Use Six Degrees of Separation Theory to Find Your CRE Sponsor

Three Not So Obvious Reasons for Owni... Is it the right time to invest in CRE?

Use Six Degrees of Separation Theory to Find Your CRE Sponsor

Five Premises for Making You Wealthy

In a previous blog post, What Wealthy CRE Professionals Do That Most of Us Do Not, I stated the following five premises:

There is real wealth to be created in owning commercial real estate. It is not a get rich scheme, it actually works.
The savings generated from your day job should be invested in assets that generate passive income. Most retirement accounts invest in assets that generate little to no passive income. I explain in another blog post How to Retire Well by Growing Passive Income why assets that generate passive income are far superior to assets that are typically found in retirement accounts.
Everything we really want in life is on the other side of fear. In other words, don’t let fear stop you from investing in CRE. Investors need to adopt the mindset that we “win or we learn.” Most of us have the debilitating thinking of “we win or we lose.”
The best way for most of us to invest in CRE is as a passive investor, a.k.a., as an equity partner. Let’s be real, most of us don’t have the time or the experience to invest in CRE on our own.
To succeed as a passive investor requires finding the right sponsor, i.e., the guy with all the experience to invest with.

That’s the gist of the article. The article was written specifically for commercial real estate professionals – loan officers, title & escrow officers, insurance agents, real estate attorneys, etc., people who work in commercial real estate but typically don’t invest in rental properties. The main premise of the article was to encourage CRE professionals to invest in commercial real estate. It seems like a no-brainer but sadly you would be surprised how few do.

For Those Who Aren’t CRE Professionals

Today, I would like to focus on the fifth point in that article but from a different perspective. Again, the fifth point is to succeed as a passive investor requires finding the right sponsor to invest with. But this time I’m assuming two things:

You don’t work in the commercial real estate business, and because that’s true you don’t have obvious real estate sponsors to choose from, and
You would like to invest in CRE as an equity partner (passive investor) and not as an active investor making all your own CRE decisions.

If you want to invest on your own then this article is not for you. Now’s the time to click off. But for those of you who are in the situation described above, how do you go about finding the right real estate sponsor?

Alternative #1 – Crowdfunding Sites

One alternative is to search the many online crowdfunding sites and choose a sponsor from one of these sources. But I have a real problem with choosing a syndicator from a crowdfunding site. I have no idea the character of the person I’m trusting with my hard earned money.

I’m sure there are many fine real estate syndicators on these crowdfunding sites but I have no sure fire way of determining who is honest and who is a wolf in sheep’s clothing. Who is offering a fair fee split for their services and who is gouging their investors? It’s often times hard to tell. The point is, I’m wary of syndicators that I do not know personally and you should be too.

Alternative #2 – Six Degrees of Separation

I believe there is a much better way to find a real estate sponsor. This alternative approach was made famous by the actor Kevin Bacon. In 1994 he was interviewed about the film he recently acted in The River Wild. In this interview he offhandedly said that he had either worked with everybody at one time or another in Hollywood or he knows people who have worked with everyone in Hollywood.

The comment snowballed into a game and eventually a book called Six Degrees of Kevin Bacon. The six degrees of separation is a rule of thumb that postulates that most of us are separated by no more than six people from the person we want to know. Your friend knows a friend, who knows a friend… you get the idea, and by the sixth person they know the person you want to know.

My Six Degrees of Separation Story

Years ago, when I was just getting started in commercial real estate, the company I worked for at the time transferred me from California to Atlanta to oversee the property management of the apartments they intended to build in the Southeast. Less than two years later I was laid off when the economy dipped.

At the time I knew only three people in the Atlanta area that might be able to help. Only three. I called them and though I knew that they couldn’t hire me, I was hoping they would know someone who could.

Each gave me names of people to contact. I would call these people and begin the conversation by saying, “My name is Doug Marshall and so and so suggested I call you. I’m looking for a job. May I come by and briefly introduce myself to you?” I did this so often that I knew if I called 10 people I would get 4 people who would say yes to my request to meet. Over a 17 month period, I contacted 330 people and eventually my tenacity paid off with a job.

Now it doesn’t sound like I was separated by six people from my new job, did it? Maybe I wasn’t. But if I could look back on the referral chain, my guess is that the first person who suggested I talk to his contact, to the last person who offered me the job, wasn’t more than than 8 to 10 names.

Conclusion – Use Kevin Bacon’s Six Degrees of Separation

Sorry for the long-winded explanation of a better way to find a real estate sponsor. It’s rather simple. Use the Kevin Bacon Six Degrees of Separation rule of thumb. It makes no difference that you don’t know a quality real estate syndicator to invest with. The important thing to understand is that somebody within six degrees of separation from you does. Who do you know that could possibly start the referral chain process?

Whether you call it the Kevin Bacon factor or old fashioned networking it makes little difference. I believe this approach to finding a sponsor has a higher probability of finding a trustworthy and experienced sponsor than choosing one from a crowdfunding web site. Start calling.

Those are my thoughts. I welcome yours. How would you go about choosing a real estate sponsor?

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