Pulling the trigger on your first real estate deal can seem like a daunting challenge. And, doing a deal is even more overwhelming when alone, without someone providing you guidance. That’s why today I’m going to talk about finding a real estate investing mentor!
Before finding a real estate investing mentor, you need to first define why you need one. From this rationale, you can envision what you want in a mentor, which will guide your search process. Finally, you can begin the search for a mentor, using any number of techniques I outline in this article.
In addition to these search techniques, I’ll dive into general considerations behind finding a real estate investing mentor in the rest of the article. Specifically, I’ll cover the following topics:
- The Importance of Real Estate Investing Mentors
- The Real Estate Investing Experience Track
- What You Want in a Real Estate Investing Mentor
- What Real Estate Mentoring Does Not Entail
- Ways to Find a Real Estate Mentor
- The Investor's Edge Mentorship Support
- Final Thoughts
The Importance of Real Estate Investing Mentors
When it comes to investing in real estate, most new investors make two mistakes. First, they underestimate the amount of work it takes for success. Second, they overestimate how easy investing will be. A little experience gets rid of both of these notions. Investors quickly learn how much work goes into real estate success.
While new investors certainly need to make some mistakes on their own – just part of the learning process – other mistakes can and should be avoided. As the saying goes, good judgement comes from experience, and experience comes from bad judgement. But, a “cheat code” exists, that is, a means of avoiding some of these bad judgement mistakes: real estate investing mentors!
A solid mentor will provide critical support as you gain personal experience as a new real estate investor. More precisely, quality investing mentors will impart some of their hard-learned wisdom, helping you avoid unnecessary mistakes in the process. Yes, you certainly can begin your investing journey without a mentor. But, as I like to say, work smarter, not harder. If you can have someone help you avoid making silly – and costly – mistakes, why wouldn’t you jump at that opportunity?
Defining Why You Need a Mentor
Clearly, I’m a firm believer in the value of finding a real estate investing mentor. I wouldn’t be where I am today without some outstanding mentors, and I like to think that I’ve helped guide plenty of new investors on their real estate journeys.
But, you can’t be told why you personally need a mentor. In other words, before seeking out a mentor, you need to first define the why, that is, the reason you want to establish a relationship with a mentor. Every mentor-mentee relationship is different. What do you hope to get from this relationship, and how do you think you can add value to a mentor?
You need to identify what you want from a relationship. Ask why you want an investing mentor, before actually seeking one. Not defining this why is like putting the cart before the horse, and it’ll inevitably lead to misunderstanding and frustration.
For example, when I made the jump from real estate agent to house flipper, I struggled to find a hard money lender to approve deals I found. Eventually, I realized I needed to first build a relationship with a lender – someone who could mentor and guide me through the process – before looking for deals. As a result, I eventually found an extremely helpful lender who A) guided me through the hard money process, and B) served as an initial mentor on my real estate journey.
This story just provides an example for why an investor may want to seek out a mentor. Ultimately, you need to define why you need a real estate investing mentor.
The Real Estate Investing Experience Track
For many investors, the reason for finding a mentor relates directly to a particular real estate investing strategy. You want to learn about a given strategy, and a mentor with expertise in that area can help guide you on your own journey.
But, before committing to a single investing strategy, new investors should understand that an entire residential real estate investing progression exists. Working your way through this entire progression – while actively seeking out mentors along the way – will provide both real-world investing experience and the guidance of a supportive mentor. Simply put, most real estate investors become subject matter experts by taking two parallel paths: 1) building their real estate expertise by tackling progressively more complicated investing strategies; and 2) finding mentors to help them throughout this entire progression.
Part of initial real estate education certainly involves “academic” work. That is, you need to do some reading, listen to some podcasts, and talk to some experienced investors. But, this “bookwork” can only take you so far. Eventually, to grow as an investor, you need to start getting actual experience. You have to get your hands dirty, make some mistakes, and learn from those mistakes to gain experience.
However, this doesn’t mean you should try to start your real estate journey by developing a 250-unit apartment building. Instead, a common – and logical – investment experience path exists. While you don’t need to follow these steps exactly, the following investment strategies help you walk through the “investor lifecycle.” Each strategy is more complicated than the prior one, so learning them in a step-by-step approach allows you to gradually build your experience. And, when you partner with investing mentors along the way, you’ll augment your real-world experience with key insights and investment support.
Bird Dog
Bird dogging offers an awesome, low-risk way to get your foot in the real estate world. And, it doesn’t require any capital. To make money, you’ll absolutely need to work hard and learn a lot. But, if you make a mistake on a deal, you won’t lose tons of invested money in the process.
Here’s how it works. A lot of real estate investors make money through wholesaling, which I’ll discuss next. But, in a nutshell, wholesaling requires investors to find deals to bring to other investors. While the wholesalers themselves can certainly do this searching legwork, they often pay other people – bird doggers – to do it for them.
Bird doggers spend their time looking for a certain sort of deal. They want to find distressed properties that won’t qualify for traditional financing. In other words, traditional mortgage lenders want to make sure a house is actually habitable. Bird doggers look for properties that don’t meet this standard. Next, the owners of these properties need to have A) some equity in the property, and B) some reason for wanting to sell – often to turn that equity into cash.
As bird doggers find leads on situations like this, they pass them along to wholesalers for a fee. They may receive a fee for every lead, or it could be a contingent payment based on the lead actually converting. It ultimately depends on the relationship you have with a particular wholesaler. But, regardless of payment structure, bird dogging provides you an outstanding opportunity to gain some real estate investing experience with little to no barrier to entry.
Wholesale
Once you’ve bird dogged for a while, you can make the jump into wholesaling properties yourself. This investment strategy lets you make money without needing to actually purchase properties. As a result, it represents a great approach for new real estate investors working on gaining experience.
As stated, with wholesaling, you don’t purchase an investment property. Instead, wholesalers find off-market properties, and they enter contracts to purchase these properties. Rather than close on the purchases, they assign the contracts to a third party, typically a fix & flip investor. And, they assign these contracts for a fee. As such, wholesalers find deals, connect the sellers with investors, and collect a fee in the process – all without dealing with the headaches of doing any rehab work themselves.
When you wholesale, you learn very quickly how to spot good deals for fix & flip investors. If you don’t find good deals, you won’t be able to assign contracts to these people. Simply put, you learn what to look for in a property. Additionally, you have to work closely with house flippers. This gives you the added benefit of learning from them. Pick these people’s brains. They have tons of experience, and you can learn from it. Lastly, wholesaling puts money in your pocket. If disciplined, you can allocate a portion of these funds for a down payment to purchase your own fix & flip property.
All of these advantages to wholesaling put you in a position to make the jump into the next strategy.
Fix & Flip
As a fix & flip investor, you need to understand everything wholesalers do about finding good deals. But, you also need to understand how to rehab and sell these properties. Broadly speaking, the fix & flip strategy works like this:
- Step 1, Find a distressed property: Investors need to find properties that need rehab work to qualify for traditional financing. And, these properties need to make financial sense. The purchase price and all rehab-related costs need to be less than the projected final sale price to make a profit.
- Step 2, Rehab the property: After purchasing a distressed property, house flippers need to renovate it to a standard that A) qualifies for a traditional mortgage, and B) appeals to potential buyers in that particular market. This requires an in-depth understanding of renovations, working with contractors, and creating accurate rehab budgets.
- Step 3, Sell the property: Finally, house flippers need to sell the property. Typically, these investors sell to primary homebuyers. That is, they sell to people looking to buy their home – not an investment property. This requires an understanding of sales and pricing strategies, and a solid analysis of the local market.
The above provides a simplified overview of the house flipping system. However, it should be clear – this strategy takes far more knowledge and experience than bird dogging or wholesaling. But, it also provides investors far greater returns. And, during the house flipping process, you’ll inevitably make mistakes. As you work through a few deals, you’ll quickly gain a tremendous amount of experience.
BRRR
After gaining experience in the fix & flip world, many investors make the jump into the BRRR strategy. This requires all of the experience and knowledge of flippers, but now you also need to understand property management and permanent financing. Here are the steps that make up the BRRR strategy:
- Buy: Investors buy distressed properties – ideally at a deep discount – in need of major repairs. As such, BRRR investors largely look for the same properties as fix & flip investors.
- Rehab: Investors then rehab the property. However, they don’t rehab it to sell it. Rather, they do their renovations with an aim to appeal to renters. Rehabbing a rental property usually means picking far more durable materials than if rehabbing for sale. You’ll need materials that can handle the wear and tear of multiple tenants. And, you don’t want to have to complete repairs every year. This rehab leads directly into the next step of the strategy.
- Rent: Once you’ve completed the renovation, you need to market the property for rent and secure quality tenants. You can certainly hire a property manager to do this. This saves you a ton of headaches, but it also costs money. And, from an experience perspective, I recommend investors manage at least one of their own properties. This provides you a solid understanding of the leasing and property management process, and you’ll be better positioned to hire and supervise property management companies down the line.
- Refinance: Once you’ve rehabbed the property and signed a tenant lease, you can refinance the property. Typically, BRRR investors (and flippers) use hard money loans to finance a property purchase and rehab. However, these loans have high interest rates, as they’re designed for short-term investment use. Once a property meets traditional mortgage quality standards and is rented out, you’ll want to refinance into a traditional mortgage. This new loan will pay off the outstanding hard money loan.
As these steps illustrate, BRRR investing requires all the experience and knowledge of flipping homes, with two additional wrinkles. These investors need to understand property management, and they need to have a better grasp of real estate financing. The success of the strategy hinges on refinancing, so that’s crucial knowledge.
However, while requiring more experience, this strategy also provides more profit. With a house flip, you have one-and-done profit. That is, once you sell a property, that’s how much you make – for better or worse. BRRR investing creates long-term wealth. In addition to profiting up-front by pocketing a portion of your refinance proceeds, you continue to make money in three ways.
First, you pocket any rent payments in excess of operating expenses and debt service. Second, you gradually build equity in the property as your tenants’ payments pay down the amortizing mortgage. And, third, houses appreciate over time. While they may fluctuate in the short-term, over time (especially a 30-year mortgage horizon), home appreciation historically has outpaced inflation.
Become a Lender
The final step in the real estate investing progression requires expertise in all of the previous strategies. Once investors understand these systems, they often decide to become hard money or private lenders. Of note, both of these lenders function similarly, but hard money lenders act as formal businesses, whereas private lenders act as individuals.
At face value, lenders appear to do far less work. And, in some ways, they do. Lend money, sit back, and profit. But, to do that successfully, you need to have an in-depth understanding of how to analyze deals. Lenders only make money on successful deals. If you lend to anyone for any deal, you’ll fail. As such, before issuing loans, these lenders need to fully analyze a deal – the same way they would as a fix & flip or BRRR investor. However, now the loan interest is their income, not expense.
But, lenders need to know more than just analyzing deals. They also need to understand the legal, administrative, and financial requirements of originating and administering loans. And, unfortunately, part of this means understanding the foreclosure process, as well. Proper up-front due diligence mitigates the likelihood of a borrower foreclosure. But, sometimes a series of unfortunate incidents leads to borrower default. As a lender in this situation, you need to be prepared to execute foreclosure procedures to recoup as much loan principal as possible.
What You Want in a Real Estate Investing Mentor
As outlined, when trying to find a real estate investing mentor, you must first A) define why you want to work with a mentor, and B) decide how you’d like to progress through the above investor lifecycle. Next, you should consider what you actually want in a mentor. That is, what personal traits should a quality investing mentor exhibit? While not a comprehensive list – and in no particular order – mentors should, at a minimum, embody the following characteristics:
Share Your Core Values and Vision
Your mentor’s core values and general investing vision should closely parallel your own. Due to the significant influence a mentor can play in shaping your future, you’ll want to make sure these traits align with your own. If not, you’ll struggle to connect in a meaningful way, meaning that both you and your mentor will not derive as much as possible from the relationship.
Demonstrated Competence and Experience
A real estate investing mentor also needs to actually have the skills and experience necessary to provide solid mentoring. For example, if you’re interested in wholesaling, it wouldn’t make much sense to seek out a mentor who’s never done a wholesale deal. So, as you look at the above real estate investing progression, you’ll want to make sure any potential mentor has “walked the walk” with the strategies you’re pursuing.
Willingness to Impart Wisdom
I’ll talk more about it below, but a mentor shouldn’t spoon feed you knowledge. That’s just not how a healthy mentor-mentee relationship works. But, your mentor does need to be willing to impart his or her hard-earned knowledge. Realistically, not all people make good mentors, preferring instead to focus solely on their own goals. Make sure you find a mentor willing to actually mentor.
Ability to Hold You Accountable
Real estate investing is hard, and it requires a ton of work to do successfully. As a result, you’ll want a mentor who will hold you accountable. That is, you’ll want someone who, when you set a goal, supports you in the pursuit of that goal. And, in a related vein, when you stray from your stated goals, you’ll want someone who will call you out, forcing you to refocus your efforts.
Ethical Behavior
It should go without saying, but I’ll emphasize it anyway: only seek out mentors guided by strong moral compasses. If someone lies, cheats, steals, or otherwise demonstrates unethical behavior as a real estate investor, find someone else. So much of investing – and life, in general – depends on your reputation. Engaging in unethical behavior as an investor – or working with someone who does – is a surefire way to undercut your reputation and credibility.
What Real Estate Mentoring Does Not Entail
I touched on it briefly in the above section, but I want to emphasize what a real estate mentor is not. First, a mentor-mentee relationship is not a one-way street. That is, don’t expect to find a mentor to just give, give, give and expect nothing in return. Healthy relationships are based upon mutual efforts and contributions, and you should strive to provide some value to your mentor.
Second, don’t expect a mentor to simply spoon feed you a lifetime’s worth of knowledge. This isn’t practical, as some things can only be learned through experience. Related, a wise mentor understands the value of exploratory learning. In other words, a good mentor will provide “rudder steers” when necessary while still letting you learn-by-doing.
Lastly, don’t expect the relationship to develop overnight. A mentor-mentee relationship is a back-and-forth one, and it’ll develop strength over time. You can’t rush a deep connection.
Finding a Real Estate Investing Mentor
Now that I’ve outlined the major considerations behind real estate investing mentors, I’ll get back to the question at hand: what’s the best way to actually find a mentor? Here are some of my favorite techniques:
Real Estate Investing Groups
When it comes to finding deals, I usually caution investors about real estate investing groups. Unfortunately, a lot of scams and questionable deals pop up at these events. But, connecting with your local group can be a great way to tap into a network of experienced investors. And, in doing so, you may find a willing mentor.
Bird Dog for an Experienced Investor
As discussed, real estate mentoring should be viewed as a two-way street. This means that working for an experienced investor can be a great way to find a willing mentor. In particular, bird dogging for an experienced investor lets you A) learn what a great deal looks like, and B) work closely with an experienced investor who, potentially, will pull you under his or her wing.
Get an Entry-level Job in the Real Estate Industry
I look at this technique as getting paid to learn. That is, what better way to learn about real estate investing than getting a job in the real estate industry? For instance, if you take a property management job, you will get paid to learn about property management, a key part of many investing strategies. At the same time, you’ll work closely with a bunch of other real estate professionals, one of whom may be more than willing to mentor you – especially if you demonstrate outstanding work ethic and competence on the job.
Invest as a Limited Partner in a Real Estate Syndication
This one requires some capital, which not all new real estate investors have. But, if you have some money set aside, investing as a limited partner in a real estate syndication can be a great way to tie in with some experienced investors. This investing model has a single general partner – known as the deal sponsor – who plans, executes, and manages the deal. Additionally, syndications have a series of limited partners who provide money in return for a share of the profits. Some deal sponsors will be more than happy to mentor limited partners.
Do Hard Money Mentorship Support
At The Investor's Edge, we do more than simply issue loans. We understand that most new investors need some help and guidance during their first deal. We provide this mentorship support. Our team will link you up with project managers and advisors to assist you through the entire residential investing process. For us, we see this as a win-win:
- Win 1: We help new investors by giving them access to hard money loans for which they likely wouldn’t otherwise qualify.
- Win 2: By helping new investors, we help ourselves. We want you to succeed, as this lowers our risk as lenders. And, helping you along the way sets you up for success in that first deal.
With this philosophy in mind, we’ll guide and mentor new investors through the major steps of their first deals. When you succeed, we succeed!
Final Thoughts
On your real estate investing journey, you cannot replace real-world experience. But, with a good mentor, you can avoid making unnecessary and costly mistakes. As such, I highly recommend seeking out and connecting with an investing mentor, someone who shares your overall real estate vision and will guide you on your journey.
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