A Real Estate Agent, who will help you not only in finding listed properties that meet your criteria, but also in researching areas and average time on the market for resale, sale prices of similar properties, and so on. Your agent will also take some of the chores related to closing properties off your back-for instance, he can work with your lender in scheduling appraisals and inspections, provide your closing agent with a legal description and loan payoff, and work with the seller or his agent to overcome any problems during the process. A really good agent will also aggressively negotiate on your behalf, acting in your best interest to get the price and terms you want for each property. When you're first getting started, your agent will also be able to explain some of the technicalities of the offer process, including how much earnest money is typically offered in your area, how to fill out the purchase contract, how long to leave the offer open, and so on. And, of course, your agent can also list and market a finished property, if you decide to retail it.

Unfortunately, real estate agents who are both pro-investor and relatively knowledgeable about investment strategies are few and far between. Agents are trained to do one thing and one thing only: sell properties to qualified home owners, who want homes in good condition, who pay retail prices, and who get their financing from traditional lenders. It is often difficult or impossible for you to overcome this training and convince a particular agent that you really do want to see ugly, smelly houses that you can buy for pennies on the dollar. It's the rare agent who recognizes that it's better to have a client who buys 10 houses a year, year in and year out, at $50,000 each than to have one client who buys a $200,000 home once every 5 years.

So in choosing your agent, you need one who is:

• comfortable with presenting and defending low offers
• willing to accept the fact that 9 out of 10 of your offers will be rejected-sometimes angrily
• willing to keep you updated on a weekly basis on new properties on the market that fit your criteria
• knowledgeable about-or willing to learn-the ins and outs of your strategy
• not competing with you for the same properties-that is, not investing in the same houses and areas that you are

Often, this agent is a relatively new licensee who has few listings and a limited client base. These are the folk who are most likely to have the time and energy to do what you need them to do-and are the most open to learning how to be an investor's agent.

And, by the way, you do not typically pay your agent for his services-the seller does. But when you find a great agent who makes you a lot of money, don't hesitate to "tip" him by sending a little extra cash to his broker, or taking him out to a nice dinner, or making some other gesture of appreciation. Remember, you want to stay at the TOP of his list when a great deal comes across his desk!

An Appraiser. As you enter the real estate world, and are uncertain of your ability to correctly estimate the fixed-up value of a property, having an appraiser that you trust can be the thing that makes it possible for you to get over your fear of making an expensive mistake, and allows you to make offers with confidence.

"Walk through" appraisals-appraisals done without the dozens of pages of written information required in full-blown appraisals-can be had for $125-$175. The appraisal you will typically want is an "after repaired" appraisal, meaning that the appraiser is estimating the value of the property when the work is completed. Remember, an appraiser is not an inspector or contract-you'll have to accompany him and point out the work that you plan to do in order for him to envision the condition of the property when you're through.

Choose an appraiser who's licensed, if licensing is available in your state. If you plan to use bank financing to purchase the property, get a list of approved appraisers from your lender, and use someone from that list (you'll end up paying for another, fully documented appraisal anyway-remember, this appraisal is for your comfort, not for the lender's, and the lender will want an as-is appraisal for the purposes of making the loan). Only pay for a walk-through appraisal AFTER you've made your offer and had it accepted, and only when you're not comfortable with your own estimate of the after-repaired value. And be sure to add a contingency to your purchase contract that allows you to void the contract without forfeiting your earnest money deposit if the appraisal does not meet your expectations.

And above all, make sure the appraiser understands the purpose of the appraisal. You are looking for the most likely sale price of the property after it has been brought into average condition for the area, NOT an as-is appraisal or an appraisal for a certain amount.

A home inspector, who will spend several hours carefully examining the systems and structure of the property looking for defects that could come back to haunt you later. In most areas of the country, home inspectors do not have to be licensed or even certified, and many so-called inspectors have no experience in construction, renovation, engineering, or even inspection. Since there is limited regulation of home inspectors, literally anyone can take a correspondence course in inspection, declare themselves a home inspector, and hang out a shingle. Clearly, this is not the type of home inspector you're looking for.

Your ideal home inspector will have at least 5 year's experience, plus a background in engineering or construction. I prefer inspectors who are certified by the American Society of Home Inspectors (ASHI), as ASHI inspectors are required to achieve a certain level of education and experience before becoming certified.
A home inspection costs $250-$400 for a single family home, with prices increasing as the number of units increase. This is a small price to pay to uncover problems that could potentially cost you thousands if they go undiscovered. Again, you will schedule a home inspection only after you have an accepted offer, with a contingency that the inspection must meet with your approval. And always accompany your home inspector when he inspects your potential purchase-it's a great seminar in how properties are built and how they deteriorate.

A pest inspector, who will go over the property with a fine-toothed comb looking for evidence of termites, carpenter ants, powder-post beetles, dry rot, and other wood-destroying organisms that create expensive structural damage. Pest inspections are typically done by pest control companies, and are relatively inexpensive at $30-$75 each. Watch for inspectors who find pests every time they look-unfortunately, some inspectors find phantom termites that need to be treated with real, $1,200 pesticides.

A mortgage broker or lender, with whom you will work to secure financing-both for the purchase and renovation?for your properties.

Although your lender is clearly one of the most important people on your team, finding the right lender can be a real challenge. There is enormous variation in the kinds of loans, quality of service, loan terms, willingness to make non-owner occupied loans, and even honesty and ethics among lenders and mortgage brokers. That's why it's worth devoting some time and effort to finding the right provider of financing for you.

My favorite kind of institutional lender is the small, local Savings and Loan or Thrift. These lenders tend to be the most flexible in terms of the loan programs they offer, and their proximity to the investor and his properties allows for more personal contact between lender and borrower. Most importantly, many of these institutions hold onto their mortgages as investment, rather than packaging them and selling them on the "secondary market", which means that they don't have to follow secondary market guidelines in making their loans.

If you're not familiar with the secondary mortgage market, you may wonder why this is important. Here's why: loans that are to be sold on the secondary market must conform to strict guidelines set by the major secondary market buyers, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation-yeah, I know, it makes a lot less sense the FNMA=Fannie Mae, but what are you going to do with FHLMC?). For non-owner occupied properties, these guidelines include the following: all borrowers must pay 20% down, regardless of purchase price vs. property value; all borrowers must have good credit; all 30-year loans must be adjustable rate; and no borrower may have more than a certain number of loans from a particular lender-a number that is ever-changing, but has never been more than 10.

These limitations are difficult for many investors, and are eliminated when the lender does NOT sell its loans to FNMA or FHLMC. Smaller "portfolio lenders" (as banks who hold loans for investment are called) do not have to conform to these guidelines. They can loan you money for repairs over and above the purchase price; they can give you as many mortgages as their own policies allow; they can overlook "B" credit when you can show them reasons to do so; and they can provide 30 year, fixed rate loans if they choose to. In short, they can do what YOU need them to do, instead of what the secondary market buyers need them to do.

A private lender or lenders. These are individuals who take advantage of the safety and relatively high returns of real estate WITHOUT the management, rehab, and liability problems that accompany ownership. They do this by providing mortgage loans to investors under terms agreed to between the investor and the private lender. Private lenders are not typically "rich"-instead, they're normal people with excess cash in the form of retirement funds, savings, or even home equity that they invest in first mortgages.

Private lenders become very important when you begin to buy properties in quantity. You'll often run across situations where sellers, due to an impending foreclosure, transfer, divorce, etc.-just can't wait the 45 days or so you'll need to get traditional financing. Also, since private lenders don't typically charge points and closing costs, they're significantly cheaper than most institutional lenders. And, in today's uncertain securities market, many private lenders are thrilled to loan you money at a fixed 6%-8% rate-more than double what they can get from CDs, bonds, and other fixed-return investments.

Private lenders are all around you. Your family, friends, colleagues, and acquaintances are all waiting to hear about this great investment opportunity-even if they don't know it yet. When you realize that institutional lenders can no longer serve your needs for speed and flexibility, start putting the word out that you're looking for private funds, and you'll be surprised at the response you get.

A title agent or closing attorney. In some states, it's traditional to hold property closings at the office of an attorney. In others, bonded title agents are the professionals who close property sales and loans. Whichever system is used in your area, the function of the closing agent is the same:

he searches the title to the property for liens and "defects" (improper transfers, unreleased mortgages, problems with prior deeds, etc.), issues and insurable opinion of title, prepares the appropriate paperwork, gathers the necessary signatures, and distributes the sales proceeds and documentation to the parties involved.

It's important to chose a closing agent who understands that many of your transactions will not be "typical" closings with a buyer, a seller, and a conventional lender. For instance, if you plan to wholesale properties, your title agent needs to understand how an assignment of contract works. If your financing is coming from the seller or a private lender, he must be able to prepare and file the right documents to protect the lender's interest in the property. If you are buying rentals, he needs to understand how to prorate the rents to the day of closing, and how to account for the deposits, which should be turned over to you at the closing. In other words, your closing agent should be someone who has experience working with investors and the deals they do.

A handyperson and/or a general contractor. Depending on your strategy, you will need someone who can perform small repairs as needed (a handyperson) or someone who can renovate an entire property from top to bottom with the help of a crew (a general contractor). In either case, these are the amongst the most difficult members of your team to find and keep.

As I mentioned before, an incompetent or dishonest contractor can cost you tens of thousands of dollars in holding costs, call-backs, and even lawsuits, if a buyer discovers shoddy work after you've sold him the property. That's why your repair person must be experienced, bonded, recommended to you by someone for whom he has done similar work. In addition, anyone you hire to do work on one of your properties-no matter how small the job-MUST have worker's compensation insurance, whether provided by you or by them.
And again, even your most trusted contractor should be checked on regularly to make sure he's not taking shortcuts or leaving your job unfinished.

An bookkeeper and/or accountant. You'll need a bookkeeper when you own so many properties that keeping track of the incoming and outgoing payments begins to take up a significant portion of your time. You'll need an accountant almost as soon as you begin buying investment properties.
As a real estate investor (or the owner of any small business, for that matter), you'll quickly discover that your largest expense is income taxes. Furthermore, you'll find yourself bogged down in a morass of new tax forms for calculating and reporting rental income, capital gains, depreciation, self-employment and alternative minimum taxes, and literally dozens of other brand-new requirements foisted upon you by the various taxing authorities. Filling out this paperwork yourself is a major waste of your time, and a good, competent account WHO UNDERSTANDS REAL ESTATE can show you dozens of little-known, legal ways to save and defer taxes.

Note the importance I place on finding an accountant who understands real estate. Most do not, and will cost you big money by missing deductions that you're entitled to. The best way to find a good accountant is to find out who other investors in your area are using-there are always a handful of CPAs who do most of the tax work for most of the investors and landlords in any given area.

An insurance agent. Finding a good insurance agent for your investment properties is tougher than you might imagine-again, because most agents work primarily with homeowner, and don't know how to write the policies you need. In fact, some insurance agents don't even work with companies that provide policies for investment properties!

At a minimum, you should have a policy on each property to protect against loss and liability; a business insurance policy that covers your equipment, computers, and staff; and an umbrella liability policy of $1-$2 million (that's right, MILLION dollars) to cover you for the things the other policies don't. A good agent will also talk to you about your needs for key person insurance, disability, and other insurance you may want or need as a business owner.
The right insurance agent for you will know how to insure partnerships, corporations, limited liability companies, trusts, and other entities you might form. He'll understand what type of insurance to write when you've bought a property via an option or contract for deed, and are not the titleholder. He'll know how to name your private lenders on the policy so that their financial interests are protected.

Here's the key: any old agent can sell you a policy. Your agent needs to have at least a basic understanding of what you do to insure you properly. And with investment property insurance rates climbing through the roof, he'll also have access to a number of underwriters, so that you can secure coverage you can actually afford.

A real estate attorney. As an investor, you'll need to have contracts prepared to buy, sell, lease, and otherwise get and convey rights in properties. You'll also need someone of whom you can as legal advice as it relates to tenant/landlord law, contract law, and related issues. And if you're smart, this person is NOT going to be the lawyer who handled your divorce, or drafted your will, or settled your car accident case.

Most attorneys are generalists, meaning that they'll take any case that comes along. You need a specialist who's had additional training and experience in the field of real estate. Otherwise, the advice you get will be of limited value to you-and indeed, could get you into trouble.

A corporate attorney. Just as you need a lawyer who specializes in real estate to handle your real estate transactions, you need one who specializes in asset protection to draft and file your limited partnerships, corporations, trusts, and LLCs. Again, specialization is the key.

As you put together your team, remember that your relationship with each team member should be win-win. For many of your team members, the "win" in working with you is that you bring repeat business to them. But it's just as important that you remain loyal to them, treat them with respect, and, of course, pay them on time and in full. Part of the "win" for you is having professionals in different areas who can relieve you of some of the day-to-day drudgery of owning and managing properties, but don't hesitate to add to your side of the equation by asking your service providers for discounts based on the amount of business you do with them. Most are happy to provide these discounts in return for the ease of doing business with the same person over and over: for instance, I pay $250 for closings at a company that normally charges $400-but I'm also one of the company's best customers. I pay $500 for LLC formation when the local norm is $1500-but I form an average of 2 LLCs a year, where most people form one in a lifetime. You get the picture.

There may be others that you add as your real estate business progresses-for instance, a personal assistant to take care of the miscellaneous things you need done to keep your personal and business life in order, a web designer or database designer when you begin to use the web to market to buyers, sellers, and renters, and so on. A last tip on developing your success team: when you find someone who makes you a lot of money or saves you a lot of hassle, be sure to treat them right.

Source: www.regoddess.com

 

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