In my recent podcast here on BiggerPockets, I advocate that when you’re new to real estate investing you should strive to save your money up and partner with an experienced investor.
The word vet is a derivative of veterinarian. People first started using it as a verb to describe verifying that a horse was in peak condition before a sale or race (usually done by a veterinarian). When you’re determining if you should entrust a person with your capital, the phrase “vet an investor” couldn’t be more apt.
When you vet a horse you don’t make a decision because the horse is a “good guy.” No, you examine every inch of that animal and if anything is wrong you move to the next stall. Use the same approach to vet an investor. Don’t get emotional. Don’t be afraid to ask probing questions. Dig into what they’re doing, how they solve problems, and how they plan to grow. There’s a strong chance you’ll have to retire on the money you put in their care. Don’t throw it away because you didn’t do your homework.
So, what should you look for? What’s a red flag? How do you know that an investor isn’t horsing around? (if you’re not a fan of horse puns, you should stop reading this article now).
I’m starting with transparency because it’s the most important thing. Any investor you’re considering should have no secrets. Every one of your questions should be answered on the spot or they should get back to you as soon as possible. Does the investor change the subject? Do they lie or exaggerate? Maybe they give a vague answer and never get around to sending you the details. When you vet an investor, if they’re not entirely transparent, trot away and find …read more