Today’s REI Classroom Lesson

Michael Blank discusses how many would-be investors are afraid of success, meaning that they’re scared of what will happen after you get a property under contract.

REI Classroom Summary

By considering the worst-case scenarios, many times you’ll realize that the worst case isn’t really that bad. Michael shares what options you have once you get a deal under contract.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Michael: Hey there, and welcome to the REI Classroom. My name is Michael Blank and I’ll be your trainer today. In this episode, I’m going to teach you what to do and if you want to get started with an apartment building investing, but you’re afraid.

Mike: This show is sponsored by passiverental.com.

Michael: Now when I drill down on the fear, so I’m going to sit you down and interview you like I would maybe one of my coaching students. Sometimes what happens is that it turns out people are actually afraid of succeeding. Now this doesn’t make a lot of sense, but hear me out on this here. So here’s what I mean. The conversation goes, “Well, I’m not taking action.” Why are you not taking action? “Well, it turns out, well, what if I get a deal on a contract and I don’t have the money raised yet? I don’t have the money raised yet. I don’t even know what to do.”

So they play this out in their head that they get to the point where someone actually accepts their offer. Now they’re like, “Now what do I do? I’m going to now fail because I’ve, initially, succeeded.” This is a mistake for at least two reasons. Normally, the fears are related to getting something under contract. Now what? That’s really what it comes down to, but this is a reason, a mistake, for two reasons.

Number one is that they underestimate the value of finding a good deal. They’re thinking, “Oh, my gosh. I’ve got this under contract. I don’t have the money raised. What do I do?” What they’re skipping or missing is the fact that they have a deal under contract has inherent value. Even if you can’t close on it yourself, it’s so difficult to find good deals that the fact that you have something under contract or maybe you have a letter of intent signed is extremely valuable to someone who is actually qualified to buy. There’s a lot of qualified people out there. They’re looking for a multi-family. Their biggest struggle right now is not money. It’s finding the deals.

Because of that, if you were to bring them a deal that’s analyzed well and it’s pre-negotiated, meaning you have maybe at least verbal agreement or you have some kind of in, maybe it’s an off-market deal, if you have that, someone is going to pay you to take that contract off, from you. I’ve seen payments range from a percent of the deal being paid 3% like a broker, splitting an acquisition fee, giving you a slice of the general partnership.

So there’s different ways of simply paying a referral fee, a flat fee. There are ways of make tens of thousands of dollars on referring a multi-family deal which is really cool. So never underestimate the value of a pre-negotiated deal. That’s mistake number one. So even if you get to that point, it still has a lot of value.

Number two, and this is a universal rule, that you should always walk through open doors until they close. You should never be concerned or worried about an open door. Never. So in my 11 years of being a full-time entrepreneur, this is one of the lessons I have learned is that the universe, if the universe opens up doors, let’s say you put something out there. I want to change my life with multi-family and I want to be retired or whatever in three to five years. You put that out there.

The universe responds by opening a door, maybe putting people in your path that you’re kind of just scratching your head and going, “What a coincidence this is.” Then you pull back from that. It’s kind of like a sin. I mean, who are you to shut the door on the universe? I mean, honestly, really. The door opens. You walk through it. So that’s the second reason here.

Now here’s the solution for this. I have two solutions to this problem. Number one is what I call the worst case scenario. I’ll get to solution number two in a second, but a worst case scenario goes like this. You basically think about what can happen. What’s the worst that can happen? Normally what I find is when I articulate this or write it down and I look at my . . . because I’m a worrier at heart. I go through that 101 possible things that go wrong, which cause this to go wrong and that to go wrong.

If you write these things down and you look at it, you’re like, “This is ridiculous. The probability of that happening is like zero. Why am I even worried about this?” But here’s the worst-case scenario because I’m going to paint you a picture that really isn’t bad. Number one is this. I think what you’re really concerned about is you get something under contract and you look like an idiot. You probably lose a bunch of money in the process.

Here’s what happens. So let’s say you get a really good deal, but you need to raise money. You don’t have the money raised yet. Maybe you have some prospects or something, but you don’t have the money raised yet. So let me show you what the timeline is. Number one, is it takes time to negotiate a letter of intent, but let’s say you get a letter of intent signed. You’re freaking out like, “Oh my gosh. Now what do I do?” Now you have sometimes 7 to 10 days to actually do a purchase contract. So in this time of the purchasing contract, you’re like this, and worst case, you just don’t put the purchase contract down. Good grief. What’s the big deal?

But, likely, let’s say you keep moving forward and you actually get it to sing. You get the purchase contract. And now you’re like, “Oh my gosh, I’m still freaking out. I’m freaking out. What happens now?” Now, remember you have a due diligence period, normally 21 to 30 days. In that due diligence period, the wording is such that you can get out of that for any reason whatsoever. So there’s no obligation. You get your deposit back. Everything is good. You say, “Look. I don’t want to do this anymore,” or “I’m not in a position to,” or whatever. You just send them a contract termination and you’re done. You’re done. That’s kind of like the worst-case scenario. That’s like the worst-case scenario is you simply get out of it before the end of due diligence.

Now, my advice to you is to let the broker know why you’re getting out and a reason that allows you to save your reputation because what you don’t want to do is develop a reputation of someone who doesn’t perform. But there’s, normally, something that you can come up with, even if it’s like you’re 14 days into it and you say, “Look. I don’t think I’m going to be able to raise the funds. I don’t want to waste your seller’s time any more to kind of pull this thing off. So I’m just going to terminate the contract. I’m going to get my ducks in a row and I’ll be back.” Everybody kind of goes, “I appreciate that. I respect that.” That’s really what you want to do.

So really, the worst-case scenario is really not that bad. In this time, while you’re raising money, let’s say it’s not looking good. In that time, you can find another buyer. You can go network. Go to bigger pockets. Network with me and find someone who’s looking for deals in that area that size. While you’re doing this, while you’re trying to raise money and it’s not really working, you find a buyer. The buyer now takes over. To me, that’s like the worst case.

Plan A is you do it yourself. Plan B is you find someone to take the deal off or partner with. C is that you terminate the contract. So in other words, you are not going to look like an idiot. You are not going to lose a bunch of money. Now, chances are it will probably be plan A or plan B, but plan C isn’t so bad either. So don’t worry about it too much.

The other lesson is the following. Do the worse-case scenario. Number two, continue taking action. I have found that if I can get someone simply to take action, they’re afraid of succeeding in this case or even failing. I say, “Okay. Don’t worry about that right now. Why don’t you do this next action? Why don’t you analyze five deals for me. Can you do that?” “Okay. Yes. I can do that. I can do that.” Just take small action.

You don’t have to project what’s out, two, three months out in the future. Why do that? Just take action. Just continue taking action. That in general, is the best solution to addressing any kind of fear is to take action. It doesn’t have to be massive action. Massive action usually implies that you have a high degree of confidence. Let’s say you don’t have that. Then take small action.

So anyway, I hope that helps address some of those early fears. Just do the worst-case scenario exercise. Continue taking small action to overcome those fears and become successful with multi-family investing or with real estate in general. Speaking of a great way to get started is to download my free book, which is called “The Secret to Raising Money to Buy Your First Apartment Building.” It’s all about raising money, and essentially, the first step in your learning process. The way you do that is you can go to the michaelblank.com. You can also grab it via text message. You text the word secret book to 44222 and you get it via text message, also. If you have questions, the best place to ask me is via Ask Mike, which is themichaelblank.com/ask. You can grab the free eBook while you’re there. Anyway, I appreciate you taking the time out of your busy day to learn with me today. You take care. I will see you next time.

Mike: Passiverental.com is your source for turnkey, done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit passiverental.com to learn how to purchase cashing flowing, professionally managed rental properties in the hottest rental markets across the country. We can, also help connect you with financing for your next property. Invest the easy way today and get started by visiting passiverental.com.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus is buying apartment buildings by raising money from private individuals. He is the creator of the Syndicated Deal Analyzer and the free ebook "The Secret to Raising Money to Buy Your First Apartment Building"