Smile's Pick: Deal Sources

The quality of your portfolio is a direct reflection of the quality of your pipeline, which is the source of your business's good transactions. To effectively load and clean your opportunity set, systems and processes are essential. However, a steady stream can only be guaranteed if you focus on the correct deal sources.

Sourcing Deals Properly

One may easily enter the real estate transaction industry. The majority of states have simple licensing requirements. A simple apartment lease or a $100 million hotel may both be transacted with this method. Even if many persons meet the legal requirements, only a small fraction of them have the technical proficiency and network in place to organize trades of high quality.

Brokers

To facilitate transactions between buyers and sellers, intermediaries offer a number of services. Brokers receive compensation for their services. A listing broker is an agent who sells real estate on behalf of the owner. When a buyer is interested in purchasing a piece of property, they turn to selling brokers for representation.

Agents that take on the role of listing broker are responsible for all aspects of the sale or other disposition of a client's property. They have the power to sell the property since the seller has signed an exclusive listing agreement with them and has agreed to pay a commission upon its successful sale. Since it establishes a market and makes purchasers compete in a limited amount of time, this transaction structure is optimal for the supplier.

An investor's mandate to a selling broker might be exclusive for a wide range of investing criteria or for a specific transaction. A success fee is paid by the buyer in the event of a successful real estate transaction. The most prevalent type of intermediary is the broker, who uses their extensive knowledge of the market to link parties in an attempt to strike a deal.

All sorts of brokers are welcome to submit their deals to a healthy investment pipeline. Some investors choose not to work with selling brokers since doing so might be a risky way to gain leverage in a transaction. If you want to participate in the greatest off-market deals, you should use these middlemen.

Ownership

Every property owner has their own unique set of investing goals, which means they all approach the market in quite different ways. Accordingly, there are three distinct types of owners: dinosaurs, pros, and players.

Dinosaurs have large portfolios because they have been owners for a long time. They trade little and maintain positions for extended durations. An excellent example of an institutional dinosaur is a publicly listed real estate investment trust (REIT). These individuals or entities hold a disproportionately big percentage of high-end properties. When deciding whether to buy or sell an asset, dinosaurs look at the big picture, factoring in secular trends and where best to reinvest the proceeds of a sale.

While professionals may have some property holdings, it is not their principal source of income. This subset of the private capital market is made up of highly successful individuals in fields like medicine, law, and business. Institutional investors may be large businesses that acquired their real estate holdings through a merger or a management decision that was left in place for the company's legacy.

Experts in their field may lack the requisite expertise and experience to succeed in real estate. They transact opportunistically, and you generally gain by sticking around the rim when they decide to move.

And lastly, players are the individuals and organizations whose livelihood depends on real estate transactions. High turnover is the primary focus of their portfolio, and fix-and-flip is the most typical investment technique in this group. Sellers in the gaming industry are opportunists. As a result, having a solid rapport might be crucial for securing off-market offers or getting ahead of advertised ones.

External Parties

Most deals come from unanticipated parties, such as influential third parties. They may have a bias towards directly sourcing transactions, but they may significantly increase your visibility and reach.

Brand representatives, lawyers, accountants, and contractors are all examples of operational and asset service providers who interact with the same individuals you would like to negotiate with. As an added bonus, they are aware of the whole history of the property and can predict when it could be suitable for a sale.

Teams working on acquisitions are often hesitant to engage these service providers due to a lack of evidence linking them to closed deals. There are a lot of people on the opposite side who take the same tack, but they appear more receptive to the link. The key to successful relationship building is open communication. The following guidelines might prove useful:

• If you don't have the power to engage them or a genuine need for their services, don't give them false hope.
• Be explicit about your intentions to exchange leads
• Prioritize giving and receiving value
• Be a friend - a nice face at professional gatherings may be the most useful thing you offer them

Innovation

Now that you have a clear notion of who you’re looking for, consider how you will discover them.

Remember, individuals form deals, not businesses. The firm is a platform that allows and enhances the rainmaker. The production happens through human-to-human connection. Focus on the folks responsible for connecting the connections to make a transaction happen regardless of whatever group you’re targeting.

A robust database that connects contacts to properties is an excellent beginning to start gathering the appropriate individuals to find transactions that match for you. This might be as basic as an Excel spreadsheet or as complicated as one of the several CRE database options. Whichever you select, the database is only as valuable as the data it contains and your constant use.

Start with property ownership information. Property tax appraiser offices in numerous states display ownership information online. Owners frequently own hotels under single purpose entity limited liability corporations (LLC) to reduce risk and hide their identities. The state’s Secretary of State office keeps ownership information, which is frequently openly available depending on the state.

Many management organizations have an equity position in the hotels they manage. Additionally, they are important outsiders in identifying rare chances. Therefore, hospitality job search websites, like hospitalityonline.com, are unexpected sources of ownership and management information.

Finally, a thorough list of brokers in your target areas is vital for a continual supply of promoted possibilities. The major brokerage businesses will typically have someone that touches hospitality on a regular basis, if not solely. You may even wish to widen your approach to discuss your demands with retail and office brokers that come across hotel bargains sometimes.

Building A Network

We all know power networkers. In other words, they are the ones who know everyone there. More importantly, they have solid connections with those individuals based on trust and mutual respect. The most visible among them are extroverted. However, introverts are sometimes more adept at creating and keeping these relationships.

The Role of a Friend

In the beginning, networking might feel like wading through slime. You assume it’s all about working the room and collecting business cards. Still, you realize that there’s not a lot of benefit in that method when you take a step back and examine the ramifications.

The finest networkers are nice. They establish partnerships on knowing your requirements and how they can assist you most effectively. This boils down to understanding about the needs, desires, hobbies, and professional and personal lives of everyone you engage with. You can’t be a successful networker if you don’t know what motivates the individuals in your network.

Don’t hurry this. It takes time and several interactions to build this sort of friendship.

Think about your best friend. How long have you been friends? Did you hit it off the first time you met? What experiences enhanced your friendship? Apply the same method to networking, and you’re guaranteed to progressively establish concentric circles of solid contacts.

Have a Plan

Humans are social beings, yet our innate tribal impulses break down above 150 relationships. Unfortunately, it needs more than 150 connections to dependably fill a substantial acquisitions pipeline. In reality, most high-performing brokers have between 1,000-1,500 relationships that they frequently touch.

A system that integrates contact notes, reminders, and automated outreach is critical to contacting this many individuals in a consistent fashion.

Brokers make their living on trades therefore their database is inherently greater than yours. You possibly also have asset management and other closing duties. Therefore, make it a goal to establish a database of 500 deal sources - human individuals that will give an investment opportunity.

Consistency is vital to a durable and self-propagating pipeline. You should be in front of these contacts at least once every quarter.

What should you expect from the first four contacts?

Month 0 – “Hi, good to meet you. Thanks for telling me your story.” Forgotten pretty soon when you hang up the phone.

Month 3 – “Oh sure, your name does strike a bell. Remind me of your story.” Forgotten a week after you hang up the phone.

Month 6 – “Thanks for staying in contact. I recall speaking with you.” Not readily forgotten, but no concrete steps for the next interaction.

Month 9 – “I respect your tenacity. I’ll keep you at front of mind for the next deal.” Clear action steps for the following contact — transformed deal source from pull to push.

Early introductions are generally going to be tough. First impressions are essential, but consistency and persistence are far more so. These transaction sources hear from hundreds of acquisitions associates, and you only stand out by being top of mind.

A Valuable Contribution

Elementary schools encourage pupils to fill friends’ buckets drop-by-drop through modest acts of kindness from your own bucket. Over time, you will have a reservoir of good will in each of your friends’ buckets. As a result, yours will be filled with the good will that flows back in return.

This is a wonderful lesson for business. Social capital is a term commonly used in the business world.

One thing that any person may bring to a friendship is their unique perspective. When you give someone something of more worth to them than it is to you, your trade balance improves. For example, a contractor may find huge benefit in knowing that a hotel near you is planning a makeover, but that knowledge doesn’t do as much for you.

Consider how you will give value to everyone in your network. This may be as easy as providing information, and it could be as complicated as putting a real bid on a house. The most critical part is learning how to efficiently fill the other person’s bucket.

Note, this is not a quid pro quo system. You are significantly more likely to earn multiples in return if you adopt a giving attitude versus matching or taking. However, providers must be careful to connect with enough matchers to prevent being taken advantage of.