When you get started in real estate investing, it’s easy to become overwhelmed with the multiple niches of investing. Each niche requires a unique set of skills that sometimes don’t translate to other strategies. But there’s one skill that is applicable to all forms of real estate investing that doesn’t get enough attention: building your real estate network. Knowing how to build your real estate network is the most important aspect of real estate investing. It’s a skill that transcends all others and will make or break your real estate endeavors.
Without your real estate network, you’re flying blind in real estate. A real estate network exposes you to deals, financial capital, contractors, property managers, and off-market information. When you’re new to an area, typically the first thing you do to start your real estate network is reach out to a real estate agent. Most investors focus on the official job function of an agent: to represent you during the process of buying property. Anyone new to real estate thinks, “Oh, some random person is just helping me buy a piece of property for 3%. I’m better off just going to Redfin or getting a lawyer to help me close deals.” But that thought process misses the true value of a real estate agent, which is their network. In essence, when you agree to work with a real estate agent, you’re gaining access to the network that took her many years of hard work to build. So, how did the agent go about building this network?
The Glue That Holds Networks Together: Social Capital
Much time is spent on learning on how to attract capital for deals, but little time is spent on the other form of capital—social capital. In our context, social capital can be defined as the trust between two parties developed through regular interactions and business transactions. Look at it as the glue that holds your real estate investing network together. Without it, your ability to get things done in real estate investing is greatly compromised.
If you have a history of closing deals with your real estate agent, you have developed healthy social capital that will incentivize her to come to you first when she has a great deal.
Some of you might look at social capital as new age real estate investing gobbledigook, but in financial markets, social capital is referred to as goodwill—and companies are willing to pay billions of dollars for it because it’s the social grease that keeps the dollars coming in.
Due to lack of social capital new investors have in the community, they might run into issues because agents, bankers, and property managers don’t know if they’re worth the time commitment. So instead, they might send newbies bad deals—or the newbie might have to deal with terrible agents and property managers desperate for work. Social capital is a barrier to entry. It prevents unproven investors from penetrating the core of a valuable network—and rightfully so because the network needs to protect itself from strangers who might not be ready to contribute to it or who could hurt it through leaching, backstabbing, or just plain mischief
So how do we build social capital?
How to Build Social Capital
The simplest way to build social capital is shown in this formula:
Familiarity + Honesty + Giving = Social Capital
Let’s dive into detail for each of the 3 elements that make up social capital.
Most people wouldn’t consider investing their money with a stranger because they are taking a huge financial risk. The investor hasn’t put in the ground work necessary to make themselves known in the investor community. Some people commit this sin out of ignorance, and others are just plain lazy. ( Thank goodness they are because that’s what makes social capital valuable—it takes considerable time to develop.) So, how do you build familiarly? We will get to that later in this guide when we talk about the People Funnel.
Everyone says they’re honest, but if that was the case, there wouldn’t be dishonest people in our society. When I say honesty, I’m not looking for you to tell every investor your deepest and darkest secrets. However, it’s critical to clearly communicate with others what your intentions are. If you’re a real estate agent selling class D investment properties in Kansas City, be clear with your potential investors that these investments are risky and if you aren’t prepared you could lose your shirt.
The easiest way to break your credibility with people is trying to play the role of a know-it-all. If you don’t know the answer to a question, be up front and tell the person you don’t know. Counter-intuitively, this builds credibility with others because they learn that you are honest enough with yourself and others to not make up answers. More importantly, when you talk about something you do know about, people are more willing to listen to you.
Another aspect of honesty is knowing when to prioritize the needs of others over your own. As an example, let’s talk about selling fruit (tasty fruits like apples and oranges, not grapefruit). Mike sells oranges, and Frank wants to buy apples. Mike could try to convince Frank to buy oranges, and with enough sales pressure, he could convert Frank into an orange buyer. High pressure sales might work for a few customers, but over the long-term, Mike could force people into buying fruit they don’t want, leading to dissatisfied customers and poor reviews, which will hurt his business. The good salesman that Mike is, he realizes Frank wants apples, and he will do what he can to help them find an apple provider. Down the road, Frank will remember Mike’s honesty and will recommend Mike to his friends and family, leading to more business for Mike.
It’s easy to see what Mike should do in the abstract, but when you finally find your “great” deal and you are in desperate need of funds, you could fall into the trap of trying to put people into deals that might not be a good fit for them. Don’t fall into this trap. Do what’s right for people, and you will be rewarded.
One of the most important elements that I’m going to devote an entire section to.
Successful investors are like gardeners, but instead of nurturing plants, they nurture people by helping them grow and providing solutions to their problems without the expectation of something in return.
A Giver is someone who seeks to help others selflessly for the sake of making a positive impact in their lives. Unlike Matchers, who give only when they receive, or Takers, who suck people dry, Givers have no intention of receiving anything from those who benefit from their help.
Being a Giver has rewards in the short-term, too. According to research, people who help others are happier, live longer lives, and are less likely to be depressed.
Building Social Capital With the Investor’s Toolbox
How can we give to others when we think we have nothing to offer? Mistakenly, many people think that in order to build a real estate network, one must inherently be charismatic, held in high esteem, or have tons of money. Luckily, that isn’t the case.
The Investor’s Toolbox has 5 tools that you can use to give to others without requiring anything but your own effort. They are:
Apply your skills to help someone achieve their real estate goals. If you’re a great marketer, maybe you can help an investor improve their advertisements for their rental properties. Are you awesome at Excel? Maybe you can help an investor set up a spreadsheet to track possible investment opportunities.
Provide someone with counsel or resources to help them achieve their real estate goals without charging them anything. You can share your experiences with others to help them work through their problems or provide them with advice.
Offer extra hands on someone’s project or find information (articles and books on real estate, potential leads, etc.) to help them when you lack expertise. It’s a great way to start networking, learn new things, and cement a relationship.
Facilitating introductions between two or more people to help either person further their real estate goals. Maybe a contractor is looking for a realtor to sell their fix-and-flip or realtor is looking for clients. Act as the connector and the people you introduce will never forget that you connected them to each other.
Show people who have impacted your life that you appreciate them. Writing a thoughtful thank you note can do a lot to make you feel happier and the person you’re thanking feel appreciated.
Next time you meet someone, remember the Investor’s Toolbox, and think of ways you can apply it towards your relationship.
The Social Capital Habit
It’s important to educate yourself in real estate investing, read quality books, watch videos, etc. But in order to get your investing off the ground, you must spend regular time each day building your social capital. While deals might be scarce in your market due to where we stand in the late stages of the real estate cycle, you must continue to build your social capital so when the market slows down, you have opportunity to act.
I know some real estate agents that spend a minimum of 10 hours per week looking for new clients, prospecting for deals, and getting their name out in the market. While most of us have full-time jobs and are unable to do so, we must spend regular time each week engaging in similar activities to build our social capital. Be it one hour a week or 10, you must continually interact with people in your real estate market to build your social capital.
Assuming you’re working a full-time job, you need to spend at the minimum one hour a week talking to someone about real estate. Why? Because it will help you learn new things, crystalize your investment strategy, and build momentum towards your real estate goals. I said an hour at minimum because you need to make the commitment to yourself that you’re taking your real estate endeavors seriously.
So now you have your toolbox and have made a time commitment. What’s next? You need to get out there and meet people.
How to Build Your Real Estate Network
Messaging people on forums is a great way to make your voice heard, but nothing beats real time communication through a phone call or meeting in person. But what if you’re not a social butterfly and are super introverted? How can you go about getting started?
Introducing the People Funnel
A people funnel is a grouping of people dedicated to a common cause that amplifies your reach and ability to connect with new people while minimizing the fear of rejection. A people funnel can be offline or online, but it’s preferable to have a face-to-face interaction to make it easier to solidify relationships.
Why Do People Funnels Make Meeting New People Easier?
Members of a people funnel share the same love for a common interest or a goal, which develops a shared identity that makes communication easier. This shared interest makes it easier to connect with others. Having a higher purpose helps people shake off the icky feelings of networking, because networking can make us feel dirty.
Different Types Of People Funnels
So, how can we get involved with a people funnel?
Join a funnel.
You can find funnels online, at your work, or through word of mouth.
- What should you be doing? Make sure your goals align with the funnel’s mission by reading about the group and meeting with the group’s organizers. They are the lifeblood of the group, so you will need to make sure you mesh well with them. Take the time and effort to get to know them, and if they like you, they will start introducing you to other members of the group. It’s a good idea to meet separately with the group organizers to build stronger bonds.
- Pros and cons: By joining someone else’s funnel, you can start and stop as needed. However, you will have to work harder to make connections because you are new to the group and don’t have a formal position.
Work for a funnel.
Once you have been a regular member of the funnel, it’s time for you to decide to ramp up your commitment to the funnel.
- What should you be doing? Ask the organizers of the group if you can help co-host events, recruit new members, or fill a specific need of the group.
- Pros and cons: You are now a hub in the funnel’s network, which attracts new people to you. The only drawback is you will have to dedicate time to fulfilling your responsibilities
Build a funnel
- What should you be doing? I created a Google group (you could use Facebook, LinkedIn or any other service) with 20 of my colleagues. After advertising the group through word of mouth, real estate lunches, and 1:1 conversations, we grew it to 3,100 members. I became the central hub of the group, which led to new ways to make connections without having to seek out new people actively. We started bringing in outside speakers, and I recruited other colleagues to take an active role in the group (recruit new members, answer group questions, invite outside speakers, and organize lunches).
- Pros and Cons: This is initially a significant time commitment outside of work, but your time commitment can be reduced by seeking volunteers and developing a strong sense of community, which allows your group and network to scale without you being directly involved. Also, you need to protect your group from people who are trying to spam the group with their services, people who are providing bad advice, or people who are unloading bad investments to your members.
Your level of involvement in a people funnel is up to you, but in order for you to develop a strong real estate network, it’s critical that you are part of one in some form. As time goes on, you will meet so many people it will become almost impossible to keep track of all of them, so you will need to develop a connection tracker to make sure you aren’t letting any relationships fall apart.
Why Do You Need A Real Estate Connection Tracker?
Like it or not, you can’t remember everything. Odds are you’re going to forget to check in with a potential real estate partner or fail to return a call from a friend. As research on cellular networks shows, persistence in reconnecting with others is important for building long-lasting relationships.
3 Keys to Building a Simple Connection Tracker
There are three keys to creating an effective connection tracker:
- It should allow you to track when you last spoke to a person, as well as provide notes from the meeting that you need to follow up on.
- It should integrate reminders of when to speak to the person next so you don’t procrastinate or forget.
- It should be easy to use. You should be able to access the connection tracker with a few clicks, and it should have minimal friction points.
Getting Started with the Connection Tracker
When you begin entering people into the connection tracker, include important people in your life that you don’t see on a regular basis (family, friends, and former colleagues). It might feel weird to write down family, friends, acquaintances, and colleagues to your connection tracker, but I’d much rather do this than risk falling out of touch with people who are important to me. Think of a connection tracker as an assistant to help you stay in touch with those that you care about in your life. But remember, it will take time to complete this list, so don’t try to complete it in one day.
You’re a Bridge, Whether You Like It or Not
As we transcend through networks by changing schools, investing in new markets, accepting new jobs, and relocating to new areas, we often feel we are leaving old networks behind. However, while we might physically leave the network, these connections never truly go away. When you join a new network, you are serving as a network bridge.
A network bridge is a relationship that links two different networks together. For instance, if you are embedded in a network of fellow contractors and you befriend Emily, a real estate agent with an extensive network of investors that are in need of contractors, your relationship would be considered a network bridge. Through Emily’s network, you have expanded your reach to even more connections that have opportunities for you. Her connections are called “weak ties” because you don’t directly know these connections or only know them as acquaintances. The amount of value both of you can gain from meeting each other’s weak ties can pay tremendous dividends for your real estate endeavors and ability to help others.
Another example of a network bridge is a friend or colleague from an organization you left. Since your last interaction with the network, it has refreshed itself with new information and people. So, by activating this connection, you will be exposed to valuable information and connections. Finding a new network bridge or reactivating an old one has numerous advantages.
So far we learned:
- The importance of a real estate network
- What social capital is and its three elements: familiarity + honesty + giving
- How to build social capital via the investor’s toolbox
- People funnels and how they can be used to expand your network
- The importance of committing regular time to develop the social capital habit
- The power of tracking your network
- What a network bridge is and how to identify it