Building Your Real Estate Investing Team

To be successful as a real estate investor, you will need a “team” of professionals that you can trust. You don’t need to build this team before you start investing. As he progresses in his investment career, he will meet many people in these fields with whom he will want to establish a working relationship. Some team members will not work and will have to be replaced. Don’t worry about this as it is a normal part of business. A great way to find your team members is through referrals from other investors. Once you join a local real estate investor association, you’ll meet active investors who can guide you to business-savvy people. A word of warning, though: Contractors have gotten a bad rap. Therefore, most investors will not share their “best” contractor for fear that he is too busy to do his job. Expect to have to sort through a lot of contractors if you decide to do any rehab work. This equipment will be necessary to successfully close your purchase and sale transactions. Not all members will be needed for every transaction, but knowing they are in place will increase your confidence level.

investor associations

Most cities have a real estate investors association. You should visit the associations in your area and join one that you feel comfortable with. Through these organizations you will find educational opportunities as well as networking opportunities. Attend as many educational programs as you can. This will help you feel more comfortable with each area of ​​investing. The more areas you know, the better equipped you’ll be to meet the needs of sellers who contact you. Through networking at association meetings, you will be able to find many of your team members. You will also find other investors who will be interested in deals that you do not want. You can always pass on these offers for a bird dog fee or allowance fee.

wholesalers

You will find many wholesalers at association meetings. If you decide to rehab or rent a property, a wholesaler will be a valuable source of property for you. They will invest the time and money to find the deal and negotiate with the seller. This allows you to spend your time managing your rehab or rental property. Be sure to check your ARV (After Repair Value) on the property, as well as your repair estimate. As long as the numbers work, you shouldn’t mind paying your “wholesale rate” to them.

Real Estate Agents

Most real estate agents are not interested in working with investors. This is because they are trained to make “full price offers” on the listed property. In each area there are some agents that do work with investors. These are usually the most successful agents in the area. They understand that a good investment client means easy repeat business for them. You’ll find these agents by looking at who has the most listings in your target area, as well as by word of mouth at investor association meetings. These agents are very busy so it can be difficult to establish a relationship with them. However, it is worth the effort in the long run. They are especially necessary if you decide to be a wholesaler. They will have access to most of the bank’s properties.

Real Estate Lawyers

You will need a solid real estate lawyer on your team ASAP. This person will handle closings for you, as well as title searches. They can also give you legal advice when you encounter unfamiliar situations (such as a seller going bankrupt). You should make sure that your lawyer specializes in real estate.

Lenders

There are three main types of lenders you will have to deal with:

Hard Money Lenders – Based on the ARV of the property, your credit history and close quickly

Conventional Lenders: Based on your credit, current property value, slow closing

Private money lenders: based on their relationship to the individual

You will find all three types at most association meetings. When you start your investing career, you will most likely work with a big money lender. They are called hard money lenders because they charge quite high fees to make the loan. Typically, they will lend up to 70% of the ARV for a period of 6-12 months. They typically charge 3-6 points up front to make the loan (each point is 1% of the loan amount), interest rates are 12-18%, and they hold the repair money in a deposit at warranty to be paid as repairs are completed. Although these fees sound expensive, they are actually not. It is much cheaper to borrow from a hard money lender than to hire a money partner and forego 50% of any profit made. See the following simple example for a comparison using a 6-month holding period, 3 points up front, and 12% interest, and a final sale price of $145,000:

hard money lender loan

Sale Amount 145,000
Loan Amount 100,000
Points to Lender 3,000
Payments to Lender 6,000
Partner Split 0
Net Profit 36,000

Partner of 50% of the money

Sale Amount 145,000
Loan Amount 100,000
Points to Lender 0
Payments to Lender 0
Partner Split 22,500
Net Profit 22,500

As you can see, hard money lenders are not as expensive as you thought!

You’ll probably only use a conventional lender when buying a long-term rental property. Conventional lenders will be needed when selling properties to homebuyers. A good mortgage broker will be able to find financing for buyers with a variety of credit problems. An average broker will only be able to finance buyers with perfect credit. Be sure to look for brokers who can find financing for people with “A”, “B” and “C” credit. Once you have established a track record as a successful investor, you will be able to attract private investors. These are people who have money that they will lend you to get a better return than a bank or the stock market will give them. You can replace hard money lenders with private lenders and stop paying upfront fees. You can also negotiate a lower interest rate than what hard money lenders charge.

insurance agents

There will be two main types of homeowners insurance that you will need. These are “Builders’ Risk” and “Owner’s” insurance. When it comes to a vacant home that is undergoing repairs, you will need “Builders Risk” insurance. Builders risk insurance will cover the property and usually the materials used during rehabilitation (in case of theft). It is more expensive than a landlord’s policy due to the higher risk. A landlord’s policy will cover the property only, not the contents. Your tenant will need to have a renter’s policy to cover their belongings. Homeowners policies generally will not cover vacant property or property under repair. Most agents do not sell both types of policies. Make sure you buy the right type of policy so you’re always covered.