Real Estate Investor Guide

Draft Your Own Dream Team

(Working With Contractors and Service Providers)

by

William Johnson

COPYRIGHT NOTICE

@ 2015 William Johnson, REIClub.com All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher. Please Note: William Johnson and REIClub.com, the provider of this intellectual property, has united with others in the real estate industry and are utilizing Watchdog Reporting to identify and prosecute to the fullest extent of the law all criminal activity involving the illegal copying and/or pirating of these copyrighted materials.

DISCLAIMERS

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal or other expert assistance is required, the services of a competent professional person should be sought. Your results will vary from those of the author and/or other students mentioned in this course. The author and the publisher do not guarantee that anyone following these ideas, strategies, suggestions, techniques, or tips will become successful. Further, this is not a sale, nor an offer to sell securities, which are regulated by state and federal laws and regulations. Any sale of securities must be conducted by registration or under an exemption from registration. William Johnson, REIClub.com and its officers, agents, and assigns specifically disclaim any liability, loss, or risk, personal or otherwise, incurred as a consequence, directly or indirectly, of the use and application of any of the techniques or contents of this course manual.

YOUR NEED FOR LEGAL AND TAX ADVICE

While the information contained in this material was prepared with best efforts and in good faith, the publisher and author make no representations or warranties with respect to the accuracy or completeness of the contents herein. The publisher and author specifically disclaim any implied warranties of merchantability or fitness for any particular purpose. This material and all associated documents and examples should not be used as a substitute for your legal advice on matters related to business, taxation, estate planning, or other business and financial-management matters. Each individual’s circumstances are different. Consult with your legal and tax advisers before making any decision to borrow, raise, solicit, or lend money and/or do real estate deals. If your legal and tax advisors are not familiar real estate transactions, you may need to find additional legal and professional advisors who are familiar with real estate transactions and experienced in money lending.

PREFACE AND THANK YOU GIFT First, I want to thank you for your interest in this book. I am certain that if you read this book you will find at least a few nuggets for you to take with you on your journey to finding and creating your own real estate dream team. This book is a short overview of the necessary external team players for a successful real estate investing business. Although there are many helpful and practical ideas to be found in these pages, it would be impossible to cover every single detail of how to identify, research, interview, network with, and/or coordinate with the various team players. So, that is not the goal or expectation. Second, I want to explain what this book is not. This book is NOT a How-To manual. Nor does this book cover how to grow or expand your internal employee operations and/or build out the various internal departments of your growing real estate business. This book is meant to provide valuable information that will get you well on the road to building a support group of important people to help you thrive as an active, professional real estate investor. Finally, as my way of saying “thank you” for taking the time to read this book, I’d like to offer you the opportunity to download a free copy of the “Draft Your Own Dream Team” audio files available at2 www.REIDreamTeam.com (use Passcode “TEAM”)

REAL ESTATE INVESTOR GUIDE DRAFT YOUR OWN DREAM TEAM

TABLE OF CONTENTS PREFACE AND THANK YOU GIFT INTRODUCTION GENERAL QUESTIONS TEAM PLAYERS Partners Money Lenders Real Estate Agents Real Estate Attorneys Closing Agents – Title Companies, Attorneys, Escrow Agents Inspectors – Home, Pest, Pool, Septic Appraisers Contractors/Handyman Bookkeeper/CPA Property Manager CONCLUSION

INTRODUCTION

Contrary to all the popular “reality” television shows about making money in real estate, the key players that determine whether or not a deal actually ends up being profitable or not oftentimes comes down to the experience level and work quality of all the “no-name” folks in the show. The headliners get all the screen time and headshots and become the personalities for the show, but they cannot possibly know everything there is to know or do everything there is to do in a real estate transaction. If you yourself have tried to wear all the hats required, you know exactly what I’m talking about. Many times what sets the successful real estate investor apart from those that fail is how well the real estate investor selects the various team members required. If you think about all the steps required between trying to find deals to actually getting paid, you understand it takes a lot of work and a lot of different people doing their particular job well. An important factor in building your team is determining the purpose of your team. So many people jump into real estate investing chasing “easy dollars” that they never really give any thought into what type of investing they want to do and what type of investing will meet their needs and goals, both short term and long term. Although every real estate investor team will have many of the same type players, there are certain players that are not needed for certain types of investing. For example, does a high-powered wholesaling team really need a quality property manager? Or a swimming pool inspector? There is no magic formula I can give you that will eliminate all selection mistakes. Realize that you will select some players initially that are not a good fit for your team. If you are doing mainstream-type deals, then your available choices of quality players will be much greater. If you are doing creative-type deals, then you must find players that specialize in working with creative real estate investors. Whether you’re just getting started choosing players or looking to replace a current team member, the best way I know to do that is to get referrals from other local real estate investors. Attend the local real estate club meetings and/or find a local online group of real estate investors that are willing to share. Never before in history has it been so easy to get information from like-minded folks. If you’re not having success finding local real estate investors and/or investors willing to share, then go hit up three to five title companies or attorney closing offices. Closing agents will know the investors that are regularly doing deals and can help refer you. Of course, there are many other ways to find team players, but the two above will help you meet quality players faster. Once you have the opportunity to speak with some of the skill players for which you’re searching, you should definitely have some qualifying questions to ask.

GENERAL QUALIFYING QUESTIONS

The questions below are just meant as examples to give you some ideas. Obviously, you don’t want to appear to interrogate every potential team player, but you do need to get some general and specific information about their skills, experience and how they work. Also, remember that some questions may better be asked after you have developed a relationship with the person. Read over the list and pick and choose some questions that you like and/or come up with some of your own. How long have you been working as a __________ and do you do this full-time? How much of your business is currently spent working with real estate investors? How many different sources of __________ do you have from which to choose? What’s the typical turnaround time for your service? What services do you provide for real estate investors and what are the associated fees? How does your bid process work? Are you licensed, bonded and/or insured? How does your billing and payment process work? Do you have recent real estate investor references that I can contact? Do you have examples of recent work that I can see? Do you allow others to use your facilities and resources (conference room, copier, etc.)? Some of these questions may apply and some may not, depending on with whom you are speaking at the time. However, everyone you consider for your team should be asked at least some of these questions. When I get into the specific team player sections, there are more specific questions. Remember that you have thousands of dollars riding on this person’s ability to do their job well and quickly, so there’s a fine line between being too forward and trying to reduce mistakes in your team player selections. Let’s move on to the specific players.

PARTNERS

Although this person might fall more under the “co-owner” category than a team player, it’s still a very important consideration because partners come in all types – money partner, labor/skills partner, friend partner, managing partner, silent partner, etc. If your partner is filling the role of contractor, vendor or service provider (i.e., a team player), it’s probably a good idea to understand what you would want from that role if they were not your partner. Setting up expectations up front as to how you will divide up all responsibilities and obligations is very important obviously, but I’ll just focus on the team aspects here. Are you going to share team player selection duties or will that be just you? Who will manage the players or will you split up the responsibilities based on functions? How will the players get paid? Does one partner handle both the management of the players and the money? It’s important that you have a game plan in advance for how to handle this side of your business. There are way too many considerations to list here in regards to partnerships, but I wanted to remind you to think ahead to how the partnership will work with others so that you might avoid headaches down the road.

MONEY LENDERS

As mentioned previously, sometimes partners are simply a way that we get our deals funded. How that relationship looks and works financially is limited only by your imagination. Partners can loan everything needed up front or in chunks over time. They can get paid up front and/or in chunks over time and/or at the end of the deal. There is no standard arrangement. Figure out what each partner wants and needs and make the deal work for all parties involved. Other sources of money include big banks, little banks, credit unions, private individuals, hard money lenders, retirement account custodians, etc. The sources of money are as varied as the many needs for cash – marketing, acquisition, repairs, holding costs, inspections, closing costs, getting cashed out, etc. What you will probably find is that you will need multiple players to fill this role. You will want several sources of buy-side (investor is buying) money and several sources of sell-side (investor is selling) money. It’s doubtful you will find one superstar money player that performs so well on either side of the ball that you won’t need other players. Typically, money players specialize in just a few areas because there are so many rules and those rules are constantly changing. Additionally, the lenders’ source of cash investors changes often as well or the programs offered come and go. It’s a lot to keep up with. On the buy-side some lenders will give you property-specific money and some lenders will give you a credit line to be used however you see fit. You want both types and need to go speak with enough lending prospects until you find what you need. The flexibility of a credit line cannot be understated. Big banks typically have more rules and layers that you must get through to find a decision-maker. Smaller local banks and credit unions usually can give you a decision that meeting or later that day. Hard money lenders (HML) have specific criteria for how their money can be used and that money is typically more expensive, but depending on your business model, HML’s certainly have their place, especially if you can locate a true asset-based lender. If you’re chasing private individuals for money and you do it correctly, you can have the maximum freedom with the money and lower rates for the same amount of money, as compared to getting the money through traditional institutional lending channels. Retirement account custodians (RAC) must be researched, as with any business, there are good ones and bad ones. Whether you’re assisting a private individual with moving their money to a RAC so they can loan out their retirement funds or you’re working with your own retirement money, it’s important to know the basics and fees associated with this type of lending. The buy-side money of investing is where so many new and even experienced investors get hung up, and it’s primarily because they have simply not spoken with enough different people about what it is they want to do. The amount of money that is available for lending is huge. And yes, the lending environment does expand and contract with the market and current lending environment, but it is still a person-to-person transaction.

Again, the easiest place to find money is to ask other investors what they are doing. And you can find other investors in local real estate clubs, online forums or groups, and by asking closing agents for referrals. You also can go to local foreclosure auctions in your area to find other investors. Beyond asking other investors put aside your preconceived ideas and spend half a day talking to bankers both small and large. Spend half a day talking to HML’s. Spend part of the next day talking to friends and family with money. Spend part of a day talking to retirement account custodians about self-directed IRA’s for real estate. You’ll soon realize that if you spend half as much time trying to find money as you do worrying about where you’re going to get the money, it’s really not a big deal. You should read that line again. This is probably the biggest mistake newer investors make – assuming there is no money to help them with their business. Think about how many different lending sources there are around and their primary role is to lend money. You just have to go speak with them to see how they’re willing to work with you. And yes, that will vary from lender to lender. You sit down with them, tell them what you want to do, and see what they say. On the sell-side of investing you must have some lenders that can get your buyers financed so you can cash out. If you always rely on the buyers to have their funding in place, you will miss out on many, many paydays. This applies to all buyers whether they are purchasing a wholesale deal from you, buying a retail deal or a longer term tenant that is now ready to buy. This is why it’s critical to have several sell-side sources of money that can tailor their lending products to your particular buyer and the buyer’s situation. Can your buyer pay all cash or do they have access to that much cash? Do they have part of the cash and need a loan? What’s their credit look like? Do they qualify for a first-time buyer program? Can you help establish a payment record with their on-time rent payments they’ve been making to you? If you have a strict cash-only wholesaling business and you’ve already got a handful of consistent buyers, then this some of this may not apply to you, but for everyone else being able to assist your buyer to buy helps you get paid. And the sell-side money is very particular to your end buyer so having an experienced lender to help is critical. Make sure you talk with enough money sources for your type business model that your end buyers can do the deal, even if their own source of money falls through for some reason. And once you cover the basic needs for both the buy-side and sell-side, then go to work on new relationships that will get you better terms, better return on investment, and/or faster turnaround. Money loves speed and the faster you can turn your money with good terms, the more money you can make.

SPECIFIC QUESTIONS

(review and include General Questions) How many different programs do you have for investors (lines of credit, fix and flip, etc.)? Will you prepare pre-qualification and pre-approval letters for homebuyers?

How many different programs do you have for homebuyers (get specifics, FHA, VA, etc.)? Do you have programs for buyers with poor credit (get specific range of credit score numbers)?

REAL ESTATE AGENTS

Although it has gotten better, you will still hear plenty of negative talk about real estate agents in many real estate investor circles. Some go as far as to state that agents should be avoided whenever possible. This is ridiculous. Real estate agents and “mainstream real estate” control 90% to 95% of the entire real estate market. Why would any sane person decide to eliminate the vast majority of the opportunities and information? Although some of the terms for those that work in real estate get used interchangeably by the general public, there are different categorizations of agents. Some agents simply get their license and they’re “real estate agents” and they go straight to work. If an agent has been around for many years and makes their full-time living by being an agent, you can safely assume they have good experience and skills and would be an asset to your team. Licensed agents with additional training and that are members of the National Association of Realtors are called “Realtors” and they’re required to continue their education each year. Agents that have other agents working for them are called real estate brokers. So, generally, if you’re going to use agents in a significant role, you definitely want agents that have been around a long time. And you also might consider getting your real estate license or having someone on your staff get licensed, so that you can eventually bypass the need for an agent. One of the best tools for residential real estate in any area is the Multiple Listing Service (MLS). The MLS provides a huge database of what has happened and what is happening with residential real estate in the local area. Real estate agent offices will have access to this very valuable tool and investors definitely want direct or indirect access to the MLS. If you’ve ever run a business or plan to, you know it’s impossible to do all the necessary tasks and it’s essential to have quality folks doing many of the day-to-day duties required to make the business work. That is equally true for a real estate business and why you want to work with real estate agents. It’s a bit of a trade-off in that new agents will be more willing to work with investors because the new agent is not established and is hungrier. That said, keep in mind that it takes very little education and training to become a licensed agent. So, since that new agent does not have much knowledge or experience in real estate and should have a very limited role, like just feeding you leads, then you will also want to work with a veteran agent. On both the buy-side and sell-side long time agents have been exposed to thousands of properties, problems and solutions. Until you the investor have the same level of experience, having a veteran agent on your side can save you many headaches. You don’t know what you don’t know. The agent can assist with letting you know about potential “gotcha’s”, legal requirements and code violations that will trip you up. The agent will know whether or not it’s a buyers’ market or a seller’s market and what that means to you on a particular deal in terms of what is necessary to acquire a property or sell a property quickly. The agent may know specific areas and/or neighborhoods well. You just need to work out an appreciation and compensation plan where the agent is happy with the arrangement.

Depending on what type deals you’re chasing, it may be that those type deals are not good candidates for being listed in the MLS due to time constraints, needed repairs, etc. In some states not many foreclosure properties make it to the MLS because the auction happens so quickly. Some lenders will not lend money on properties that are in really bad shape, so sometimes fixer uppers will not be in the MLS. Agents get called frequently for these type properties that are not suitable for MLS and they might be great candidates for your business model. Typically, most agents just decline the listing and move on because they don’t have a viable solution for the homeowner. You could be that solution. Another benefit to working with a licensed agent is that you might want to use the standardized real estate contracts for that state that have been tested in court. To do that, you would need to work with an agent in some capacity. On the sell-side agents can bring you other investors, homebuyers, and lease option tenants that need time to improve their financial situation. Just like with lending institutions there are agents that specialize in dealing with buyers and some of those buyers will not be a fit for traditional real estate, but may be a great fit for your business model. If you’re selling properties retail, then agents can assist you with understanding curb appeal, market pricing, neighborhood appeal, school district desirability, how to get the most bang for your repair dollars and much more. An experienced real estate agent or two or three can be very valuable members on your team. And access to the MLS can you give sales comps, average days on market before a property sells, what the market is buying, and so much more information on real estate listings and sales in your local market. So, do not ignore or overlook the experienced agent’s skill set because you read in an online forum or home study course that access to the MLS is all you need. It’s not; at least until you’ve been in the game for many years and you or an internal team player can fill the agent role.

SPECIFIC QUESTIONS (review and include General Questions)

Are you primarily a listing agent or a buyers’ agent? What areas in town do you target? What are your primary marketing tools and how do you use them? Do you maintain a list of investors? List of buyers? Can you set me up to receive a daily MLS inventory report for _________? Are you willing to present a bunch of offers for me? Is there a way to work together so I can access the MLS?

REAL ESTATE ATTORNEYS Attorneys, sometimes known as “deal-killers” or “naysayers” by investors are an integral part of any business, especially a real estate investing business that has so many moving parts. Much of what happens in real estate revolves around contracts and having proven paperwork is very important to the success of any investor. To continue down this path contracts are used to tie up, to buy, to repair, to insure, to option, to rent, and to sell properties. Frequently, the contracts used for a certain action may be provided by another party and not only do you need to study the terms and provisions, it’s a great idea to have an attorney review the paperwork to ensure you are protected. As you do more deals and get more experienced, it’s likely that you will start using more of your own contracts drafted or at least reviewed and approved by your own attorney. Having an attorney that specializes in real estate and working with real estate investors is essential to making sure that you are protected by someone who knows what to look for and what potential issues may arise based on past knowledge and experience. And having a trusted advisor to provide guidance when potential legal situations arise, and they will, is invaluable. If you do enough transactions in real estate whether it’s buying, selling, repairing, renting, etc., those transactions involve people and thus, misunderstandings. You will have times where people are upset with you and threatening to sue you. First, knowing that you have solid paperwork is a big plus, but it’s also comforting to know that someone who understands the legal side and possible outcomes of different actions is available to assist you in making decisions about how to properly respond to those threats. Should one of those threats become real, the type of entity that you’re using for your real estate business becomes very important. And if the threat evolves to an actual lawsuit, you will need another attorney, one who specializes in litigation. Hopefully, it won’t go that far, but if it does, know that you won’t want to use your contract attorney or your entity attorney to protect you in a court. Get a specialist. Typically, my advice is do not worry about setting up a legal entity for your business early on, until you’re sure that you’re actually doing deals on a regular basis and plan to grow this business. There is no point in spending the time and money creating an entity until you have spent some time doing the business. Once you’ve reached the point of knowing that it’s time for an entity, a real estate attorney is one of the advisors you should use to help determine which entity is best for your situation and the type of investing you plan to do. More and more it seems that investors are using Limited Liability Companies (LLC), but do not assume that is the right choice for you until you speak with knowledgeable legal experts and tax experts. Know up front that you need input from both the legal side and the tax side before making your final decision. The wrong decision could cost you many thousands of dollars and even put you out of business. Let me emphasize that point again; there is a “correct” entity type based on your personal financial situation and the type of real estate investing you plan to do and how you plan to do it. If your primary

income is quick-turning properties or notes, that is a very different setup than an investor who is building a rental portfolio. So, do not go just set up an entity because you heard that you need one to protect yourself. Find an experienced attorney that can help you get set up correctly from the start. With the help of your entity attorney you may decide that you need more than one entity because of the business model you’re working. And you may discover that the attorney who is a good choice for contracts is not a good choice for entities. That’s fine. Make sure you get an attorney who works with real estate investors and specializes in the specific need (closings, contracts, entities, litigation, etc.). Perhaps you can find a law firm that will provide all these services in one place. Additionally, in many states real estate attorneys act as the closing agents for real estate transactions so having an attorney that understands your business is vital, especially if you specialize in deal types that are outside the conventional real estate transactions. If you live in an attorney state make sure to ask other investors where they close their deals.

SPECIFIC QUESTIONS (review and include General Questions)

What percentage of your practice is spent working on contracts, entities, and/or litigation? How much experience do you have with evictions, foreclosures, lease options, etc.?

CLOSING AGENTS

(Title Companies, Attorneys, Escrow Agents) A closing agent is anyone that helps close your deal. It could be a title company, title attorney, escrow agent, etc. The rules for traditional closings vary by state, so find someone who can explain what the options are in your state. Of course, if you’re doing creative deals with your own paperwork, then you could act as your own closing agent and explain the paperwork to the buying or selling party over the kitchen table, but I wouldn’t recommend it. It makes much more sense to have an independent, objective third party act as the closing agent. And if you bring that closing office enough business over time, then you’ll possibly be able to reduce your various fees for closings, title searches, lien searches, etc. Another benefit of using a neutral third party for closings is that they keep up with all the required changes over time. They know certain documents that should be used based on new regulations or laws. Many contracts require an escrow deposit as part of the transaction and this consideration helps make the contract legal. The closing agent acts as fiduciary for these funds and follows certain rules to determine where the funds go in different situations. Additionally, having one central location that all parties (buyer, seller, lender, real estate agents, etc.) can contact with questions and paperwork takes the burden away from you. Even if the transaction is just the investor and one other party (buyer, seller), using an official closing agent adds credibility to the transaction and puts the other party at ease. Once you find a closing agent/office that you like, you can include using that office for closings as part of all your contracts. That way you know you have someone who understands you and how your business operates. Having your closing agent control the deal is frequently the difference between having everything going smoothly and getting paid and having everything fall apart. It matters.

SPECIFIC QUESTIONS (review and include General Questions)

How fast can you close a transaction from the time you get the paperwork? How do you handle simultaneous closings and assignments? Are you familiar with “subject to” and other owner finance and lease option transactions? How fast can you do a title or lien search? Are you okay doing closings with my paperwork?

INSPECTORS

(Home, Pest, Septic, Pool) There are many different situations where you will want to use a professional inspector. Yes, as you acquire more experience you will get much better at assessing the condition of certain items, but it’s doubtful you will ever get so good that you can forego all inspections. Initially, especially when you’re just starting out, you will want to hire the inspection function out to someone who knows what they’re doing. For example, a quality home inspector may spend three to four hours at a property looking around, testing functionality of items and examining areas of the house and property that you might not even think to look. Additionally, the home inspector has minimum requirements they must meet when checking out a home. They have standardized paperwork and procedures that they go through on each property. And if you are already aware of certain potential issues, make sure that your inspector has that information ahead of time. Until you’re certain that you can do a walk-through of a property and not miss something that would cost thousands of dollars to repair, it makes sense to hire a professional. The inspector should take the attitude that whoever is paying the bill should be made aware of any and all issues and possible issues in the future. Of course, if you’re simply doing a wholesale deal and you have plenty of outs in your paperwork, then you might not be as concerned with this role. However, if there is any possibility that you might keep the property even in the short term, getting the proper inspections is critical. This also holds true for pest inspections. Are you able to recognize termite damage and are you going to look in all the common places where this might occur? Did you know that in some areas replacing a septic system can run up to $20,000? That makes the paltry septic inspection fee a no-brainer. Missing a major issue with a swimming pool could easily cost tens of thousands of dollars. If you might end up on the hook for the repairs, get it checked out up front. It’s imperative that you are aware of any possible issues that could cost big dollars before you close on a property, and preferably very early in the whole process. It’s much easier to go back to a seller or bank to re-negotiate when you have documentation from a professional inspector and you’re still early in the contracting process.

SPECIFIC QUESTIONS (review and include General Questions)

Are you willing to do pier and beam properties? Do you offer quick discounted inspections if no written report is required?

Appraiser

A good quality appraiser is an important team player, although this team player is frequently a substitute that only comes in the game in specific situations. There are many times where an appraiser will not be needed. If an appraiser is involved, then typically so is a lending institution. If you’re working with a traditional lending institution, then they will have their own list of approved appraisers that they will contact to do the property evaluation and market price determination. However, if you are working with a private lender and even some smaller lenders, it is quite possible that you will be able to choose your own appraiser. In this situation it’s good to know someone you can contact that will help you get your deal done. There are times where a prior appraisal is all that is needed to get a loan or additional funds because the lender just wants to know that they are protected by the loan to value ratio. So, the lender will ask if a prior appraisal exists and/or can you get one done. If you already have someone that you’ve worked with in the past that will certainly help speed things along. This also happens sometimes in the case of a refinance request. If you are trying to lower the rate on an existing loan and/or possibly wanting to pull some cash out, an existing appraisal may suffice. And if you’re working with a private individual lender that simply wants more reassurance than your estimate of market value, being able to provide a quick, low-cost appraisal summary from a professional can seal the deal. It’s likely you will run across appraisers during your normal real estate transactions. It would be a good idea to follow up with them to see if they would be willing to work with you in that capacity.

SPECIFIC QUESTIONS (review and include General Questions)

How much do you charge for quick, summary market price appraisals? Are you willing to provide written documentation of a summary value? Are you willing to provide second opinions of value based on comparable sales in MLS?

CONTRACTORS / HANDYMAN

A contractor/handyman is one of the most important players on your team. I’m going to use the term contractor for both, but first I’ll explain the differences. A general contractor is typically the person who manages and coordinates the entire project and the sub-contractor crews. They will follow all regulations and laws and pull permits for repairs, etc. They usually are very experienced and will ensure that you get quality work and do not have to deal with day-to-day hassles. If your project is very large and expensive, a general contractor makes sense, although the costs for a general contractor are much higher. Contractor and handyman are frequently used interchangeably. However, in my mind the term contractor means someone who is qualified to be a general contractor, and perhaps even has been in the past, but now works for themselves and on smaller jobs. A handyman is someone who has the ability to get many different jobs done, but not with the same level of quality. Therefore, the costs are usually less. This holds true for carpentry, plumbing, electrical, HVAC, etc. Each of those fields has labels and designations for high quality, high experience individuals. What you want to find is someone who does great quality work and has lots of experience, but works for themselves and charges a reasonable rate. There will also be plenty of times where a good handyman can knock out some jobs for you, so it’s important to have both on the team. And if you can find contractors and handymen that have skills and experience across various disciplines like carpentry, plumbing, electrical, HVAC, etc., that’s even better. And you may find that you have different contractors and handymen based on the size of the repair job. Another consideration is whether or not you will be able to generate enough business to keep your contractors and handymen busy. If so, that’s a very different relationship than occasionally sending work to someone. And if your “contractor” no longer works for others, they may actually be considered an employee. That determination brings many other considerations and issues which I don’t have time to go into here, but be aware it may be an issue and needs to be researched if you end up in that position. Eventually, you want someone that you can trust to go visit a property by themselves and give you a bid for repairs based on your end exit strategy. Initially, you will likely visit properties and do the walk-through together as the contractor determines which repairs need to be made and a rough estimate of the associated costs. This is a great exercise and experience for you in developing your own skills and metrics to determining rough estimates of essential repairs. Of course, the amount of work and quality of work necessary will vary based on what you plan to do with the property, but being able to walk a property and know with a reasonable level of certainty what you’re looking at in repairs is critical to negotiating a good price and making a profit. Not all contractors work the same. Some want money up front. Some want initial materials paid up front. Some are willing to cover initial costs, but want to be reimbursed soon. Some contractors

include materials in their bid and may even be charging you a small profit on the materials because it’s all mixed together. It’s important to review the General Qualifying Questions and understand how your contractor works before moving forward. That said, until you have worked enough with the same contractor that the level of trust, understanding and costs are all comfortable, it’s important to get multiple bids from different contractors each time. That is why each bid must be written and detailed. You must know if the bid includes materials, what kind of materials, what the labor costs are, and what the estimated completion time is, etc. You have to know all the details of the bid to ensure the comparisons among the bids are accurate and on the same basis. (We do not have time to get into the nitty-gritty in this book, but some investors that use contractors all the time have very detailed contracts that specify all expectations, including monetary penalties for not meeting deadlines.) You will have contractors that take your money and don’t do the work, or don’t do good work. You will have contractors that leave in the middle of a job without finishing. Even if you get lucky early on, if you work with contractors long enough, you will have someone who takes advantage of you. Knowing this up front should help you to reduce the hit. Again, knowing how the contractor works and what your options are for payment, material purchases, etc., are essential. Can you pay for the materials from Home Depot or Lowes directly over the phone and have them delivered to your site? Can you only pay your contractor as he finishes certain stages? Can you pay them a small amount up front if they insist on getting funds up front? And one of the most important rules is never pay the final installment for a job until you have thoroughly reviewed all the work. Once you make the final payment, unless you have a great working relationship with the contractor, you will not get them back out to the property for fixes. Yes, the contractor will pressure you to submit payment because they’re done. Yes, it might not be convenient for you to get out to the property to review and approve that all work has been done to your requirements. It does not matter. Make the review happen and do not make payment until you’ve approved the work.

SPECIFIC QUESTIONS (review and include General Questions)

Do you have workers’ compensation insurance? Do you use the same subcontractors or employees all the time? Do you charge a margin on materials? Which trades are you skilled in and at which ones are you best?

BOOKKEEPER / CPA

This is actually two separate team players/roles, although it’s not uncommon that small businesses use one person to fill both positions. And that one person is frequently the business owner. Another common scenario is that the business owner does the books and hires a CPA to do tax returns. It is critical that you have an experienced bookkeeper that is able to track revenues and expenses and run financial reports on a regular basis. As a business owner, you must know your numbers at all times. Over time you will learn which different metrics are most important for you to track, but regardless, everything must be tracked. In an ideal world the bookkeeper would simply hand over the financial files to the CPA when it comes time to prepare the tax returns and the CPA would capture, summarize and print. But that’s not the way it works. Bookkeepers will classify items based on how they think those items should be categorized and there will be times where that decision does not match the current accounting rules or there is room for subjective decisions and your decision is different. Bookkeepers are dealing with financial records day in and day out, so they are very knowledgeable in how to treat most items that they see. And they certainly know more than the average business owner. CPA’s are required to continue their education each year and thus, are able to keep up with the changes in accounting rules and laws. Just make sure to find a CPA whose focus is taxes and tax returns for real estate investors. Just become someone is a CPA does not make them a tax expert by any means. And if they don’t have many investor clients, find someone who does. It’s important that the bookkeeper and CPA are basically on the same page in how they treat the revenues and expenses. There will be times where the bookkeeper must make judgment calls on how to treat an item, and it would be great if they could run it by your CPA first. And to be clear, a CPA plays a much more important role in your business than simply preparing tax returns. If all you want is someone to tell you which numbers go where on the tax return, you could do it yourself with tax return software. However, if you decide to do that route, you’re potentially missing out on thousands of dollars in tax savings. CPA’s, like any profession, come in all sizes, shapes, and experience. Some are aggressive with their interpretation of the tax laws, some are cautious, and others fall in between. The primary benefit of having a CPA on your team is having an up-to-date tax advisor. And one of the most important times to get advice from a CPA is before you do something. You should check with your CPA before you set up an entity in which to do your real estate investing. Your personal situation and your business situation go hand in hand and which entity is best for you is not always a no-brainer. Some types of real estate investing are better suited in a certain entity that would be the wrong choice if you were doing another type of real estate investing. You might end up with multiple entities if you’re doing different types of deals. This is one of your team players where you cannot afford to have a lack of specific experience. Even bookkeepers and CPA’s that are experienced working with real estate investors may not have the level of experience for the type of investing that you are doing. There is a big difference between accounting for a wholesaling business and a rental property business. You will find that it’s pretty

easy to find bookkeepers and CPA’s that understand rental properties, but is that the right person for your lease option business? What about your notes and paper business or your short sale business? Your CPA should offer you choices on how aggressive to be with your classification of revenues and expenses. Obviously, a more aggressive CPA would advise delaying revenue recognition and front-loading expenses, in order to reduce the amount of income on which you or your entity would pay taxes. If you’re too aggressive, it may be a red flag to someone who reviews your tax return. If you’re too cautious, then you’re paying excess income taxes. It’s up to you to find a good advisor and then decide the approach you want to take.

SPECIFIC QUESTIONS (review and include General Questions)

What software do you use? Does your software allow for cost segregation and thus individualized depreciation schedules? How aggressive are you in classification of revenues and expenses? If I get audited, are you willing to attend all the meetings and fight the audit with me? Have you done that for other clients? How would you want me to send my information each month? What financial reports will you provide me each month?

PROPERTY MANAGER

This team player may not be one you need early on in your real estate investing career, especially if you are wholesaling deals or notes or doing fix and flips. There are many types of real estate investing that do not require a property manager. However, I think if you ask around and if you specifically ask the veteran investors (those that have been in the business at least ten years), you will find that a good quality property manager certainly plays an important role on their team. If you do this business long enough, you will come to the realization that one of the primary benefits to real estate investing is the accumulation of wealth over the long term. As your skills and business develop and improve, there will be opportunities to keep quality properties at the right price for your own portfolio. You also may run across deals that just won’t move like you expected and the only alternative to stop the bleeding of cash is to keep the property and put someone in it. And/or you may discover over time that quick-turns do generate chunks of cash, but that you have to keep doing it over and over if you want money to continue to come in. So, perhaps some monthly rental income is not such a bad thing. In other words, things change. A high quality property manager that can handle all aspects of the rental property is a godsend. Unless you have personally managed your own properties for quite some time, it’s difficult to have the proper level of appreciation for a good manager. Someone who will run ads, field inquiries, research and interview tenants, do make-readies, handle repair requests, take the late night and weekend tenant calls, record the financial transactions, etc., etc. is a valuable team member. However, once again as with all your team members, having the right person can save you thousands of dollars and having the wrong person can cost you thousands of dollars. With this person, having years of experience is not an indication of anything other than the fact they’ve been doing it for years. In my experience this is one area where the vast majority of property managers are not good at their job. And many qualify as horrible. The skill sets required to do all these tasks really well is too diverse a requirement, and if you did find someone who possesses these skills, they’re probably not working as a property manager. A referral or two from other investors would go a long way in filling this position. So, keep asking around until you hear some names repeated. If you can find a good manager, you’ll rarely worry about your rental portfolio or spend time cursing as you pull out the checkbook again.

SPECIFIC QUESTIONS (review and include General Questions)

How many properties do you currently manage? Do you run background checks on all tenants before installing them? Do you handle all aspects of evictions? Do you charge a margin on repairs or are they simply a pass-through?

Can I see a copy of your management agreement?

CONCLUSION One of the most critical points throughout this entire book is the importance of making sure that each team player is a specialist. Don’t just find an attorney, find an attorney that is an expert at your particular need and spends the vast majority of their time doing that particular task. This point ties back to the suggested General Qualifying Questions that are listed at the front of this book. It is essential that the person with whom you choose to work is an expert at that role and spends all their time doing those tasks and spends a great deal of their business working with real estate investors. Although real estate investing has become more mainstream over the last decade or two, especially in recent years due to all the reality television shows, it is still very much a specialized trade. And even within the real estate investing field, there are so many different niches and ways to make money that the rules, laws and complexities of different methodologies require specialized knowledge and experience. Due to this fact, some occupational fields simply do not have a huge number of quality players from which to choose. However, remember that you do not have to settle when building your team. Try not to get yourself in a position where you are crunched for time and have to select someone quickly. And if that happens, continue to look for a better quality replacement as soon as possible. All of these team members are “at will” and can be replaced at any time. The more time you spend researching and interviewing the members of your team, the more profits you will make and the faster you will make them. If you “cheap out” on some of your players due to perceived costs, the long term costs will likely be much greater than if you had chosen wiser. Again, I want to stress the importance of getting recommendations from local investors that you meet at the real estate clubs, Meetups, and other physical meetings. Just make sure these investors are for real and are out doing deals on a regular basis, as opposed to the “academics” who can spout all the right information and talk a big game, but are not really doing any deals. Other good sources include the actual service providers that work with investors in your area and online real estate investing groups, if you can find local investors. Your team is a living being, that grows and changes over time. Team players require careful selection and management. Don’t allow yourself to feel stuck with consistent sub-par performance due to familiarity. There are great team players out there, so spend the time to find them and keep looking for the superstars in your area to replace the good players on your team.