Why Have A Team?
It can be quite a daunting task, when you’re starting out, to consider hiring accountants, lawyers and other professionals. Not only is the expense a concern but knowing who to consider and how to make a decision about who to utilize puts many people off. And it is for these reasons that many would-be investors try to do it all themselves.
However, you will find that the short term benefits of doing it all yourself will very quickly be dwarfed by the cost of lost opportunities, bad deals, and a simple lack of manpower turning just a few deals into a full-time job. So instead, let’s discuss some effective selection techniques and ways to minimize costs in the early days.
At this stage, don’t worry too much about how you will afford to have these professionals “on your team”. There are definitely going to be some costs in getting started but initially you will be calling on these people far less frequently than the phrase “on your team” might suggest.
Who To Include On Your Team
If you look at the general process for successful real estate investing you will see some important early steps involve legal and accounting advice so it follows that a lawyer and accountant are key members of your team. Your lawyer and accountant should jointly help you with structuring your business for optimal legal protection and tax purposes. Your lawyer will also need to help in creating appropriate contracts for the deals that you do. And similarly, your accountant should give case-by-case tax advice.
Your primary selection criteria for these professionals should be that they are real estate investors themselves. “How do I find that out?”, you may wonder. Just ask them. But be warned; they will know why you are asking so they may give you a positive reply on the basis that they own their own home and maybe a vacation property or two. So, you may want to ask if they generate a substantial income from investment real estate.
The reason this is your greatest concern with accountants and lawyers is that if they are investors themselves they will have much more of a “can-do” attitude rather than constantly putting a negative spin on things. They will understand where you are coming from and have a keen interest in finding answers to your questions. If you get active investors on your team it will make life so much easier.
Property Acquisition Team
In addition to these professionals, some other key people to include in your team are: a real estate agent or broker, a property manager, and a lender or mortgage broker.
When selecting these members of your team it’s not so important that they are investors themselves but you really want to narrow your search to people that work with investors on a daily basis. You will find that in each of these professions there are specialists who focus on investors and these are the people you want to work with.
For example, to find a good real estate broker you could walk in or phone and simply ask who their best investment broker is. If they really have to think about who that is, they may not really be an investment specialist so you might want to try a different firm. But if you get a confident reply that “Bob looks after most of the investors!” then you can ask Bob a couple of questions to make sure he knows what he’s talking about.
Two key questions to ask the nominated investment broker are:
What are the top couple of investment properties on your books right now?; and
Why are they your best? What makes them good?
Obviously, if this person doesn’t have an opinion about the best deals on his books he will struggle to help you out. And hopefully, their answer to the second question will agree with your concept of what a good investment property is. If you’re unsure at this stage, they should generally be talking about the returns and the upside of the location first and particulars about the property second. Unlike a home buyer, you aren’t so interested in the lovely drapes, the white picket fence, or whether you like the color of the bathroom. The property numbers are the most important thing along with the factors that make those numbers attractive.
With regards to selecting a property manager it is best in most cases if you manage a property or two on your own when you are starting out. That way you will understand many of the issues that must be dealt with and will be in a far stronger position to quiz prospective managers. Some issues to consider are collections, late payments, inspections, maintenance, marketing, minimizing vacancies, etc.
In your search you obviously need to find out how your property would be managed: if keys are handed out, how enquiries are handled, if you receive reports after routine inspections. Do not go on management and letting fees alone. It is important that the people managing your property look after you, your tenant and your property. A wise thing to do would be to contact a few customers and see what they have to say; ask the company for testimonials.
Other Team Members
Here are some other people that you could well need along the way:
Bookkeeper – you should consider a bookkeeper an essential team member as they can help keep your finances in order for a fraction of the price of an accountant. Involve your accountant in strategic decisions but find a good bookkeeper for day-to-day operations.
Appraiser – many people try to save maybe $700 and it ends up costing them a whole lot more than that because they don’t know the true value of a property.
Bird dogs – why not offer a reward to people who can bring you a motivated seller. People who know an area such as delivery people, house-sitters, or movers can be a great source of wholesale property. If you offer $500-$1,000 for each property you complete on then it doesn’t cost you anything (just a very small percentage of your profits).
Insurance agent – you simply must insure your properties so make sure you get the right cover at a good price.
General contractor – some of the properties you find will need some work done to them and if you have a guy who you give regular work to he may come and look at properties for you before you buy.
Building and pest inspectors – it just makes sense to have a good relationship with someone so you get great service and good prices.
I mentioned earlier that there are ways you can minimize costs when dealing with your team members. The best method I have found is very well known but not very well practiced. Establishing win-win partnerships does a lot more for you than minimize your costs; it strengthens your business relationships and multiplies your business because you are helping other people rather than just thinking about how you can get something out of someone else.
An example of this would be to bring business to your real estate broker. If you come across properties that are not listed and do not suit your investing strategies it is a great idea to forward the details to your broker. If you can help your broker get a couple of listings each month he will very much appreciate it. It should then come as no surprise if that broker starts to come to you with properties before he tells anyone else about them. He will suddenly become more interested in your business and go out of his way to help. He may even spend time doing MLS searches for you on properties that he doesn’t even have on his books.
There are many clichés for this principle of reciprocity because it is timeless and it works.
This same principle can be applied to just about any business relationship. Just start to think about it from the other person’s perspective – what’s in it for them?
Just before we wrap it up, here’s another great example of how to use this approach when Talking To Your Lawyer.
I know this topic can be a stressful one when starting out so I hope this alleviates some of the pain and encourages you to go out there and do it. It is a critical step in building a sustainable real estate investing business so do not let any remaining discomfort dissuade you from taking action.
To your success,