A winning personality, prestigious education, big LinkedIn network and slick marketing all seem to be the driving factors when selecting an operator to back for a real estate investment. The truth, however, is that none of these things matter in the slightest. In fact, most quality operators who have a demonstrated success in the long term all share some other similar characteristics, and none of them have to do with the alphabet letters after their names:
- Real experience: What people say they can do doesn’t matter – what have they actually done? Working as an associate at a real estate hedge fund, for example, may not mean anything more than staring at a few spreadsheets and attending some investor meetings. Real experience means finding the property as an individual (i.e., not on behalf, or as an employee, of others), securing financing, signing personal guarantees, and being an actual on-the-ground operator dealing with tenants and subcontractors.
- A solid track record: A real track record means an operator has properties and deals that they have directly managed. This is where resumes and cover letters can be misleading; it is important to dig in and ask how many of the reported transactions the operator managed as a principal of the ownership group?
- Troubleshooting experience: It’s a fact of life that some deals will go sideways, and it isn’t great to be an investor on the first deal where is trouble encountered by an operator. A great question to ask is what is an operator’s “worst” deal? What did they do to remedy it?
- A clean background check: Don’t rely on what anyone tells you—the best $40 you will spend is running a basic background check on any potential operator. If they aren’t honest about their past and you discover it during the check, it should be a red flag about trusting them with your investment.
- Loyal employees: Check employee references to see how long people have worked for a potential operator. High turnover at an operator’s organization is a telltale sign of chaotic management, poor management, and toxic work culture.
- A pleasant personality: Pay close attention to an operator's personality and work style when first meeting them. Someone who displays hubris, poor communication, or a lack of respect will most certainly do the same thing when interacting with tenants and public officials. Collaboration is essential, and aggressive personalities can create major operational problems in real estate.
In summary, don’t ever feel a need to “take an operator’s word for it” when it comes to their qualifications. An honest operator will appreciate your desire to learn more about their organization and track record, and be happy to answer these questions.