Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question from Greg in NC: Hello Brian, I have a tremendous opportunity to work with one of the best residential real estate investors in our town. He’s a friend of the family and he offered to give me some tips when he heard that I’m looking to make my first investment. The sorry news is this all came about when my uncle passed away and left me almost $60,000. I guess my friend is a mentor. I won’t exactly be working with him on a regular basis. More like, he said to call him if I have questions and he said that he’d like to see the details when I find a deal that I’m serious about. So, I’m hoping you will help me with ideas for questions to ask and how I can maximize this opportunity without being a pain in his side.
Answer: Hello, Greg. You do have a great opportunity and I hope you take full advantage of it. I suggest you start by gaining an understanding of his experience level. Ask how long he has been investing in real estate. Find out how many properties he currently controls. Also, ask how many he has owned or controlled over his career. I don’t know if he will share the financial numbers with you but the number of properties he has been involved with gives you an idea of how successful he has been. People that don’t find success early get out of the game quickly. Next, drill down to more current information. Ask how many properties he bought or sold last year and what his plans are for the next 12 months. Ideally, he understands not only the past markets but also what is going on today.
Greg, you have $60,000 to get started but almost every investor uses leverage (borrowing) to maximize growth and earnings. A line of questioning that you want to ask early is his preferred source of financing (banks, private lenders, seller financing, money partners, etc.). Ask for his thoughts about the pros and cons of each approach and how he decides based on different investment strategies.
Speaking of strategies, find out which one(s) he is using. As a starting point, get his thoughts about buying and selling, also known as flipping; wholesaling; and buying and holding, also known as owning rental properties. Find out if what he is doing now is the only one he uses or if he has used other strategies during his career. Has he changed strategies because the market has changed and why? Is what he is doing now the best fit for the local market? What else does he think might work?
Don’t only focus on what he is currently doing. Ask what he did when he was getting started. Ask about his early mistakes and how he recovered? Your first year as a real estate investor will probably be your most difficult. You can save yourself a lot of confusion and heartache by finding out what costly mistakes your friend (mentor) made starting out and how to avoid those mistakes.
Technology should be on your list of questions. Real estate investing has a lot of different technologies available. As your business grows, you will want to automate as many tasks as practical. Today’s technologies range from property analysis/management software, to smart lockboxes, to drones, and much more. The right technology will save you time and ultimately improve your investing experience.
Don’t leave out learning everything you can about how he tours the properties he is considering. Ask about everything from how he screens potential properties before making a house call to the house call itself. Ask if you can tag along when he looks at a couple of properties for the first time. This will give you a firsthand look at how he decides whether a property is worth investing in. It’s also a chance to ask more questions while you spend time with him. Whatever property you are looking at, ask what strategy he is considering and why. Ask what he is targeting for a rate of return on that particular property. Ask if he has a plan “B” if his initial plan doesn’t work out. Ask what specific problems he is looking for with the property and how to recognize these. Ask him how he finds properties to consider. Does he use an agent? Does he advertise for them? Does he drive around looking for himself? Spending time with him in the field is a great way to increase the number of detailed questions you can ask.
Take advantage of his insights but don’t push it to the point of becoming a pain. Greg, you do want him to look over the details when you are serious about writing a check for your first investment. And stay in touch with him. A mentor can help you consistently choose lucrative investments in the future.
What questions do you suggest asking mentors? Please add your comments.
Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].