Real estate investing is a team sport.
It takes a great team to get the most out of your real estate investments. The members of your team help you maximize the income from your rental properties and limit your personal liabilities. Each member of a real estate investing team fills a specific purpose. We will break down how each of these fits into your business.
Are you ready? Here’s the list (loosely ordered in importance).
Real Estate Agent
A good real estate agent can help you locate and negotiate the purchase of a rental property. They very likely have a better understanding of the local real estate market than you do. They can use this expertise to match your criteria to a set of qualified properties saving you time and money.
You will want to make sure you find an agent who really knows the local areas. They should know where the jobs are, where the schools are, and where there is a low crime rate. They should also know the price trends of the local sub-markets.
The best part of having a real estate agent on your team is that it doesn’t cost you anything (unless you are the seller). Real estate agents are paid on commission by the seller of the property and typically split the commission with the selling agent.
An agent that represents both the buyer and the seller gets to keep the full commission. You want to make sure you have your own agent because a single agent has a vested interest in getting the property sold and won’t be looking out for your best interest.
Bank or Other Lender
How exactly are you going to fund the purchase of your rental property?
In all likelihood, you need outside money to afford the purchase. The most common lenders are your typical bank or credit unions. According to LendingTree, you can finance 80-85% of a rental property loan depending on your credit.
You can also finance your rental property through seller financing. However, this will be entirely dependent on whether the seller will allow it.
But what if you need more money for your down payment? Hard money lenders can provide a bridge loan to get you going.
In any case, you need to have a plan for how to finance your rental property.
Lawyer
Ok, I get it — nobody likes to deal with lawyers.
However, a lawyer will provide you with the best options for liability protection. The last thing you want is to be sued and have your personal property at risk.
A lawyer can help set up your liability protection, typically through the form of an LLC. They will also explain how to ensure the LLC liability protection can be compromised and what actions to take to ensure that doesn’t happen.
You will also want a lawyer to create or review your rental contracts (which are legal, and binding contracts) to ensure you are both protected from liability and have options for recourse should your tenants become an issue.
There are other options to form an LLC and create rental contracts such as LegalZoom or Rocket Lawyer to get you started. These services, however, might not understand the nuances of your local rental market.
Insurance Agent
Similar to lawyers, who really enjoys dealing with insurance agents?
But again, similar to lawyers, you need to protect your rental property and your personal property.
An insurance agent will help you with the right levels of coverage to protect yourself against a plethora of bad things.
- Fire
- Natural disasters like earthquakes and tornados
- Water damage
- Theft or vandalism
- Random person tripping on your sidewalk
- And many others — just let your paranoid mind wander
In addition to insuring your rental property itself, an insurance agent can help you find the right umbrella policy to protect your personal property.
Property Manager
A good property manager can save you time and money. Their expertise in the local rental market can help you both attract great tenants and correctly price your rental property.
Property managers provide a range of services from advertising your property to rent collection and handling evictions. They may also offer the services of affiliated contractors and manage any necessary repairs. You can work with your property manager to decide what cost they can authorize and when they need to consult with you.
Before you purchase a rental property, your property manager can help you to understand the local rental market. They can provide reasonable expectations for what rent you can charge for a property you are considering.
While a property manager can charge up to 10-12% of your incoming rents, they may be able to reduce your turnover and increase your rent collected. This can help to offset the cost of hiring a property manager.
Handyman or Contractor
What skills do you have? Are you good at painting? Patching drywall? Plumbing? Electrical work?
Sure, you can save money by fixing that broken toilet yourself, but there are other things to consider. Is it worth your time to do this and can you be available at a moment’s notice? The burst pipe flooding your rental property isn’t going to wait for you to fix it.
You need to prepare for these situations before they happen.
You also need to ensure the quality of the work doesn’t leave you open to any claim of personal liability. Doing the work yourself may be tempting, but what happens when the ceiling fan you installed falls on your tenant? That is a big problem.
For this reason, you should consider hiring licensed, bonded, and insured contractors.
Accountant
Keeping track of your business income and expenses can be an arduous task. Hiring a professional accountant can help keep your records orderly and prepare you for the dreaded tax time.
Is that new toilet a depreciable expense? An accountant will help you properly categorize your business income and expenses so you gain the best tax benefits and stay in the good graces of the IRS.
An accountant will help you prepare your taxes so you have the peace of mind knowing it has been done properly and accurately.
Conclusion
A real estate investing team is essential in purchasing and managing your rental properties. Building your real estate investing team and finding the right individuals to fill each role is a crucial step in forming your business. Each member of your team fills a specific purpose, and they all work in conjunction to help you maximize your profits from your investment and limit your personal liability.
Who is the most valuable member of your real estate investing team?