165: Social Capital – Friday Fundamentals

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People are an interactive species. We build communities, groups, and nations. We identify with causes, organizations, teams, and professions. We are social creatures. We rely on each other for almost everything. This network can best be summarized with the term Social Capital. Social Capital the networks of relationships among people who live and work in a particular society, enabling that society to function effectively.

In almost anything we do, we need the help of other people. From work to family and everything in between, almost everything is a team sport. You need help and support from other people, and likewise, other people need help and support from you. The same is especially true with real estate investing. When investing in real estate, whether that’s single family, multifamily, fixing and flipping, etc., you need the power of a team. Rarely can you be successful going at it alone.

The problem is everyone is busy. It’s not that people don’t want to help you; they just often don’t have the time to. So what is one who needs help to do?

The solution might be a bit counter-intuitive. In order to receive, you must first give. What does this mean exactly? You have to provide value to other people. Go above and beyond to help others out. This is what I like to call social capital. If you can consistently provide value to others, then when you need something, they will be more likely to give back to you. It’s a give before you take structure, and rings true for almost any situation. In fact, the formula goes something like this – give + give + give + give = ask.

You should have some much social capital in the bank that anytime you need something you can be sure that whatever or whoever it is you need will recognize the value you have provided and be willing to reciprocate that value in return.

Here are just a few ways you can provide value to someone:

  1. Find good deals and bring them to someone who can act on them. Successful real estate investors are busy. Finding good deals is perhaps the hardest part of the real estate equation, especially in today’s market. If you can find a good deal and share it with someone who values that deal, then you are doing that person a great favor. You might do this with no expectation of return on that deal, or very little – perhaps a finder’s fee, a small equity split, or just to tag along and learn the process of due diligence, raising capital, closing the deal, operating, and executing the business plan, which in my opinion is more valuable than a small amount of money. If you can find deals, then you can find friends and partners.
  2. Find capital. Like deals, capital is another part of the real estate equation. If you have a network of people who are interested and qualified to invest in real estate, then perhaps you can introduce them to a real estate investor. By sharing these connections and building those relationships, you are providing value to both parties. There are people who make a living out of raising capital for investors and are very good at it. David Thompson, who will be on an upcoming episode is a good example of someone who is doing this.
  3. Sweat equity. Sweat equity is a term for trading work in exchange for, well.. equity. If you are just starting out your sweat may not be worth any equity just yet though. You could find someone who is doing what it is you want, like syndicating large apartment deals and offer to help them. You could help analyze properties, shop competitors, prepare presentations, etc. If you can help by providing some sweat equity, you can realize value from just the information and knowledge you’ll acquire, alone.

If you don’t understand the concept of social capital, you might find yourself fighting an uphill battle. You can’t expect everyone to help you out, in exchange for nothing. If you aren’t being proactive in providing value, then what makes you think someone is willing to take time to provide value to you?

You have to build up your social capital by providing value to others. This can be a long and tedious process and may seem like you aren’t gaining anything. Trust me, you are. By consistently providing value to others, you are building up that social capital bank and it will eventually pay dividends. Think of someone like Tony Robbins or Robert Kiyosaki. If they called on someone for a favor, I’m sure they would have no problem enlisting the help or advice or someone. This is because they have both provided so much value to millions of people over their lifetimes. They have social capital.

So ask yourself what you are doing to help other people. Find ways where you can provide value. You might find that you have something unique that you can provide that others value. Do this enough, and soon enough you’ll realize that all that value you have provided has built lifelong connections and been returned to you ten-fold.

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