July 5, 2016
Joe Fairless

Two Reasons Why You Shouldn’t Be Afraid to Give Up A Chunk of a Deal

In my conversation with Rod Khleif, who is an accomplished real estate investor that currently focuses on purchasing multifamily buildings, he gave his best real estate investing advice that he would recommend to any newer real estate investor. In order to help newbies get their foot into the “investing” door, Rod says, “Don’t be afraid to give up a part of a deal in order to get it done.”

Rod believes that if you are a newbie investor, when you are doing your first few deals, don’t be afraid to give up a chunk, or even a large chunk, of the equity, cash flow, profits, etc. in order to complete the deal.

Don’t be afraid to give up a part of the deal because it may be the only way to get the deal done: If you are just starting out, you may not have the capital, experience, credit score, etc. required in order to obtain a loan and close on the property. While one option is to come up with a creative financing method, like seller financing or a master lease with an option to purchase, another option is to give up a chunk of the deal in exchange for another investor’s capital, experience, credit score, etc. If it comes down to having 50% of something or 100% of nothing, the best path forward seems pretty obvious.

Giving up chunks of the deal will ultimately result in helping you get more deals in under your belt: If you have $25,000 in capital, you can use 100% of it as a down payment for a single $100,000 SFR. Or, you can go in 50/50 on two $100,000 SFRs, using $12,500 of your cash and $12,500 of another investor’s cash as down payments for each property. With the same initial capital and more than likely, the same resulting cash flow, you are able to get two deals done instead of just one. This allows you to build credibility and a positive reputation with banks and other investors at a much quick pace than going at it alone.

All in all, Rod believes that it is best not to be greedy and want 100% of the deal for yourself, especially if this results in you not getting the deal at all. Also, don’t be afraid to share a deal if it results in you being able to get more deals in under your belt. The added experience and relationships created will ultimately work out in your favor in the long haul AND you are still making money in the meantime.

Is there a time where you lost out on a deal that could have been salvaged if you had given up a part of the equity, cash flow, or profit?

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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