Have you felt helpless watching your mutual fund or stock portfolio disintegrate before your eyes. For most, there is little security in having money in a system where there is little to no control, where your retirement funds are subject to any national or global economic issue and you are punished by the taxman if you decide to cash in any or all of your chips. Many investors at times of economic turmoil in the stock market often turn to real estate as a more secure investment or they sit on lots of cash not knowing what to do with it.
The challenge for many people who are considering real estate becomes... How do I build a real estate portfolio when I have:
a) limited capital or
b) bad credit or
c) too much debt or
d) limited income or
e) some knowledge but a, b, c, d, or a combination or
f) money to invest but limited knowledge, limited time, contacts and resources (or know someone like this)
Many people who possess one or more of the above usually never consider real estate as an option in their wealth building plan. The good news is, anyone can currently possess three or even four the above characteristics and still create an impressive real estate portfolio consisting of regular passive income, frequent big paydays and appreciating assets.
In this 3 part series, we will unpack a number of ways for you to create a healthy portfolio, whether you are starting with any or all of the above characteristics from "a" through "e", or if you are in the "f" category. This series will cover a few scenarios, based on one's financial and credit situation as well as the amount of knowledge possessed. There are however many common practices and disciplines to employ, regardless if you have money, credit or knowledge which are paramount to the success of your real estate business.
Let's begin from the most challenging position first... a person with no money, no job, bad credit and no friends. I know, it sounds like your brother's wife's cousin, right... so theoretically, if he can become successful, anyone can.
The first thing to do is get some general knowledge on a few simple strategies and begin building your Team 20 in order to grow this business. What is a Team 20 you ask? This as "a team with a minimum of 20 integral members, each possessing a specific attribute which contributes to the overall capability of the group, enabling each and every member the ability to become successful and make money."
Your success is hinged on how well you can direct this group which will be comprised of various types of people with different talents, knowledge and uses. Let's breakdown the team building process and then discuss how the team members work successfully together.
Every business needs a team of professionals as swell as a source of leads prior to setting sail and this business is no different. We'll cover a number of different aspects in this series which will culminate as a basic business plan.
Depending on what strategy or strategies you will focus on (and it's definitely good to focus rather than be chasing every shiny object/deal that comes your way) there are particular people/experts you will need on your Team 20 as well as different categories of leads and lead sources. Remember, you are creating your team so just like any sports team; you can't have people on the team that are "dogging it." No slackers allowed. If you choose someone that isn't performing, move on until you are satisfied.
Also, don't be intimidated by speaking with these people just because they are in the business and may currently know more than you. You'll find out they are just regular people who need your business... this means they may tell you things you want to hear... keep this in mind as you go through the interviewing process.
Let's begin with finding the experts. These will be the members of your team that are real estate professionals. I suggest calling and interviewing many in each category prior to making any final decisions on whom to have on your team. As a note, always have your 2nd and 3rd picks as back up if your number one pick stops performing to your satisfaction.
A good realtor can supply you with some great deals as well as being key in getting top dollar for other kinds of deals. Include some or all of these selected questions when interviewing any realtor to be part of your team:
a) Do you have any investment properties yourself? (if they say no, I usually move on)
b) What geographical areas do you consider yourself an expert?
c) Have you had an experience negotiating seller financing?
d) Are you OK with submitting a low ball offers if the situation arises?
e) Can you get me listings of available rental properties as well as a list of comparable properties, fair market value rents, expenses, historic appreciation of the area, vacancy rates and an economic outlook of the area?
f) Do you often have "pocket" deals? (deals they know about that have not hit MLS yet)
g) Are you aware of any distressed owners/properties in the area?
h) Are there any expired listings you feel are worth pursuing based on my needs?
I) Are you aware of any undervalued properties that would be profitable after a simple cosmetic facelift? (yes, we're still talking real estate)
Of course many other questions will come to you from the realtor, such as what is your price point, what ROI are you looking for, are you pre-approved for a mortgage etc. These answers will make sense shortly.
Having a good mortgage broker is crucial. You need someone that knows how to "package" investment deals successfully in order to not only get your current deal funded, but make sure you are able to enjoy substantial future portfolio growth.
When interviewing any mortgage broker to be part of your team you must ask the following questions:
a) Do you have any investment properties yourself? (if they say no, I usually move on)
b) Are you comfortable packaging investment property deals?
c) Are you restricted to an area/province or can you find lenders anywhere in Canada?
d) How many lenders do you actually work with?
e) What service do you provide other than finding the best rates? (this is a good one)
f) Do you have access to private funds?
g) Are you comfortable packaging joint venture deals?
h) Tell me about your experience packaging creative low money down deals?
I) Are you able to pass my name along to any clients who are unable to currently qualify? (an excellent source of leads for other strategies)
If there's one place a creatively structured deal can break down, it's with the lawyers. Working with lawyers that understand creative deal structure and are able to explain your deal to the other party's lawyer (often the seller's lawyer) is invaluable.
When interviewing a lawyer, begin by asking the following selected questions:
a) Are you experienced in closing investment deals?
b) Do you have any investment property yourself?
c) Do you have legal assistants with significant experience?
d) Have you had experience in structuring Joint Ventures, trust agreements, quit claims and/or skip transfers? (province/state specific)
e) Have you had experience with evictions as well as specific actions to collect damages?
f) Have you had experience in abatements or cash back on closing deals?
g) Are you experienced with deals that include seller financing?
h) Have you had experience with a deal that is in pre-foreclosure or pre-power of sale?
I) Can you provide a sample of closing duties and costs?
Your insurance agent is a key member of your team. If you don't have an insurable property, you don't have a deal. Many insurers are uncomfortable with investment properties like rentals, so don't be surprised if they either charge a lot or just tell you no. Call around and compare both rates and services.
When in conversation with an insurance agent, you may want to ask the following:
a) Do you have policies for rental properties as well as properties I am renovating?
b) Are you able to provide a separate policy for both the owner as well as the tenants?
c) Can you give me any advice as to what to look for in a property that will get me the best rate?
d) Would you be able to look at another company's policy and tell me why your policy provides better coverage at the best price?
e) Can you suggest anything else I should look for or know as a real estate investor?
Every business needs a bookkeeper and/or an accountant to keep track of the finances. Yours is no different. As a property owner you are eligible for many more write-offs. You need to become familiar with what you can and cannot write off. Just as a caution, (the mortgage broker side of me is coming out) in order to be financeable you must pay some tax. This is a double edged sword that many people cut themselves on by directing their accountants to find and use every possible write off. This can work out fine if you are making scads of money, but if your line 150(Canadian taxes) ends up too low, it makes the mortgage broker's job tough to get you financing. If your confirmable income is low, your debt service is often too high and lenders don't like that very much.
When interviewing an account for your team 20, use some of the following selected questions:
a) Are you an expert in tax credits and all legal deductions available pertaining to investment real estate?
b) Are you familiar with tiered company or corporate structures?
c) Can you explain the write offs I should be aware of as an investment property owner?
d) Are you a cross border expert?
e) Can you explain your rates for end of the year filings
f) Can you suggest the best year end for my business and why?
A contractor can make or break your bottom line, whether a buy/fix and sell or renovating one or more units in a rental property. You must have a contractor that is as concerned about time and budget as you are. Any overage of time or materials is costing you money. You have the ability to prevent a lot of this "bleeding" in your choice through the interviewing process.
Use a few of these questions to determine your best candidate. Remember, to have 2 or 3 as backup... especially in this category!
a) Are you comfortable pricing out a job in materials and time separately?
b) Do you use licensed professionals such as electricians and plumbers?
c) Are you able to determine any potential problems prior to beginning?
d) Do you have references?
e) Do you secure any necessary permits?
f) Do you have proper insurance for everyone in the crew?
g) Do you have insurance for any possible mistakes
h) If the job goes overtime, is it costing me money or you money?
Good property inspectors have the potential to save or make you thousands of dollars. The good ones may be able to show you ways to get the most out of your property at the lowest possible cost as well as perhaps steer you away from a potential money pit.
Ask a few of these selected questions to determine the best property inspectors in your area:
a) Do you have an AACI designation?
b) How long have you been in the business?
c) Did you come from another trade?
d) Do you have any rental property yourself?
e) Can you determine the best course of action if I am looking to add or renovate a kitchen or bathroom?
f) Can you predict the failure time of furnaces, windows, roofs and siding?
g) How much insurance do you have in case of a mistake?
h) Are you familiar with any potential mold issues?
In a previous issue I discussed whether to hire a professional property manager or manage the property yourself. Depending on your budget, your geographical distance to the property as well as your ability to deal with tenants, you may or may not need a property manager. My suggestion is to self-manage until you are familiar with the duties of a property manager or until you have too many ทาวน์โฮมมือสอง ราคาถูก properties to manage. By doing this you are familiar with what to expect from the property manager you ultimately hire.
Use these questions to help guide your decision:
a) How many doors/units do you currently manage?
b) Is most of your portfolio on one particular side of town?
c) Do you have a specific SOP when it comes to your screening process
d) What is your process in handing evictions
e) Will you personally go to the tenant board or small claims court if the situation arises?
f) Do you send me an itemized monthly statement?
g) Do you have a handyman or 2 on your emergency list?
h) How often do you inspect the units?
Interviewing these professionals may be intimidating at first for some of you at first but will get easier the more you do it. Don't be afraid to tell them you are new in the business, if that is the case, and are building a team of experts.
In Part 2 we will explore another facet of building your Team 20 and show you how to direct each member, just like you were conducting a symphony orchestra.
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