I am often amazed at how lazy new investors can be with their money. Often a novice real estate investor is someone in his or her thirties or forties, tired of his or her job, and making a steady median income. Since he or she has a stable job, this person is able to obtain easy credit and financing from banks. Often these investors will have access to a home equity line of credit, a wide arsenal of credit cards, and will have an RRSP account with $30,000 to $40,000 (if they’re responsible), and have $10,000 to $20,000 cash savings ready to do a deal. These investors are tired of the rat race and are ready to take the plunge into real estate with their own money.
The sad thing is that this type of new investor has been working since they were eighteen to reach this cash position and they are now in their mid thirties and ready to start investing. This investor has done things the slow way, and it has cost them decades of their life to reach this position. Time is the only real currency in life, and to do things faster, we must be educated. Education is where all wealth comes from because all wealth originates in the mind.
No matter how prepared we are or how much money we start with, the truth of the matter is, in business or real estate, we will always run out of money. No matter how much cash and credit we have, it always gets ‘tied up’ in a deal, and we eventually run out. This happens to every investor, whether you are Donald Trump or Warren Buffett. There is always a point where the investor must go out and raise capital to keep investing.
I began investing at age twenty-two, and the greatest advantage I acquired by starting so young is that I had virtually no cash, no credit, and no credibility when I started. I had to learn to raise cash, manage my small amount of credit, and leverage credibility. I had to learn the skills required to play the game of Money People Deal with no cash from day one because I started the game with nothing. I was a punk kid who had taken $2000two thousand dollars worth of real estate seminars and had to make the dream happen.
My investing career didn’t begin to take off until I learned the rules for creating deals and raising money. This skill set has allowed me to raise money for all of my deals (except my first one where I put down a small down payment of $1200 cash). Because I understand the fundamentals of Money People Deal, I have never put down money on an acquisition of business or real estate since.
Most investors think that cash is king, and they are terrified of raising money for a deal. The truth is that cash is trash; everyone has it, and it’s a cheap commodity that is worthless without brains to manage it. Money is fickle and is easily attracted if we understand a few key principals of money.
The 3 Major Parts of Putting a Deal Together
There are three major parts to putting a deal together and raising all the cash we will ever need. They are the following:
- The Money = The cash required to start the business or acquire the real estate.
- The People = The team that will operate the business or asset.
- The Deal = The business or asset itself.
Most novice investors do not understand the three fundamental parts of a real estate deal and waste time trying to raise money the wrong way. By doing so, they burn their credibility and look like fools to their network of potential investors.
What Are the Three Things Required to Start a Business in Any Industry?
Whenever I ask this question to a group of people, the first answer is usually “Money!” and this answer is 100% correct. Money is always required to start a business, whether it is $10 to start a lemonade stand or $10,000,000 dollars to build an apartment complex; money is always required in some shape or form to start the business. When I say that I started my business with no money, what this means is that I started my business with someone else’s money. The money used to acquire real estate was raised from an investor and has grown by leaps and bounds with other people’s money. Money alone is useless and earns very low returns without the other parts of the business. Money is abundant; everyone has it, and money is always looking for a safe place to earn a handsome return.
The second ingredient required to start any business is “people.” People are the team that will run and operate the business, and they often represent the management and the technical knowledge of the business.
The third ingredient required to start a business is a “deal.” Deals can be real estate properties, traditional businesses, patented gadgets, Internet businesses, etc. For the purpose of this book, we will focus on real estate as the deal, but keep in mind that a deal can be any business that makes money. In many ways, a good deal is the most valuable part of the business, especially if it’s proprietary or hard to find. A good deal can be like a magnet quickly attracting the people and the money to get the deal done. In contrast, a bad deal can be impossible to fund.
Money People Deal is the game of entrepreneurship, and it has the highest rewards out of any game for those who know how to play. An entrepreneur who can assemble Money, People, and Deals will enjoy the highest returns possible while making his investors rich.
MONEY PEOPLE DEAL—Rules of the Game
1. The rules are simple: he or she who can obtain two of the three pieces required to assemble a business will get the third. For example, if you have a Deal and People, the Money will come every time. I have never had a deal fall apart because of lack of funding.
2. If you only have control of one of the three pieces, you have nothing. In the game, you are worth nothing if you can’t make a transaction happen. a) If you only have money, you are a bank, a funding source, an angel investor, or a lender b) If you only have people, you are a contractor c) If you only have a deal, you are a bird dog or a wholesaler d) If you can put all three together, you are an entrepreneur and will reap the highest rewards.
3. The most valuable piece in the game is the Deal. The better the deal, the easier it is to find the money. If you are incompetent or don’t want to do the Deal, you can always sell to another investor for a fee. Selling deals as a wholesaler or a bird dog can be very lucrative, and I recommend it every day of the week. The money you can make selling deals is fantastic when measured against your effort.
4. The least valuable piece in the game is the Money. This is because everyone has access to it. Money earns virtually nothing on its own and gets robbed by inflation. Since money is constantly depreciating, it must move to be valuable. Money can come from literally any source for almost any price. Cash investors will lineup for a good deal and will compete for a great deal if they know it’s a winner.
5. The people are interchangeable and so is the entrepreneur running the business. Entrepreneurs are part of the people team and must build a good team and management style to run the business effectively. Entrepreneurs who develop a brand over time can become nearly impossible to replace.
6. The deal drives the whole game and is the king of the three pieces. The deal is the piece you should seek first (in my opinion). You can always sell it to another investor if you can’t pull it off. I love buying deals from investors who want to pass or cannot close.
Too many novice investors try to raise money without a team or a proper deal. In my opinion, this is absolutely the wrong approach.
The easiest way to play the game of Money, People, Deal is to:
1) Find a deal first, get it under contract with an escape clause, and allow yourself a due diligence period, or another condition to delay your contract.
2) While the deal is tied up, begin assembling the team required to execute the deal.
3) Once you have the deal under control and the people under control, begin shopping investors for money. Always have a professional business plan/loan proposal prepared.
Show your investors:
1. The best-case scenario—In this scenario, the deal performs better than anticipated; everyone wins, and everyone is happy.
2. The realistic case scenario—In this scenario, the deal performs as expected, slightly better or slightly worse. This is generally what investors expect.
3. The worst-case scenario—The deal performs worse than expected. In this scenario, there generally are no profits and the investors are lucky to recover their cash.
4. The nightmare scenario—The deal becomes illiquid; it cannot be sold for nearly the value that you have invested. The investors will have to wait to get their money out or sell at a loss. This is worse than worst case.
It’s very important to show your investors these scenarios and make sure that they are OK with losing all of their money or recovering from a nightmare scenario.
The Split
Once you have two different investors interested in funding you, you have enough interest to negotiate and get one investor to commit. I like to split all of my deals fifty-fifty with my money partners because I don’t like to haggle and “bite the hand that feeds.” I prefer to overpay and reward my partners for investing in me. When I call my investors in the future, they will be delighted to do more deals with me and have a check ready for me within twenty-four hours. I have proven that I can make profit for my repeat deal partners, and they are happy to get a call from me because they know they are going to make money.
Why Does “The Money” love Money People Deal?
Although “The Money” only accounts for one third of the resources, they get to take half of the deal. Where in life can you bring one third of the resources and walk away with half? The answer is marriage. Many marriages come together with unequal resources, yet if there is a split of resources through a divorce, each party gets half. I like to overpay my money partners and give them half of the deal to create loyalty and excitement.
After your first raise, begin building a track record; document every deal into a track record…then rinse and repeat!
You can repeat the Money, People, Deal process an unlimited number of times, and you will never run out of capital. By using this process, you will be tapping into the infinite amount of cash that is looking for profitable deals every day. Eventually, you will have more money waiting in your pipeline than deals, and then you will want to find people to bring you deals to keep your machine running. This is a great position to be in, and one that I frequently enjoy. This means that it is time to expand into a greater volume of deals or into larger opportunities.
Action Step: Think about the last time you attempted to raise money and ask yourself: Which of the three pieces did you have before raising capital? Were you prepared with an adequate business plan? Were you successful or unsuccessful? What could have gone wrong, and what could have gone smoother?
Raising money is the ultimate skill of the entrepreneur and one that everyone should learn to perfect. I learned this skill early in life, and it has fueled my success so far. As long as I continue to create profit for my investors, capital will always be available for me. “Give a man a fish and he’s fed for a day, teach a man to fish and he’s fed for life.”
What you’ve just read it merely a small sample of what’s inside “The Five Million Dollar Book”. If you’re serious about flipping houses for fun and profit then you should…
GET THE ENTIRE BOOK WHILE IT’S ON SALE!
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Here’s just a taste of what’s inside:
A simple test you can take to see how good you are at the 7 essential skills of raising money for deals (pages 31-34).
How to build a brand so you can create prestige, influence, and leave a legacy (pages 68-74).
It’s shocking but true, GOALS are actually holding you back and are as useless as hopes and dreams (I’ll teach you what Steve Jobs, Gandhi, and Henry Ford did instead on page 91).
Flip right to page 120 if you still feel like you have some un-resolved issues with Mom & Dad (it’s nothing to be ashamed of). I’ll introduce you to 3 people who overcame it to go on and be very successful — one of them is even famous for his “poor dad”, bet you can’t guess the other two.
“The 4 Ways To Cross The Deadly Mine-Field Through Real Estate” (only #4 works every single time — so make sure to bookmark page 130)
You Are The Next Endangered Species: In the near future, everyone with a career will also need a side business and a portfolio of investment real estate to maintain a healthy standard of living (it gets better after page 3).
There’s a TON more inside the book to help you get started in real estate quickly if you are new (or expand your current knowledge with proven tactics).
The “15% Rule” That Will Keep You From De-Evolving Into A Flipping Loser (nearly every new investor gets this wrong but I’ll show you how to get it right on page 215).
How to structure deals so well that even a “nightmare scenario” won’t scare off investors (if you know how to present it to them, which I will show you on page 22).
Memorize page 217 because it will help you avoid “The Most Common House-Flipping Mistakes” (#8 will keep your property on the market forever and #12 will make sure you never profit even if you do sell it).
Hard-learned lessons even the keenest eyes have missed from legends like Bill Gates, Attila The Hun, Henry Ford, 50 Cent, Sun Tzu, Gene Simmons, and more (I reveal the first one on page 9).
Skip right to pages 44-46 for my “10 Best Ways To Become A Real Estate Insider” (plus my 3 best deal sources).
How I built my “Sandman Empire” that funds my lifestyle 100% passively (page 63).
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