Why and How to Form Your Real Estate Investing Team
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Rockstars know rockstars.
This popular real estate investing axiom was coined by Bigger Pocket’s own David Green, and summarizes the idea of skilled individuals gravitating together towards common goals. Greene explains that, “[one] person alone can only do so much, but by leveraging others whose goals align with yours, you’ll find that your success will start to come much, much faster.” The term Rockstar denotes a person who is highly skilled at their job. In rock n roll, there are countless drummers, but only one Neil Peart. In real estate investing, there are many agents, lenders, contractors, property managers, etc., but only a handful of highly skilled individuals, and even less of them whose goals will harmonize with your own. When embarking on your investing journey, it is crucial to (1) identify your specific goals, and (2) find highly skilled individuals with whom you can establish mutually beneficial partnerships.
Rockstars are motivated and successful, and don’t tend to waste their time playing with mediocre bandmates. The same principle holds true in the investing world. When approaching Rockstars - especially as a new, unproven investor - you need to find creative ways to bring them value so that their time will be well spent helping you. Greene advises investors to “take the attitude of the servant first, putting your fears behind you and instead focusing on proving to them why it’s in their best interest to help you.” For example, if you’ve identified a Rockstar agent, you can add value you to them by sending them referrals of serious buyers, such as friends or family. If this agent has helped you purchase a property in the past, write a positive review on their website. There are many ways to respect and reward the Rockstars on your team. Be creative and intentional and you will find that your team members will be more than willing to help you in your pursuits.
With that, I want to break down the members of your team, and what their respective roles should be.
Agent: your real estate agent is your first point of contact. They will send you leads, schedule showings, and advise you on what pertinent details to consider when purchasing a rental property. If you can find an agent that invests in real estate themselves, then you’ve truly found a Rockstar team member! This type of agent will be able to help you analyze a property and understand the numbers. They can refer you to certain neighborhoods and markets where properties are selling below market value. By asking them questions and learning about their own investment journey, you’ve not simply found an agent, but a mentor of sorts. You may even consider becoming a real estate agent to further develop your education and gain access to some incredible tools.
Mortgage broker/loan officer: this person(s) is responsible for getting you loans - especially if you are going conventional (rather than hard or private money). Finding someone with experience working with investors is key. A Rockstar loan officer will possess a pipeline of buyers and lease purchasers and qualify them quickly to get a transaction through contract negotiations.
Contractors: arguably the most difficult member of your team to find, a Rockstar contractor is someone who can get jobs done on time and under budget. Make sure your contractor is licensed, bonded, and insured in order to protect yourself; don’t just hire the cheapest guy. Communicate up front your investing goals and determine if your contractor will work hard for you to achieve them. Most contractors are busy, and as a result poor communicators. Find someone who’s willing to communicate with you, and can also coordinate with the city to attain permits in a timely fashion. An experienced contractor will know the best roofers, HVAC services, plumbers, electricians, etc. Lastly, a Rockstar contractor will grant you peace of mind by being honest up front regarding the cost of materials and the approximate hours of the total job. When first starting out it’s important to get multiple bids for your jobs to determine the best price available. If a contractor demands full payment up front, turn around and run!
One tip of David Greene’s tips on how to turn a bid into a contract is to confirm with the contractor an amount of weeks they’re confident they can finish your job in. Then, give them one additional week, with the promise of a 5% bonus of the total job cost if they finish on time. Offer this bonus with the condition that for each week they go over the agreed upon timeline, you will subtract 5% from the last draw. Whether a contractor accepts this condition or not will reveal their level of seriousness in completing a thorough job within the limits of your budget and timeline.
Property managers: A good property manager can be difficult to find. Someone who is punctual, eager, and takes initiative are essential to an effective property manager. Ultimately your are paying your PM to do all the “dirty” work that you don’t want to: tracking down rent, screening applicants, fielding tenant complaints, showing vacant units, handling maintenance requests, etc. A Rockstar PM will be a pro at maintaining and enhancing profitability (i.e. keeping expenditures low and income high). A Rockstar PM has an investor mindset, and will care for your property and its tenants as if it was their own. This mindset will help them think “big picture” so they can advise you in various business decisions, like offering rent concessions and prioritizing capital expenditures. This individual should possess a balance of patience and aggressiveness; they need to maintain accountable relationships with tenants and contractors. A Rockstar PM will know the best areas and markets to invest in. They have referrals for tenants, as well as handymen or repair crews. And they can handle most problems without involving you.
If you can establish your “core four” investment team, you will be well on your way to a successful career in REI. Additionally, some other members you will likely need down the line include the following (some of these roles are more necessary for commercial, not residential, properties) :
Business team:
Attorney: The right attorney will facilitate closings or advise about real estate transactions. They go through contracts and know the legalities of your moves. They can also help you structure your business to protect your personal assets. It's always better to work with an attorney to structure your business and procedures than it is to hire them to defend you in a lawsuit. Attorneys can be compensated through fees collected from an acquisition or disposition of a property.
Accountant: the larger your portfolio the more difficult it will be to manage taxes & bookkeeping. Hire a CPA who's aware of the ins and outs of real estate & preferably owns rental properties of their own. The right accountant will help you to structure your business in the right way to maximize profits and minimize taxes. A good tax accountant will save you more than the cost of their service.
Insurance agent: From insuring structures long-term to short-term construction insurance and even business liability coverage, you must put a strong, independent insurance agent on your real estate investing team.Business liability, property protection, and rental home coverage are jobs that make your insurance agent of great value to the team.
Additionally, if you do get into more commercial real estate investing, you may want to have the following team members in place: Property and income tax consultant, estate planner, environmental company/industrial hygienist, architect, surveyor, structural engineer, etc.
While the internet provides many platforms to search for and find Rockstar team members, remember that one of the best sources are referrals from fellow investors.
Bringing it all together
It takes a team to be successful in this business. In addition to your investment team, you may also determine whether you want a partner. If you know someone who has knowledge, experience, or just some extra income they want to invest - they may be a great person to approach for a partnership.
Evaluate partner candidates based on the qualities of good partnership (what do we both bring to the table? Money, expertise, connections, etc.). Begin networking to find other team members for your property search team, offer team, and other team members you'll need from time to time. The more people in your network, the more sources of knowledge and advise you can access at every point in your investing journey.