At Levine Capital, we’re so passionate about real estate and will be discussing a relevant topic every week in the hopes of giving you some knowledge and helping with real estate investing. Today’s topic is among the most critical when it comes to passive real estate investing, and one of my favorites too.
Vetting the sponsors. Adam is super excited about this topic, as he wrote a blueprint about how to vet the sponsors. He’s going to share his personal experience, and the invaluable lesson he learned along the way. First things first, why don’t we discuss what a sponsor is.
In effect, they’re quarterbacks in football, playing a pivotal role in real estate investing. They’re responsible for finding, acquiring, managing, and ultimately, selling the property on behalf of the partnership. They’re also responsible for aggregating capital from investors and signing their names on all related legal documents.
It’s often said that a good sponsor can turn a bad deal into a good one, but a bad sponsor can ruin a great deal altogether. We often feel that many investors are searching more actively for deals to invest in; rather than sponsors to invest with. This is to approach the investment decision kind of backward!
It’s like getting a flight because you’re impressed with the airplane, without considering the pilot’s experience and track record. If you invest with a competent, trustworthy sponsor, you can bypass finding deals, because they tend to bring good deals for you. Once you find a great sponsor to invest with, you can narrow your research to simply vetting the opportunity they present to you. At the end of the day, you need not chase too many deals, nor too many sponsors.
That being said, Adam, being an author of our blueprint about vetting the sponsors. Shares his personal story and what motivated him to create this blueprint.
Now, this is something that I’m very passionate about. What motivated me to create this blueprint is a personal experience that happened with my father. My father, as I mentioned in previous videos, is a retired dentist and has done very well for himself in private practice. Started actively investing, and then, later on, started passively investing.
There’s always someone asking for a loan or some type of investment because a doctor tends to do very well for themselves financially. They’re prime targets for good investments that may come, as well as investment schemes or scams. In this case, it ended up being something so simple that I decided to create this blueprint. I’m going to talk about the one thing in that blueprint that could have saved my father $250k!
It’s so simple, but he didn’t even think of it. It came down to trust, and he was dealing with a con artist that became friendly with my father through another business relationship. This guy saw my father as a good person. Someone that knew he could win my father’s trust, and eventually take from him. That’s what ended up happening.
He took us out to eat, drove us around town, and even brought his son along to the stadium in Boston for a game! You’re thinking these are family men. You’re thinking these are good people and they’re never going to harm you. It came down to my father starting to trust this person. He didn’t think twice about anything, and this guy knew he’d won my father’s trust.
So my father was like, “Adam, I’m thinking about investing with this person, and he has this opportunity.” And I said, “What do you mean? Can you tell me more about it? How about you call him?” So I spoke to him and asked, “What are you trying to do with this investment?”
Right away, the alarms started going off, and I did not feel comfortable with it. I was trying to tell my father, “Look, I think you should look into this more before you jump in.” He was promising my father these high returns and talking about how he has another financial partner as well. That he’s making relationships to get the best terms, and a whole lot of other promises.
It turns out, nothing this guy said was true. I warned my father about it, but my father trusted him. But, the one thing my father could have done which would have saved the $250k, and this is something I have in my blueprint, is a background check.
Something so simple as a background check! I remember looking at this guy’s background, and saw that he had other judgments, and was even losing his house! He had cars repossessed, he owed other people money; this guy was a mess. Someone you want to run for the hills from. My father would have saved $250k if he had done that!
Last week, we had that webinar with Daniel Edry. The mastermind AMG and the topic was: “How to Evaluate a Sponsor, Vetting Sponsors”. Daniel said the first thing he does is a background check!
Really, what motivates me to create this blueprint, is to help others with the struggles that we went through. That my father went through. I don’t want to see anyone else go through the same pain as we did!
The good thing is, my Father’s not on the corner with a tin cup. He’s okay! The silver lining is that now he knows better. He asks me questions and listens to me now! I must say, my father’s very smart. But, smart people make bad decisions. Smart people get taken by con artists! It happens all the time. When you trust someone, you let your guard down. You trust this person, and on a handshake, you thought this person was going to do the right thing. So, business decisions went out the window. He wasn’t thinking business; he was thinking I trust this guy like a friend.
If he would have done the background check, just to safeguard himself, he would have uncovered the truth and saved himself! Investors that are listening, this is the first thing that you do in my blueprint. There’s a lot more in there, and many other steps you can take to protect yourself. We want to share this with as many investors as we can, so we’re giving this blueprint away for free!