyzed what the market is, then you look at the specific operator.
What’s their experience?
What’s their track record?
Sometimes, they’ll have a record of rinse and repeating-type deals where they have done 10 similar deals and are on number 11.
Make sure you understand who the operator is, their experience, and what they value.
When I started investing, I thought everybody had the same values.
It would be helpful to talk with other investors who have worked with them to try and understand more about their values.
The last thing is to analyze the deal.
Does the deal make sense?
How do you make money?
What’s the focus?
Warren Buffett once said: “Don’t invest in anything we don’t understand.”
That’s a really good rule.
The last thing you should look for in a deal is one or two primary risks.
How could you lose money?
Every deal, no matter the asset, has risks.
It’s also good to ask the operation this question as well.
If they say there are no risks… beware!
There’s always risk in any investment.
The final step is to act and invest.
If someone puts a great plan together but never does anything, they’re always going to lose to someone taking action.
The person taking action will always learn more.
Be a person of action.
One way to do this is to give yourself a deadline.
You could say in 60 days you’re going to invest in one deal.
You learn the most by investing into a deal.
Having had several calls with investors, one in particular comes to mind.
There’s an engineer with a net worth around $5 million.
He never invested in anything except for stocks and bonds through his financial advisor.
If you invest $50,000-$100,000 in one or two deals, that’s typically 1% to 2% of someone’s net worth.
It’s not a lot of money.
But what happens after that is you get some experience.
Over time, investing becomes like a muscle you didn’t even know you had.
You may become sore at first from gaining those muscles, but after a while you’ll feel strong.
The more you invest, the more you’ll grow.
You will get better over time.
The conclusion here is that no one cares about your investments like you do.
You need to invest in yourself, educate yourself, and grow.
As you invest, you’ll pay attention and you’ll learn.
Take action and you’ll be a pro in no time.