This is the second part of the live webinar I hosted with Chris Powers. If you don’t want to miss the next one, sign up for my email newsletter to stay up to date.
Small Business Building Blocks
If I was 25 years old and interested in small business, I would look at starting a home cleaning service. People are punting on cleaning their homes and it’s a fantastic low-cost, low-risk option that can increase in scope to some more valuable offerings. Even better, you can get your foot in the door with short-term rentals like Airbnb units and find your niche there.
A cleaning service can morph into Airbnb management, followed by short-term real estate ownership. If you’re willing to learn Spanish and the ins and outs of the H-2B visa program you can have a tremendous leg up on your competition.
We also got a question about the chicken and egg problem of getting a business loan – no banks want to loan to an unproven business, but it’s hard to start your real estate business without one. The easy and unfortunate answer is that you’ll probably have to personally guarantee your first loan, but you shouldn’t automatically assume that banks won’t lend to you.
Call three local community banks in town, come prepared, and be ready to show the bank why they should lend to you. They’ll either tell you what you’re approved up to or why they can’t approve you and what more it would take to get a loan. There is no playbook to getting a loan from a community bank, nothing is black and white, but if you’re prepared and a serious borrower, you can walk out with the capital to start your business.
The first step to identifying acquisition opportunities is to hone in on your target market and what you’re going after; for Chris, this may be the top twenty thousand properties in Texas that fit Fort Capital’s criteria, for you it may be ten properties within an hour’s drive in your niche. With smaller assets, you can pick up the phone and call the owner and try to hook an off-market deal.
With so many opportunities, it pays to hone in on those you can execute in the near future. Chris’ team has created an algorithm that looks at recent market sales and over 300 attributes for each property, then identifies those that are most likely to sell based on the recent data. Basic attributes like length of ownership, vacancy rates, loan maturity, family properties, etc. can all impact whether or not a property might be available either on or off the market.
As your business scales, you’ll find opportunities coming from the relationships you’ve built in the business, and you can even incentivize brokers to bring you deals before they bring them to other people. The more you close, the better you get at closing, and the stronger your network grows.
Developing is tough, and both Chris and I messed up with it early on. My first self-storage facility was built from the ground up and went over budget, and the next two we tried to build both failed in the permitting phase. Chris also says that in hindsight he’d probably buy rather than develop early on.
On a macro level, the biggest mistake people make in general is relying too heavily on the internet and not putting in the work to understand their market. The best performers in real estate walk the street, talk with brokers, and gain real expertise in the area. Chris has seen all the technology that’s come around to spur the industry and uses a ton of it himself, but none of it beats what you can learn with boots on the ground.
Let’s be clear, leaders don’t need to do a lot. They don’t need their hands in every part of operations, they don’t need to know every last deal of things, leaders need to do a few really hard things really well. For Chris, that’s capital raising, brand awareness through Twitter and his podcast, and being a steward to the Fort Capital CEO.
My focus is constantly on recruiting and training. If I have a job in the day-to-day operations of my company, that’s inefficient. I need to find great talent and usually sell them on leaving their job to join us. Then I need to give them the tools to succeed and operate more smoothly. Lately, I’ve spent more time on developing bank relationships to find a new lender, promote myself and my brand through Twitter, and negotiate and work through new deals.
Three Key Takeaways
- Don’t rule out having access to capital through community banks; study up on your opportunity, be prepared, and show them why they should lend to you
- The internet and technology can be immensely valuable, but boots on the ground experience and knowledge still reigns in real estate
- Business leaders don’t need to overcomplicate things, they need to focus on killing the few high-leverage activities they can and delegate the rest
P.S. If now is the time to start your own journey, the real estate community is for you. I weigh in on almost every post, and there are a lot of people smarter and more accomplished than me.
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