Successful real estate Investors know they can create long term wealth through buying and holding real estate as rentals. Everyone wants to be successful, but everyone isn’t. Why? It may be because they don’t have a plan. There is an old saying, “people don’t plan to fail, they fail to plan”.
The first element of that plan has to be putting together a team of people to help you accomplish your goals. You have to remember that being a successful real estate Investor requires that you have a TEAM in place. Investing is not a solo sport.
Let’s take a look at who we will need on our TEAM. All of these people are extremely important and need to be in place before you buy your first property.
Coach/Mentor – Every successful entrepreneur needs a good coach or mentor. By training under the watchful eye of someone who is successful, you will gain valuable knowledge and reduce the risk of failure.
Realtor/Wholesaler – This is the person who will find the property for you. Some people chose to work with a Realtor and some a Wholesaler, but basically they do the same thing, they find great deals!!! If you are working with a Realtor, they should be experienced in dealing with foreclosures. Banks want to unload these properties, but you need a Realtor that has had experience in negotiating deals with the banks. If you are working with a Wholesaler, they either already own the property or at least control it. Both of these people can determine the value of the property after it has been repaired. Both can advise you on improvements that should be made to get the house rent ready as soon as possible.
Lenders – Before you even think about buying a piece of investment property, you need to know ahead of time what lender you are going to use. Being able to get refinanced is crucial to the process. You do not want to buy a piece of property and then find out you can not get it refinanced. This is one of the biggest mistakes Investors make. They buy a property with their own money or use a line of credit, and then they can’t refinance and get their money back. Basically, you want to buy the property with hard money, rehab it, and then refinance to your permanent loan. Financing for investment property is very challenging, which is why it is even more important than ever to have a lender on your TEAM. This person may change, but you will always need to have a relationship with someone that you know will refinance your deals, whether it is house number one or number fifty.
Closing Attorney – A good closing attorney is invaluable. Call around and see what they charge to close a deal for you. By using hard money to buy the property, rehabbing it, and then refinancing it, you will have two closings. The first when you initially buy the property and the second when you refinance. That being said, you want to develop a relationship with a closing attorney that understands real estate investing, provides their services at a reasonable rate, and can close quickly.
Insurance Agent – You will need to shop around for a good insurance agent. It may be the person that handles your existing insurance, but a lot of companies don’t cover rentals or have limited coverage if they do. When looking for an agent, ask if their company covers vacancies. You will have vacancies!!! Don’t buy a policy that doesn’t allow for that. You may want to get a minimum of $300,000 liability. Also, look for a policy that has loss of rent. What if there is storm damage and your tenant has to move out for 3 months for the damage to be repaired, you don’t want to lose that rent money. Make sure the agent understands that you want to insure rental property, not that you are renting. One is a renter’s policy and the other is called a fire/hazard policy. Once you have accumulated several properties, you might want to consider an umbrella policy that would cover all of your properties for say $1,000,000. This policy pays in addition to the insurance on the individual property and is very cheap. It’s kind of a safety net for that “what if” scenario.
Contractor – When shopping for a contractor, be sure you find someone that is licensed and insured. If you are working with a Realtor that specializes in foreclosures they will be able to recommend several. The same goes for a wholesaler. Interview them and find out how they get paid. Most reputable contractors have lines of credit, so they don’t require as much money upfront to get the job started. Ask to look at a job they are currently working on or have just completed. This will give you an idea of the quality of work they do. Have several contractors submit bids on the job before you make an offer on the property. You have to know how much the rehab is going to be before you can make a sound offer. Go through the property and make a detailed list of what needs to be done.
Remember, you are not moving into this house, this is going to be a rental. Once the property is yours, go back and get a firm bid on completing the repairs including the time frame to get the job done. Time is of the essence. A vacant house produces no cash flow!!! If one contractor gives you a better price, but can’t start for several weeks, it may be better to pay a little more to get the job done quickly. You should have in writing exactly what will be done and the total price. Of course, there is always the unexpected, but if the rehab goes according to plan, there is no reason for there to be a change in price. You may want to negotiate to pay them one-third upfront, one-third when the job is 75% complete and the last third when the job is complete and has been inspected. This way if there are any problems or things weren’t done that were on the list, the contractor has to take care of it before receiving final payment.
Property Management Company – I wouldn’t even consider owning rental property without a property management company. Do you want the headache of dealing with tenants? I don’t!!! It is well worth the money to let someone else handle everything that goes into having tenants. Most property management companies charge 10-12% per month to manage the property for you. They collect the rent from the tenant, handle any maintenance issues, deduct their fee, and send you a check.. You don’t have to do anything, but go to the mailbox and cash the check!!!
Eviction Attorney – I know, no one wants to think about this, but if you have rental properties, sooner or later you probably will have to evict someone. It would be better to already have an attorney on your TEAM that does this than to have to start looking for someone after your tenant is behind on their rent. Also, you need for them to look over your lease to make sure it complies with state laws governing landlords and tenants. You want your lease to be landlord friendly, not tenant friendly. You need to know the time frame for an eviction as this varies widely by state.
Appraiser – You need to know before you buy a property what it is going to appraise for when the rehab is completed. The Realtor/Wholesaler will have a good idea, but you need to be as accurate as possible. Remember, the goal is to not be out of pocket any money. If when you go to refinance and you thought the property was worth $100,000, but the appraisal comes in at $90,000, you probably will have to go to closing with money. It’s a good idea, to get a verbal appraisal before you buy. Also, since you already have a lender on your TEAM, find out which appraiser they use. You can then contact them and ask if they will do a verbal appraisal on a property you are considering. If you tell them that you will ask the lender to use them for the appraisal, they usually will do a verbal for free. Even if you have to pay them something, it’s better to know the value on the front end, not after you have bought it. I do want to mention that even if you get a verbal appraisal, if it takes you 3 months or longer to get your property rehabbed and refinanced, then the appraisal may be off. Appraisers are limited as to the age of the comparables they use. So if it takes a long time to get the rehab completed and then you have to start shopping for a lender, instead of already working with someone, then the comps the appraiser used in the verbal appraisal may no longer be any good.
Accountant – Preferably, your accountant will be a CPA who has experience with real estate investments. Not only will they benefit you at tax time when it comes to write-offs, but also throughout the year in setting up your business correctly and reducing your capital gains tax if you sell a property.
These are your core TEAM members. Remember, to become a successful Real Estate Investor, you have to build a TEAM!!!
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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com