The Power of Networking In the grand world of real estate investing we spend a lot of time talking about various investing strategies. We talk about analyzing the numbers, we talk about negotiating, we talk about repair estimating, we talk about market niches, and we talk a lot. The one thing that we don’t talk about much is the value of networking with other like-minded individuals.
On the surface networking might sound like a social event. It might seem as if we are just looking for new friends to spend our free time with. Granted, there are many real friendships that come out of networking but making friends is not the goal of networking.
The goal of networking is to build a network. There is nothing more powerful than a network for anyone in our business. Let me explain the power of a network in real world terms.
Let’s imagine that I am a brand new real estate investor who just attended a REIA meeting and made a few contacts. Now I want to start buying and selling houses but I have no idea how to get started. So the first thing that I do is that I email the nice young investor who talked to me about internet marketing to pick his brain about getting started. At zero cost and maybe 15 minutes of my time, he teaches me his Facebook marketing strategy for driving leads into his inbox. So now I am in business.
A few days go by and the marketing strategy actually starts to work. I have a seller contacting me about an outdated house that didn’t sell on the MLS because it needs work. Now what am I going to do?
Well I also made a connection with an experienced wholesaler and a rehabber at that last Pittsburgh REIA meeting. I am going to email both of them to see what they think.
The wholesaler thinks that I should take the property under contract and sell it to another investor at a slightly higher price. He offers to help me if I agree to split the profit with him. I am excited. I have zero dollars in this deal and about two hours-worth of effort and now we are talking about thousands of dollars potentially coming into my pocket.
The wholesaler is talking about using an option contract to tie up the property and then we can flip the contract to make our money. I don’t really understand the process but because I have a network, I don’t really need to know about this, I just need to partner with the guy who does understand these things. Even though this property is in a working class neighborhood and the house is ugly, I stand to make $3000 on this deal. That’s a lot more than my job pays per week. Now the flipper has a different take on this deal. As he sees it, we can form a partnership but with a different exit strategy.
The flipper sees this house as a good flip opportunity. The flipper sees this as a $50,000 profit. He knows that I have no idea how to collect on that $50,000 payday, so he also offers a joint venture partnership. In this JV, I will finance the property, and he will co-ordinate with the workers to get the house repaired. His numbers make sense to me, but he wants 50% of the profit on the back end. Now I can look at this deal one of two ways. For $25,000 I will get a full coaching program on flipping houses, or I can look at it like WOW I get $25,000 in a few months. I have investigated this flipper and he is well known, legit, and well respected. I could learn a lot from this guy, and I get $25,000 to learn. No other school ever offered me money to learn.
So now, with my tiny three person network, I have some pretty serious opportunities in front of me. I can choose the safe wholesale deal or I can take some risk for the bigger flip payoff.
The real power of networking is that as you expand your personal network you also expand your knowledge base. No single investor will ever live long enough to learn everything about real estate. So the goal of networking is to short cut your learning curve by leveraging the brains of others. In the real estate investing world, it is knowledge that makes you money.