Table of Contents - #FreeFlowFriday: Where are Your Ideal Investors? with Dave Dubeau
Welcome to Free-Flow Friday, powered by the Property Profits Real Estate podcast. I'm Dave Dibble and I'm very excited to give you an over the shoulder learning experience around raising capital, as well as other tips, tricks and strategies to help you on your real estate investing journey. So let's start let's discover together. Three hundred thousand dollars. This is why we get excited. This is why we get into real estate investing in the first three hundred thousand three hundred. I just really want this to stick in your head. Three hundred thousand dollars. That is a significant amount of money. Hey there, everybody, this is Dave Tebow, and today I thought I'd do something a little bit different and share with you a big, big distinction that I came across a few years ago when I first really got serious about raising capital, finding investors, attracting investors, doing marketing to attract investors. And I don't remember exactly how it occurred to me, but. I was remembering back to my early business days. When I learned about the concept of the lifetime value of a customer or a client, and I figured that out for my business, I used to have in Costa Rica many, many years ago. And when I discovered that, I discovered the lifetime value of a client for me at that time was twelve thousand dollars. I thought, wow, that's great. So that allowed me to make decisions about where I invest my time and and efforts and money in marketing and how much I'd be I'd be willing to invest to bring a new client on knowing what the lifetime value of that client was. So what does that have to do with real estate? Well, when I started attracting investors, raising capital myself, it just came to me, why don't I figure out what the lifetime value or what I called a lifetime worth of an investor is to me. And as far as I know, I'm the only guy that has applied this to real estate investing and investor partners, money partners. So let's have a quick look at this. I'm going to try and share my screen here. I'll take a look over here on the screen. So how much profit a money partner really provides you? When I'm talking about profit, I'm talking about profit in your heart's not not overall profit on the deal, but how much money you actually make on a deal. So when you understand how much a lifetime worth of an investor is to you, I'm hoping it'll blow you away. It sure blew me away when I figured this out for myself. It will change your perspective on working with investor partners and it'll make you realize that they're worth their weight in gold and that you definitely need to treat them like gold. And hopefully what really drives right through to you as well is that, you know, as inevitably always happens with anything worthwhile, when the going gets tough, it's worth it to keep going. Does that make sense? So when you understand how much profit, how much net worth, how much cash flow each investor is worth to you and your family and your future, it just makes it that much more exciting to go out and find investors, raise capital, which is what this group is all about. So let's have a quick little look through here and I'll go through this. So as an example, years ago when I was doing rent to own or lease options, whatever you want to call them, here in my town of Kamloops, I figured out that with my deals and average rent on deal over a two or three year period was worth forty thousand dollars in net profit to me after I paid everybody else out, including my investor partner. So I do if I did a deal with an investor partner, my profit, whether that came through upfront auction fees, cash flow, the appreciation of the end of the all of the different ways that I made money with the deal, my share of the profits was forty thousand dollars at the end of the day. So one deal, forty thousand dollars in profits makes sense pretty good. So at that time, the kind of properties I was looking at were about three hundred and fifty thousand dollars. So in order to get one of those properties, in order to come up with 20 percent down and in our case property transfer fees and closing costs and all that kind of stuff, that meant I needed about eighty five thousand dollars to do that. And I thought at that time, you know what? Eighty five thousand, that's a fair chunk of change. So probably I'm going to need one investor. I didn't want to work with more than one investor. One investor would do one deal with me. So that would mean that the lifetime worth with a lifetime value of that investor partner would be forty thousand dollars. Right. And it's not the eighty five thousand puts in. It's how much profit I get to keep at the end of the day. So if he do one deal with me and that would be it, that would mean is forty thousand dollars is what that investors want to me. I guess what. I was mistaken. I was wrong because what I found was if that investor partner was happy with how things went with the investment, he'd become a happy and happy camper and he might very well invest with me again. Fact, it was kind of funny. What I found is sometimes people would miraculously have another 80 or a thousand one hundred thousand dollars available to invest that they didn't tell me about the first place or when they were done that deal, they would reinvest with me in the next year. Does that make sense? So to be conservative, I decided, you know what? Let's just look at it this way. Let's say one investor, if we do a good job, does two deals with me over the lifetime of our working relationship. So in that case, if each deals worth on average forty thousand dollars and again, this is just an example, people, this is just for my rent own deals that are doing other strategies. The profits are going to be different. And definitely with longer term buy and hold strategies, the profits tend to be a lot higher. But in this case it was forty thousand dollars. So they did two deals with me over the lifetime. Two times forty is eighty thousand dollars. Well, that's starting to get pretty excited. So I thought, wow, eighty thousand dollars. That's very, very good. Especially comparing that to twelve thousand dollars, which was the lifetime value of a client for me back in previous businesses. All right. So that got me excited. But guess what? I was mistaken again. I was wrong again because I forgot something very, very important. And that is like the old saying says birds of a feather stick together. So these people are investors tend to hang out with other people at a similar socioeconomic level. So in other words, they they have a certain financial status. They tend to have friends and acquaintances who are at a similar status. And when they hang out together, if they end up chatting about investments and whatnot, or if you proactively look for testimonials or referrals, which is a very good idea, you can get referrals. Right. So they might be chatting. The conversation probably goes nothing like what we've got there on the slide, but just gives you an idea. He's chatting with a friend. If that friend comes on board and becomes an investor partner and does on average two deals with me, that's another eighty thousand dollars in profit. But again, what I want it to be is I want to be super conservative. So when I was throwing this out, I thought, OK, and it's pretty true. If I do a reasonable job at getting testimonials and getting referrals, I can probably expect to get one preferred investor partner for every two investors that I have on board. So in other words. Each investor would be worth the equivalent of one and a half investors, because for every two of them, I'd probably get one referral to another investor. Does that make sense? A little bit complicated, but we'll go over that. So that changed the dynamics a lot. In fact, that turned. The lifetime worth of an investor from eighty thousand dollars into one hundred and twenty thousand dollars in profit to me, which was pretty darn exciting. So let's go through a quick little exercise. Let's figure out what the lifetime worth of an investor is for you in your market and using your particular strategy. So what we want to do is. Here's here's how we're going to do this. We're going to calculate the average profit per deal for you. OK, then we're going to figure out the number of investors that you need per deal and we'll take into account repeat business and referrals and testimony. So let's take a quick look at the calculating the average profit per year. So one of the things we all love about real estate investing is there isn't just one or two ways that we can profit from a real estate deal. Different strategies have different numbers of profit centers, but there can be as many as eight different profit centers in real estate. So some of the most common ones are the ones that are on the screen right now. So instant equity. So if you're a good negotiator and you get in and you get properties at under market value consistently, you can call that instant equity. That's what that is. Then, of course, cash flow is king. That's the profit left over at the end of the month. With your deal, forced depreciation is if you get into a property and you fix it up and you increase the value of the property through renovations, through improvements that would be called forced depreciation, we have mortgage paid out. That's huge. So every month that our tenants are paying us their rent and then we pay our mortgage and our expenses over time, that mortgage gets paid off and that increases our equity in the property pretty much no matter what's going on with the market. So that's that's the equity that's been created through mortgage paid off. And the next thing we have is market appreciation over that at the bottom of the list, because that's the one we have the least control over. But it definitely plays a big factor in real estate. That's a lot of the reason why a lot of people get involved is just typically over time the values of properties go up. I mean, you look at it statistically over a long term time frame and property prices in most areas of the country definitely go up over time. So those are some of the profits. So figure out your job is to take a look at your particular investment strategy, especially if you've got a couple of deals under your belt and figure out what is your profit on it. Now, if you're into long term buy and hold of properties, I'm going to suggest you look at a 10 year timeframe frame at a 10 year time frame. If you're doing long term buying all of whatever, whatever it is, single family homes or small multis or commercial properties or apartment buildings or whatever it is, look at it over a 10 year time frame. All right. Next thing you want to do is figure out how many investor partners do you need per day, how many investor partners do you need for the kind of deals that you're doing? So my rule of thumb is I want to have one investor per hundred thousand dollars of capital required, Max. So, in other words, usually the minimum investment required for my deals is one hundred thousand dollars. So, for example and the example I shared with you when I was doing rental deals, if I needed eighty five thousand dollars, I was looking for one investor with eighty five thousand dollars if I were doing a well since moved into multifamily buildings. So for example, we did a 50 four unit property and needed to raise close to a million dollars. So in that case, the minimum investment was one hundred fifty thousand dollars and we raised that with five investor partners. All right. So whatever it is for you. So, for example, if you needed one hundred and eighty thousand dollars, I would say the rule of thumb would be you'd probably need two investors for that deal. Hopefully that's pretty clear. So you have to take into account repeat business. Right. So them coming back and investing with you and to be conservative depends on your strategy. But let's say, you know, definitely the longer term strategies, let's say they'll do two deals with you over time. And if you're doing. Flips and so a little bit different because I've been doing for this year in and year out, theoretically quite quickly, so you can get there, people people have their money in and it's out of the deal hopefully within six months, definitely within a year. So chances are they're going to reinvest with you more often. So the long term strategies, I say use that use to as a number of times, people who invest money, you if you're doing flips, you can jump that up to six tops. All right. And then we take into account the referral factor, which again, is for every to be conservative, for every two investors you get on board, you should be able to get a referral to one new investor from that. So our referral factor is one point five. So let's look at an example of this. And let's say, for example, you're doing a single family home, long term buy and hold. And in your market, you figure out that your average profit per deal over a 10 year time frame, taking all of the different profit centers into account is one hundred thousand dollars. OK, so let's use that as an example. So let's say are your main investment strategy is single family homes, minimum 10 year old, your average net profit per deal is one hundred thousand dollars. And again, we're saying that we want to have one of one investor per one hundred thousand dollars required. So that means you need one investor per deal, the average number of deals the investor is going to do with you over time, conservatively with this strategy. Let's say it's two deals. All right. And if you're doing a good job, you're proactive and you're actively getting testimonials of referrals. You should be able to get one referral for every two regular investors you have. So on average, that means one investor referral factor's one point five. Right. So let's figure out the lifetime worth of a money partner using the strategy. So one hundred thousand dollar net profit divided by the number of investors you need per Gaeul. So divide by one. So we're still at one hundred thousand dollars multiplied by the average number of deals. That person will do with you over time, which in this case is two. And then again, multiplied by the referral factor, because again, for every two investor, you should be able to get one referral. So that's the referral factor. Brings us up to three hundred thousand dollars. Three hundred thousand dollars is what an investor is worth in this particular strategy. And that's not overall. That's what they're worth to you in profit in your pocket. Jiggle in your jeans. Three hundred thousand dollars. Get our heads around this. This is huge. Three hundred thousand dollars. This is why we get excited. This is why we get into real estate investing in the first three hundred thousand three hundred. I just really want this to stick in your head. Three hundred thousand dollars. That is a significant amount of money. Now imagine that's just one investor. Now imagine you got two or three investors, three investors. That's taking you up to a million dollars now. Nine hundred thousand. Pretty close. Let's round up right now to put this in perspective. The average American salary is fifty thousand dollars a year. We're talking about one investor being worth three hundred thousand dollars, how long does it take the average person to save up three hundred thousand dollars? Answer never. The average person never saves up three hundred thousand dollars. So this is absolutely huge, guys. All right. So. I'll skip over that part, what I want to do here is I want to give you a complimentary resource and that should be somewhere around wherever this video is, you should be able to download the worksheet for calculating the lifetime worth of an impact of investor partner for you. OK, so hopefully this has been an eye opener for you. Definitely was for me when I first came across this and and realized it and I did. My initial calculation was on rental deals, one hundred and twenty thousand dollars. And I was thrilled with that. Now that I moved into a different strategy, again, it's a much longer term strategy, but the lifetime worth of an investor has skyrocketed because working on bigger deals, longer time frames, more profit centers, the whole bit. So I'm going to guess if you like most people, that lifetime worth of an investor is a lot more than you might have guessed it would have been. And hopefully this motivates you. This inspires you to and excites you to go out and get some to find some investors to start raising capital for your deals. And hopefully when you're doing that, you're going to keep in mind the lifetime worth of an investor partner and always treat your investors like gold. All right. So let's see if I can get back to normal there. Here we are. OK, so you have it. That is the whole process of out the lifetime worth of an investor partner for you. Please, again, click on the on the download or wherever you can get that worksheet printed out, fill it out. Figure out what the total profits are for you on a deal. Plug in those numbers there and see what that turns out for you. Then keep that number dialed into your brain. Here's what I tell all my students all the time. Don't say a few numbers. Let's say three hundred thousand dollars. Don't say three hundred K was a lifetime worth of investor strategy. No, because that has no emotional resonance. You say the lifetime work of an investor partner to me is three hundred thousand dollars. Three hundred thousand dollars. Right. That sticks. That has impact that that tickles your brain and excites you. All right. That's what we want with this. OK, so that's the lesson for today. I hope you enjoyed it. Feel free to leave any comments below. Let me know what you thought about this. All right. Till next time. Take care. God bless. Talked to you about. Well, hey there, thanks for tuning into the property profits podcast, if you like this episode. That's great. Please go ahead and subscribe on iTunes. Give us a good review. That would be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. There it is, the money partner formula. You get a PDF version at investor attraction book, dot com again, investor attraction book, dotcom ticker.