Posted by Ali Safavi on August 11, 2017
In a previous post, we looked into tools that let you quickly narrow down your choice of investments, and how the profit and loss statement can be used to analyze an investment’s desirability. Now comes the most important part – building a team that can assist you in your day-to-day operations and maximize your investment returns.
Real estate is a hyper-local business; this means your team must be too. It’s not enough to say you’ve got a team in California, or even South California. The whole place is huge – you might as well be covering an entire continent. Your team must be chosen on a per-city basis – on a per zip-code even, if you can manage it – for it to be effectively working for you!
What are the components of a winning investment team?
Three Property Managers
Your property manager is the go-between for a tenant and a landlord. Tenant complaints are filtered through him, and he collects rent on your behalf. In practice, you will find property management to be the least proactive and laziest on your team. Why? Because their job is essentially passive – they wait around for problems to happen.
Trust us when we say you’ll want at least three of these guys – 1 for day-in and day-out use, and 2 for your bench. You’ll need the bench because over time, your relationship with your property manager will be strained. It’s not surprising – you’re often the last person they’ll want to talk to, since you’ll only be calling him only if there are problems.
Three Insurance Brokers
You’ll want three of these guys, so they can help sniff out the best property insurance for you. You don’t want to get stuck with an investor-unfriendly insurer, who cancels insurance on the smallest violation they catch you on.
Three General Contractors
General contractors are the overall coordinators of any projects you start on your property, be they maintenance, minor repairs, or major renovations. They have highly specialized skillsets – and they charge for it too. Probably 20-30% above cost, even if they promise they’re only charging 10%. You’ll want three of them on your team so you can do comparison-shopping to minimize costs.
Why do you want subcontractors in addition to general contractors? Simple – many general contractors simply farm the job out to subcontractors, and charge you a markup. Having subcontractors on call lets you minimize costs by allowing a direct apples-to-apples comparison to your General Contractor’s quotations. You’ll want three subcontractors per trade, and by that we mean different subcontractors for plumbing, electrical work, roofing, concrete and foundation, and all other jobs such as flooring and painting.
Three Title Companies
Title companies make sure that your title is legitimate, and issues title insurance for that property. Not only do title companies help you close the deal, some may let you participate in wholesale deals and do double-closings. The really good ones even bring you deals you may not know about. While you’ll want to stay loyal to an investor-friendly title company to negotiate a volume discount, you’ll want to keep at least a few around as backup and for price comparison purposes.
Three Investor-Friendly Realtors
We’ve covered this in part one – a good investor-friendly realtor is worth his weight in gold. You’ll need more than one on your team because one person alone cannot possibly find all the good deals for you.
Three Real Estate Investors
Also covered in part one. A fellow real estate investor will gladly use his local knowledge help you get a sense check on how good a particular investment is. Some might even bring deals to you!
Two Certified Public Accountants
Good CPAs, or as we like to call ‘em, those in charge of cleaning, pressing, and alteration, can help you optimize the amount of taxes paid. But be careful not to be too aggressive in fudging expenses or income – it is a felony once you exceed a certain threshold! You’ll want two CPAs – one as your lead, and the other as backup and verifier.
Three Real Estate Lawyers
Real Estate lawyers help you in drafting legal agreements and protect you from wading too much into legal entitlements. While it’s often enough to keep a good attorney on retainer, you may want additional backup to serve as an extra set of eyes. If you own properties in multiple states, then you’ll definitely need more than one – laws can be different across jurisdictions.
In summary, a buy and hold investment can be very fulfilling. If you have the right tools to analyze alternatives, the right knowledge to read and interpret a P&L, and have the right investment team for the job, you will definitely earn a lot of return!