Stewart Hsu

Picture this, you’re on a football field (it can be the version where you use your feet or it can be the American version) and on your side it’s just you. On the other side it’s a whole team of 11 players. Can you imagine attempting to play this game? It’d be ridiculous.

Well, it’s the same investing in real estate. The good news is you don’t even need as many as 10 other people, just a few select people will do.

Being able to find, interview, motivate and work with excellent people can make all the difference between incurring losses vs. achieving stellar returns. It takes time and skill to build and maintain a good team, but that time and effort you invest will undoubtedly yield you greater confidence, better decisions and therefore better results. You could do it alone, but you will be able to accomplish much more with a solid team supporting you.

“Business is a team sport.” Robert Kiyosaki

I attended business school and I remember in my first year thinking how odd it felt doing everything in groups and teams. I think I felt that way because my first 12 years of school was so heavily focused on individual achievement. In the real business world, if you don’t know the answer to something you need to know, you find an expert and ask that person for advice. In our traditional education system, if you’re taking an exam or writing a report and you ask someone for help, it’s called cheating.

Okay, I admit this example isn’t perfect, but I think you get the idea. The point is, if you’re like me, you probably have a natural bias or tendency to try and figure everything out yourself.  Stop to think about this for a minute. Be aware of yourself; assess yourself honestly. If this does sound like you, then the more you’re aware of this, the more likely you’ll notice when you’re taking on too much yourself vs. perhaps when you should be seeking help. By being aware and acknowledging what you don’t know, you’ll then be able to take steps to obtain advice from experts when you need it most.

Okay, so you get it. You’ve bought into the team idea (which is why you’re reading this article in the first place!) and you promise yourself not to go solo any more. Even The Lone Ranger had Tonto and Silver. You know you need a team.  So now you ask “how do I find and build my team?” Before we answer that there are 2 types of teams we need to differentiate that are important for you to build.

1) Your Support Team
2) Your Acquisition Team

“If you want to increase your net worth, focus on building your network.” Anonymous

I introduced the concept of these 2 teams in my How to Get Started Investing in Real Estate article (scroll down to Step 4: Build a Team). The Support Team may not seem necessary to the beginning investor, but if you have either big goals or goals you are serious about achieving, pay attention to this: who you surround yourself with makes a big difference.

I know, I’ve been there. It’s easy to get distracted and easily dissuaded by those around you — especially when you’re just starting off. And it’s typically hard to be different if your immediate circle of friends and associates a) don’t understand what you’re doing and why you’re doing it and b) therefore they are not supporting you. [Reminder: Complete article on Why Invest in Real Estate]. One negative comment from a family member or friend (whom probably has little to no experience investing in real estate) could deflate one’s efforts. The idea is to surround yourself with people whom support you.

Your Support Team

Imagine you spent your time with people like Warren Buffet, Bill Gates, Richard Branson and/or Bill Bartmann. If you were hanging out with these types of people, wouldn’t you expect to achieve different results in your life? Of course you would. As a quick aside, in case you’re wondering “how can I learn how these ‘high value producer’ types think?”, check out my brief article on Think and Grow Rich; the answers are more readily available than you might think.

The people that make up your Support Team could be a spouse, a fellow investor(s), coach, business partner, mentor or some combination thereof. These are people with whom you have shared your goals with and people who in turn are supportive of you 100%. It is possible to succeed without this team, but from my experience the saying “two heads are better than one” definitely rings true. When you surround yourself with other motivated people and/or people who are there to help you succeed, they’ll “pump you up” when you most need it and keep your momentum moving forward towards your goal.

Another big benefit of your Support Team, is simply the act of expressing your goals and intentions, along with your reasons why, makes your goals more real and puts another layer of accountability on yourself. Perhaps an odd phenomenon, but when you have promises to keep to other people vs. yourself, most people will keep the promises made to others before themselves. By sharing your intentions with your support team, it acts as an additional motivating factor to achieve your goals. It gives you something to prove to someone else. (Ever wonder why so many immigrants who come to the United States do so well? My guess is it’s because they come to prove something.) Have courage and tell your Support Team your goals.

Your Acquisition Team

Now that you’ve got your support team in place, you need a solid team to help you identify, analyze, inspect, negotiate, appraise/fund, contract, close and then manage. It may sound like a lot initially, but it’s not that bad. These roles / team members can be categorized into two parts pre-acquisition and post-acquisition. Let me address the later first, since it’s a much shorter list.

– Post-Acquisition Team: Property Management

You’re post-acquisition team is basically your property management team. “Begin with the end in mind” is one of the 7 Habits of Highly Effective Leaders. “The End” as far as real estate investing goes, is have a well-run, clean, safe, functional property with quality tenants whom pay their rent on time and report issues in a timely fashion. Who’s primarily responsible for this? You got it, your property manager. You could do it yourself, and in fact it might make sense for you to do it on your first 1 or 2 investments to learn what it takes; but big picture, you should outsource this to people whom do it professionally — they have the experience and can usually get better pricing for supplies, contractors, advertising etc. due to their larger size.

So, how do you find and evaluate good property management? The best 2 sources that I’ve found and experienced are 1) word of mouth and 2) Institute of Real Estate Management (www.irem.org).

The first may sound obvious, but it’s still one of the best ways out there. Talk to other investors whom are already investing in an area that you’re interested in. If you don’t know of any investors (yet), go to a local real estate club and start networking to find out who’s done what and where. You’ll be surprised, especially in real estate, people are happy to share their contacts. The second source, which may be more applicable if you’re looking for larger properties, is to go to IREM’s website (Institute of Real Estate Management). The key thought here being, serious property managers take the time and effort to get the certifications to prove they are professionals. Not to say that if you don’t have any of IREM’s certifications it means your unprofessional, but by going through IREM, you’ll be talking to a higher quality of property manager from the start.

Once you’ve identified 2 or 3 possible Property Manager candidates, there are a number of questions you could ask (it could be whole other article in itself) but I’ll highlight the Top 8 questions I think are most important.

1. How long have you been managing property for? The longer the better, but I’d say 3 years would be the minimum.
2. What type of property do you typically manage? You want a manager that ideally specializes in the type of real estate you want to invest in. If you’re buying a single family home, you want them to specialize in that.
3. What are your fees? Property management will typically charge a percentage based on rents. There is a key difference between potential rents and rents collected; hint: you want the latter. Typically for single family homes I’ve seen between 8% - 12% of collect rents to be the norm. For apartments 50 units and up, it typically ranges from 4%-6%. For leasing your home, they may charge a flat rate or take a larger percentage of the 1st month’s rent, I’ve seen anywhere between 25%-75%. Find out what type of advertising may be included vs. what you, as the owner, is expected to pay.
4. Can you provide addresses of property you currently manage? If possible, drive by a few of them to see how they look; if they’re well kept, chances are they’ll do the same with yours, if they’re not, then raise this to their attention or keep looking.
5. Could I have the names and phone numbers of 2 or 3 existing investors whom have been using your services for at least 2 years? Always call these people and remember to thank them for their time and input; don’t be shy, checking references is important.
6. What type of response time should I expect on my phone calls or e-mails? If they say it’ll take over 1 business day (or 2 business days max) to respond, then you should keep searching. Note: responding and having a complete answer are different things. Some tasks do take time and it’s not reasonable to expect every question to be addressed within 1 or 2 days, but at a minimum they can acknowledge your inquiry and let you know when they do expect to have an answer back for you.
7. Can you provide samples of the monthly reports I should expect to receive? Reporting is key for tracking issues.
8. How many properties do you manage? For single family homes, I’ve found those companies that limit 150-200 homes per property manager ideal. Also, if they separate their managers by geographic region, that’s even better. The trade-off is you might be paying on the higher end of the scale, 10% to 12%, to find a company that meets these criteria – but in my opinion it’s worth it. From my own experience, I’ve tried to save a couple percentage points and it wasn’t worth it – the quality of service definitely suffered.

Any property manager that’s good at what they do should have zero problems addressing these 8 questions. If they do show some resistance, you may want to keep looking.

Keep in mind, property management is a business where the margins are slim. For example, consider a single family home you may have that rents for $1000/month, the property manager might earn $100/month. If they make just 2 trips to your property a month, they’re barely breaking even on gas, insurance, and their time. So the idea is to show respect for their time, and you’ll receive the same courtesy from them in terms of good service.

Now that you’ve found your property manager, whom will be running your property once you’ve acquired it, you can use that person to a) get feedback on other team member recommendations (see following below) b) identifying the best neighborhoods for renters, and c) evaluating deals you’ll be receiving from your real estate agent.

– Pre-Acquisition Team: Real Estate Agent

After your property manager, whom I believe is your most important team member, your real estate agent comes next. Interestingly, many people might say the real estate agent is first, and as important as they are, remember to “begin with the end in mind.” Not to criticize, but the fact is, after the agent closes the sale with you, they generally have little incentive to keep spending time helping you; they should be out looking for their next client to serve.

As far as questions to ask, you could adapt the 8 questions for the property manager above to be applicable for your agent, e.g. how many investment homes have you bought/sold? how many investors have you worked with? can you provide 2 or 3 references for past investors? etc.

A key additional question: ask the agent if they are real estate investors themselves? They should be. The reason why is that then they’ll be able to guide you much better, and you can ask them even more questions to learn how they think and act as investors, e.g. where do they invest, why, what type of investments, why, who do they use for property management, why etc. One of my agents (who’s also an investor) was extremely useful to me in providing me with all the contacts I needed to get things done cost effectively, e.g. finding used appliances, cheaper carpet & installation, plumbing contact, appliance maintenance contacts, carpet cleaning, etc.

(Note: In contrast, you generally don’t want your property manager to also be an investor, since there would be a real potential for a conflict of interest. For example, if your property manager has a vacant house in the same area where your property is also vacant, guess which house will get leased first?)

Their role is to listen and understand your requirements, provide knowledge and expertise of both the different neighborhoods you’re considering investing as well as the properties themselves, and generally act in your best interests through to closing. Good real estate agents are good problem solvers and have tons of contacts they’ll be happy to refer you to. They should also help you analyze the deals. For details on analysis, see my post on How to Analyze Real Estate for an in-depth look.

– Pre-Acquisition Team: Everyone Else
Yeah, “Everyone Else” is a bit of a cop-out, but I’m really just applying the 80/20 rule and this article is already a bit long. 70% to 80% of your time should be talking with your Property Manager and your Real Estate Agent. In the course of your acquisition, the other team members may take 20% to 30% of your time.

* Loan Broker / Lender
* Property Inspector
* Appraiser
* Escrow/Title Officer
* Real Estate Lawyer

Loan Broker / Lender. This is the person that’s going to help you get the loan for your property. I’ll write a separate article on how to evaluate your loan. For now, besides asking what interest rate you’re getting and for how many years, you also want to ask how many “points” you may be paying to get that rate. If they say “no points”, ask them if you can buy down the interest rate by paying points; the idea being you want to know what your options are so you can decide if it makes sense for you to buy down your rate or not. You can ask this person if they invest as well; it’s not a requirement here, but a nice to have. The more investors you talk with the more you can learn.

Property Inspector. You’ll need an inspector to give you an independent 3rd party review of the property you’re looking to buy. If you’re buying new construction, this might be a fairly straight forward shot. If you’re buying anything else, you want a seasoned, experienced (5+ years minimum), to find all the possible current and near term (within 5 years) issues. Confirm with your inspector in advance their fee and the type of report they will generate for you. Ask to see a sample of past reports. In the U.S., you can go to the American Society of Home Inspectors website www.ASHI.org to search for an inspector. To me, the most important aspect is experience. Interestingly, inspectors can have all sorts of equipment to read measure temperatures, moisture levels, etc. Regarding what’s really necessary, the best guidance I can give is to talk with at least 3 inspectors, understand what they do, ask questions, then take your pick from there.

Appraiser. In most cases, you as the investor don’t need to talk to this person. The bank or lending institution will higher an appraiser to give a independent assessment of what the property is worth. The bank is not going to lend you money on the property if they don’t think it’s worth it. This can be a comforting thought, but don’t let that be a short cut for you – remember, key belief of all successful investors is that you take full responsibility your decisions and actions.)

Conceptually, I think it may be a good idea to meet and talk with a couple appraisers to get their perspectives on properties in a given market. After all, appraisers do look at a lot of property, and they should be able to tell you relatively quickly what a property is worth and whether or not you’ve got a good deal.

Escrow/Title Officer. At least in the U.S., your deposit that accompanies the signed contract typically goes to an escrow company. The purpose of an escrow company is to act as a neutral 3rd party, who’s sole job is to carry out the instructions of the contract. They should not be acting in the interest of either the buyer or the seller; but simply following directions per contract. They communicate between the buyer, seller and respective agents. They will calculate pro-rations for interest, property taxes, and rents (if applicable). They are not responsible for ensuring all parties get all documents as required by the contract; so don’t expect them to delivery everything to you. When in doubt, ask and follow-up with your escrow officer and/or your real estate agent. You’ve come this far, don’t slack off now.

Real Estate Lawyer. Some states in the U.S. require a lawyer to close on the purchase of real estate, North Carolina is one that comes to mind. Also, you may want to have a lawyer look at your contract, but if you’re buying a single family home it’s probably overkill for two reasons. One, most states have an approved standard contract form that is meant to be balanced between the buyer and seller, i.e. it doesn’t not favor either side. Two, your real estate agent should know the standard contract inside and out and should be able to explain all of it in detail to you (or at least be able to get you the answers relatively quickly).

If your deal is more complex, e.g. buying an apartment building over 20 units, you probably want to be consulting with a lawyer. Also, if you plan on holding your property in a trust, LLC, or some other legal entity, it’s probably wise to get advice from an expert.

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Whew! We’ve covered a lot ground and I want to congratulate you for making it this far. …Congratulations! When you return to review this material in the future, it’ll sink in further and you’ll be better prepared than 80% of all beginning real estate investors. Someone said Einstein was wrong when he said “Knowledge is Power”; instead they suggested “Applied Knowledge is Power”. Unless you use or apply the knowledge, it can have no effect. For other sources of knowledge check out the books I recommend on my resources page, then apply what you learn.

One last set of questions I want you to be aware of is the 3 Filter Rule by my friend Dave Stech. It may be a difficult thing to assess people’s character in one or two phone calls and/or meetings; but that doesn’t mean you shouldn’t keep this in mind over the long term. Scroll down to the 2nd of the 3 Powerful Success Concepts.

To build yourself a strong real estate team simply requires asking a lots of questions and listening to the answers. The questions provided in this article are meant to be a very good starting point for you but are definitely not an exhaustive or comprehensive list by any means. One recommendation I’d like to pass on to you is, before you interview each potential Acquisition Team member, to spend at least 15-20 minutes brainstorming additional questions you may want to ask them. There’s no such thing as a stupid question and your questions will get better over time. If you’re just starting out, accept that fact and use it to your advantage. You can ask something like, “I’m completely new to real estate investing, what are the important questions I should ask to evaluate a good [property manager, real estate agent, investment, etc.]?” Then write down their responses and either use those questions to interview the next person and/or repeat that same question. You’ll be learning tons before you know it and having fun in process. Another idea is you could use your Support Team to come up with a list of questions.

Remember, every successful investor knows the importance of leverage. Realize the power of leveraging both money and knowledge. When you build a solid team around you that you respect, motivate and communicate well with — your investing future becomes very bright.

Coaching

How to Get Started Investing in Real Estate

Dave Stech: 3 Powerful Success Concepts