One of the great things about real estate investing is that you get to leverage OPM, that is other people’s money. Rarely do you use your own funds to purchase investment property (although if you can, that is a great way to go), rather you use the bank’s or some other investors funds to purchase your investment properties. No matter where you are getting the funds, a smarter real estate investor learns how to present themselves financially.
Presenting yourself financially begins with you. You have to show any investor, be it a local bank or a wealthy friend, that you are a good risk. You need to demonstrate that if they choose to invest with you the chances of the investor loosing their money are very slim. One of the best ways to do that is to put together a packet or “bank book” that explains who you are, what you do and how you plan to pay the money back. Such a book makes you look professional and on top of your game.
Your bank book should first contain information on who you are. Include resumes of yourself and any business partners. Draft a short overview explaining how you got into the real estate business, how long you have been doing it and your goals for the future (you have thought about your goals right?). Include any articles or blog posts you may have written that are relevant. Perhaps you were interviewed by the local paper about your investments or about some charity work you have done, include that as well. You want your investor to see that you are a solid and ethical person and thus worth the risk.
Next you need to include all of your financial information. At least two years of tax returns will be required although more is better. You should also prepare and sign a personal financial statement that outlines all of your assets and liabilities. I also include information pages on the properties I own and manage that describe the workings of those properties, debts, expenses, cash flow, etc. in detail. Include pictures. If you rehab properties, show some before and after shots. Remember a good picture is worth a thousand words.
I also like to add information about my team. I list the names and telephone numbers of my attorneys, accountant and the various contractors I use. I let my investor know they are free to contact anyone on my team with questions (let your team know first). This information helps show folks that I seek competent advice when necessary and that I have a competent team to back me up.
Let me close with a tip. In years past I would actually print out all of this material and put it together in a book form, over 100 pages! No more. Today it is all scanned and placed on a jump drive. This cuts down my paper expense and helps my lender do their job because they are just going to scan everything into electronic format anyway. Make their job easier and do it for them, they will like you for that and it may just give you an edge.
To help you get started, you can find the table of contents to my bankers book (or list of files for my jump drive) on my Smarter Resources Page. Until next time, work smarter not harder.
