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Today is another AMA episode, Ask Me Anything

Joseph asks.

A friend of mine has contacted a person who is both a coach and a source of turn-key properties. My friend likes the idea of a one-stop-shop to get their start in real estate education and investing.

The arrangement involves paying a coaching fee and then partnering 50/50 with the coach / trainer on each turnkey property.

I did what searching I could do (some of this on bigger pockets and just random google searching); the reviews seem to be all over the place. The BBB doesn’t  list him as a bad business person. I’m concerned for my friend though who worked hard to save up the cash to do this.

What do you think of this arrangement?

Joseph, this is a great question.

First of all, the coaching fee you quoted seemed fairly low. It’s certainly a lot less than I charge, but then I don’t work with rookie investors.

It sounds like your friends are trying to accomplish a few things at once.

1. Learn about real estate investing.
2. Buy some investment property.
3. Minimize the time they invest in the management of the properties.

There is a lot of confusion in people’s minds about what an investment really is versus an active business. The confusion arises because “Real estate can be a good investment.” The fact is, a rental property, whether it is turnkey or not is an active business. Sometimes an operator aims to make it appear like a passive investment by calling it a turnkey property.

Working with an experienced professional property manager who is acting in the best interests of the property owner is the key.

Here’s the problem that I see with the proposed structure.

1. There is an inherent conflict of interest. The person providing the education is teaching the student to buy the coach’s product. I don’t like the structures where there is a knowledge imbalance and the student is assuming a disproportionate amount of risk. The coach needs to be in a pure coaching
2. If the coach is putting up 0% of the money and remaining in the deal for a 50% stake, then the risk is high. If the coach is putting up 50% of the money for their share, then the interests of the partners are aligned and the coach has significant skin in the game.

In order to be successful in your real estate investing business you need three things. These are the same three things you need to be successful with anything in life.

1. You need the knowledge. This you can get from courses, from books, from your local REI Club, from podcasts. And yes, you can get knowledge from a coach as well. But sadly that’s not enough for you to be successful.
2. You need the emotional fortitude to be successful. That’s a matter of getting your emotions under control so that they’re not driving your business decisions.
3. You need to become immersed in the environment where you’re hanging out with other real estate investors on a regular basis and masterminding around what’s going on in your business. Joining a real estate mastermind can be a really effective way of accomplishing this.

Simply hiring a coach may not give you all three of these things

I’m a believer in hiring a coach. I have a handful of clients who having approached me have hired me as a coach.  I don’t advertise that service at all. The coaching fee that your friend was quoted is very reasonable. But it’s hard for me to assess what they’re getting for that price. To recap, I don't like structures that have an inherent conflict of interest.