We often hear from partners, prospective partners, investment bankers, and venture capital firms: “How do you always find such great deals?” There are two important factors that influence deal sourcing in private equity deal flow: effort and work. The deals are out there; you just need to know where to look and how to find them.
Key #1: It’s a Numbers Game
The truth is that everything is a numbers game when it comes to real estate investing. It’s a mistake to assume that the first deal you find is the right solution. Instead, it is important to analyze multiple deals, looking at a range of variables that might influence the ROI of the project. The more potential deals we analyze, the greater the chance that we’ll hit a home run with the investment.
Knowing that there are always other deals available means that there is no urgency to settle for something that isn’t optimal for the investment. Too often, people have a “FOMO” mentality about investing: Fear of Missing Out influences the decisions that are made. This fear drives people to put their money into poor investments, which could have a devastating impact on portfolio growth over time.
We don’t let fear or emotions drive the decisions when we are choosing the right properties for investment opportunities. Instead, we use a logical and strategic approach to investing. Our team has years of experience with analyzing the data, doing our due diligence, and identifying the “sweet spot” that can help boost potential profits.
Key #2: Clarity in the Investment Strategy
As you are looking at the numbers for various opportunities, it is essential to have clarity in your strategy. What are your goals? How do the potential profit margins look? This clarity will help you know when you should offer on a deal, and when it makes sense to walk away.
If you don’t know what you are looking for, then it can be hard to pull the trigger when the right deal is sitting in front of you. Knowing the overall strategy and maintaining consistency with the deal flow, analysis, and the diligence process will strengthen your strategy and improve long-term results as you source deals.
Key #3: Making Offers on the Right Properties
Another aspect of private equity firm deal flow is to make sure that offers are being sent on the properties that are uncovered. Analyzing the numbers is just the first step. Every time a property is discovered that fits our specific criteria, we submit an offer.
Even if it is assumed that the offer is too low, it never hurts to start a conversation with the property owner. The other party has the chance to say no or counter the offer, finding a middle ground that suits the needs of all parties involved. Even if a counter-offer is required, we’ve found that making the first move with the initial offer puts us in a powerful position for the deal negotiation.
Key #4: Building Quality Relationships
In the commercial real estate investing industry, the truth is that you never know where your next deal will come from. Don’t underestimate the edge that comes when the right relationships are developed. Our team not only looks for ways that we can connect with others in the industry, but we strive to solidify long-term relationships that are beneficial for everyone.
For example, we have great relationships in our respective markets with every single broker in the area. These brokers know our investment criteria and the types of properties we are looking for. We share details about the amount of capital available for the investment. As the relationship solidifies with time, the brokers know that we will follow through on our end of the deal to close on the property.
The goal is to find a win-win relationship. Instead of going into the conversation to see what’s in it for you, it is essential to ensure that your efforts and goals will support the needs of others as well. When everyone is making money, then it creates a harmonious process that keeps moving forward.
Building these relationships with brokers in the area means that we usually receive one of the first phone calls when something new is available. This first right of refusal allows us to move in on the property before others know it’s available. This type of inbound quality deal flow is invaluable.
In addition to relationships with brokers, it is smart to maintain relationships with anyone else who might be a good source for deals. For example, bankers, industry connections, property managers, title companies, real estate agents, and more can be great resources.
Building Out a Pipeline
When it comes to commercial real estate investing, building a pipeline of deals is key to managing the flow of properties that moves through our portfolio. We never stop looking for properties that meet our needs, and we are willing to take the right risks when the numbers look good.
By looking at as many potential transactions as we can, it’s possible to maintain a robust pipeline that keeps us moving forward and leading the industry. While we are focused on building a strong portfolio, it always comes back to the numbers… which means that we never overpay. Our strategy allows us to work long and hard, giving us the volume that compensates for our unique strategy.
Talk to the Pros About Private Equity Deal Flow
Rest assured knowing that our team of private equity investors is always here to help if you have questions about commercial real estate investing. It is common for investors to have questions about our processes and strategy. We are here to answer these questions and invite you to have a conversation with our team when the time is right for you to invest.
At First National Realty Partners, we’ve worked hard to build a strong reputation and provide solid investment opportunities to new and experienced investors alike. When you choose to work with our team, rest assured to know that we offer decades of combined experience in the industry. Contact us any time to learn about the options that are available for your real estate investing portfolio.