Strategy #1 - Invest Your Money In Another Investor's Deal

We have all heard it said, "it takes money to make money".

Well, that is not exactly true. The truth is it takes ideas and an ability to execute those ideas to make money! Every great fortune that exists today was first an idea. Oprah had an idea before she had a G-V, Steve Jobs had an idea long before he had the cash to own Walt Disney. Yes, even Donald Trump had to meet with someone who would ultimately become a 30-year mentor and advisor to make his first deal happen. A deal that netted him $85 million with little to none of his money invested.

Someone has an idea, who then told someone, who told someone else, and together this team of people were able to pull together the resources to turn that idea a reality: Harpo Prductions, Apple computer, Trump Tower serve as but a few examples.

Along the way, however, someone showed up with some money, cause money is the life-blood of any enterprise.
Which, of course, brings us to Fundamental Real Estate Wealth Creation Strategy #1:

Invest the money you have, into someone else's idea, or team. They get the capital they need, you get a return on your money that is better (and often safer) than what you can get in the stock market, or G-D forbid, your bank.

You don't have to be a Rockefeller to tap into the real estate ideas of others and have both parties - get rich.
There are a variety of ways to invest in other's deals. You can set yourself up as a "hard money" lender, and be in the business of making short term loans, or you can be a private investor and simply go into a specific deal, or series of deal with one "active" deal-making investor you have a relationship with, or you can become an equity investor in one or more deals, where someone else is taking the lead in making the deal happen.

Regardless of what posture you take, you have to adhere to three basic rules, or you will get hurt.

1 - You need to know what the other person is doing with our money. I don't necessarily mean "day-to-day", as much as I mean, you need to have a basic idea as to how you are going to get your money back with interest. If the "story" is too complicated, or "too good to be true", chances are the end result will not be pleasant. Real estate is not "easy", but it should not be "complicated" either. The basic strategy should be straight forward and one that you understand. The reason you choose to invest with someone else is because they have demonstrated to you that they can do what you either can't, or are unwilling to do. Can't because you may not have made the time to build the team, or simply at this stage in life you have chosen to "not work that hard", or you quite honestly may make too much money from your job, but like the idea of being a "real estate player" and want to diversify your income stream and start making your money work as hard as you do.

2 - The person you are investing in needs to demonstrate that they know what they are doing! So in addition to you having a basic idea as to what they are planning to do with your money - they too need to demonstrate that they not only know what they are doing, but can actually pull it off - In short, there has got to be some type of track record. It's o.k. for "newbie" investors to use "friends and family" money for their first deal, you just don't want to be one of them. Better to get a lower return when they come around next time with actual hands-on experience;

3 - The person or team you are investing in must be trust-worthy. Unfortunately, this is where things can break down real quick. There are a lot of people who know technically how to make a deal work, but even their own mothers wont give them a dime, based on prior experiences.

So, with this thimble-full of knowledge, how do you actually make any money?

A) You have to invest in your own knowledge base before giving anyone a nickel. How in the world are you ever going to be in a position to evaluate if a deal is a good one or not, if you don't know what you are looking at. There are a number of ways to learn, but the most effective tends to be to network with others who know what you don't and politely pick their brains.

B) You need to build a team of professionals around you. Sorry, no one said getting rich as going to be easy. Stock Brokerage houses and Financial advisory firms are constantly looking at ways to make it easy for investors to "push a button" to buy and sell stocks. Problem is a "push button" mentality, without basic knowledge is a sure-fire formula for accelerating the speed and increasing the amount of money you are bound to loose. Again, the best way to build a team is to get out there and meet others and ask. At a minimum you are going to need a good real estate attorney/title company and others who can help you evaluate deals. This could be a more experienced investor who acts as a mentor, or an experienced appraiser, or experienced Realtor(r). The type of help you will need is dictated by the types of deals you are looking at, so build a big Rolodex ;)

C) Play the trends. If you honestly think the real estate market in your area is getting soft FAST, then look at foreclosure, pre-forclosure and short sale strategies (more in this in coming days). If you think the market is actually getting better because of strong job growth, then look at "buy/hold" strategies. These could also be "nothing down" techniques or "buy cheap, rehab, put in Section 8 tenants, and hold", or you may actually consider participating as a "VULTURE" investor working with active investors who are going after busted condo and pre-construction deals. Bottom line: know enough about what is happening in your local market to be in the deal flow. There is always deal flow, the only question is, "is the deal flow in favor of buyers or sellers" Right now the deal flow favors buyers.

This is not meant to be an "encyclopedia" on this topic. Just giving enough information to encourage you to get out there and ask questions of those who know. Post on the message boards, go to REIA meetings, make plans to go to a regional or national conference and NETWORK. Invest in your knowledge before you invest in the deal, because the cash-flow you save might be your own.