As a real estate investor, it is very important that you surround your self with a good, strong team of trustworthy individuals. You will need to develop and maintain good working relationships with professionals for each stage of the process.
As we discuss developing your winning team, we will break it down by the process. The processes we will discuss are:
Finding the Property
Funding the Property
Closing on the Property
Fixing the Property
Selling the Property
Finding the Property
As we discussed earlier, there are several ways for you to locate your properties. Established relationships can make finding the right house easier for you, especially with motivated sellers.
Once you locate a wholesaler who specializes at finding good, quality houses in your target areas, you want to develop a good relationship. In some instances, you may be able to get on an “early notification” list, or after you have purchased a property or two, the wholesaler might even look for properties specifically for you. This will be an important relationship for both of you; you will have a steady source of quality properties and the wholesaler will gain a client who they know will do what they say that they are going to do.
Another member you want to have on your team is a strong Realtor®. It is important that the Realtor® be used to working with real estate investors or at least has a basic understanding of real estate investing. At the minimum, your Realtor® must be open to learning and listening. You will be looking for atypical properties, and your Realtor® will really need to be on board with what you want. It is important that you stay in the driver’s seat and only look at properties that fit your criteria and business plan. You may find that many Realtors® want to show you the properties that they have listings for or what they think is a good investment. Remember everything that you have learned about what makes a good investment for your portfolio, and stick with it. The good thing is, there are a lot of Realtors® out there, so you should be able to find one that you can work with.
Other people who have access to motivated sellers and/or distressed sellers are good to have on your team. Probate attorneys and divorce attorneys are just two such examples. If you can find someone who can give you the scoop or the inside track on available properties, cultivate that relationship.
Funding the Property
When you locate a great property, you will need to be able to move quickly to purchase it. This is especially important if the property is one that you are competing with other investors to purchase. You will want to show the seller that you can purchase the property, just like you said that you could. Unfortunately, many real estate investors put properties under contract and never close. If the seller is one who works with a lot of real estate investors, they may be gun shy. Even if the seller has no negative experience (or no experience) with real estate investors, it is a good idea to be able to show that you have the funds to close the deal.
In order to ensure that you can close on the deal when you say you can, you need to develop strong relationships with both hard money lenders and private lenders. You will find that the terms will differ between hard money lenders and private lenders, but each type of loan has its place in your real estate investing business.
Hard money lenders typically charge between 12% and 14% for their loan. They also charge points and some have pre-payment penalties. All of the loans are interest only, most with monthly interest payments. Many new investors are taken aback when they see what the terms are, but more seasoned investors know that the terms are definitely worth it. It is basically an opportunity cost. Banks are not going to loan the money for an investment property. Even those banks that offer “rehab loans” usually do not close in a timely manner and have all sort of specifications that you will not find in a hard money loan.
There are many other benefits of working with hard money lenders. Hard money lenders know the market and specialize on working with real estate investors. They are familiar with values, areas and appraisers. And most importantly, they have the money to lend. Because they are in the business of lending, most hard money lenders have several million dollars available to lend out. As long as you and the property meet their criteria, you can usually close in as little as seven to ten days. If you have developed a relationship with the hard money lender, and have already closed several deals with them, you can probably close even more quickly.
The terms for loans with private lenders vary on the lender, and often on you, the real estate investor. In many instances the private lender is new and you can determine the terms. You always want to be fair to the lender, and make sure that the loan is worth their time. However, you will most likely pay a lower percentage rate and few to zero points.
However, you may have to educate your private lender if they are new to lending. They will rely on you to provide them with good information and a good investment. This is a really amazing responsibility. You must make sure that you put checks and balances in place to protect your lender. You will also be responsible for finding good appraisers, surveyors and closing attorneys.
Closing on the Property
In order to close on your property, you are going to need three more strong players. They are your appraiser, your surveyor (if the lender requires it) and your closing attorney.
It is important to note that, if you are funding your deal with a hard money lender, all of these team members will actually be picked (or approved by) your hard money lender. Each of these members ensures that the investment is a good one, that the values are solid and that everything closes in order. These things make sure that the lender’s investment is as secure as possible.
However, just because these team members represent your lender, this does not mean that you cannot develop a relationship with them. Developing this relationship will allow you to check on the status, schedule closings to your convenience and just make sure that everything stays on track. Also, once you get your own private lenders, you can utilize these same people with whom you have already developed a relationship.
The appraiser will be responsible for providing the After Repair Value (ARV) appraisal. Again, the appraiser should be someone who is used to the real estate investing market. If you attempt to work with an appraiser who works primarily (or only) with homeowners, you are in for a lot of headaches. I fact, don’t even go there. Use the appraiser that your lender has approved, or talk to other real estate investors and find a good, reputable appraiser.
Now, not all lenders require a survey. However, if they do, they will already have a survey company that they use. Just go with them.
The closing attorney is another important member of your team. If they are not selected by your lender, they will have to be approved by them. The closing attorney is very important to your deal. Their office makes sure that all of the details are taking care of. They make sure that title is clear and title insurance is obtained. They prepare all closing documents and wire funds. In some parts of the country, a title company handles these same tasks.
Fixing the Property
The contractor that you choose to work on your rehab can make or break your project. This is a hard fact. It is hard because many real estate investors do not choose licensed contractors to work on their jobs. They often use their brother, their cousin, their uncle or their friend. These contractors might do an excellent job, but they also might lack the experience and the business acumen necessary to complete the project in a timely and professional manner.
Regardless of your level of expertise, you have to make sure that you have checks and balances in place to protect yourself. You should have agreements in place that specifically detail the items to be completed, the prices and the timeline for completion. Find out how many members are on the contractor’s crew. Does he have his own trucks? Does he have the money to begin a job, or does he need start up money?
Finding a good contractor can be a long process. Be sure to get referrals and before and after pictures of work that the contractor has completed. When you get the referrals, call them. Find out if the clients are satisfied and if they would use their services again.
When you locate a good contractor or two, and you will, hold onto him! A contractor who does quality work at a fair price in a timely manner is worth his weight in gold. Knowing that you have someone that you can count on to will give you the confidence to put properties under contract and market them and move them quickly.
Selling the Property
When you decide to sell your retail property, there are two key members on your team, your mortgage broker and your Realtor®.
It is key that you locate a mortgage broker that will be able to finance your buyers. Your mortgage broker should have programs for all types of sellers, whether they are first time home buyers, have credit issues, or retired or any other “out of the ordinary” situation. It is crucial that your mortgage broker has experience closing loans.
You want to know that when you find a buyer with reasonable qualifications, your mortgage broker can get your buyer qualified and closed. You do not want someone who is trying out new programs or just getting started. You need to get your properties sold, and your mortgage broker can help you do this. Ideally, they will have a 100% financing program and you will be able to advertise it when you advertise your house.
The second member of your selling team is someone that we have already mentioned, your Realtor®. You want someone who can find you a buyer, quickly. Again, your Realtor® should be able to think outside of the box. There are so many financing options out there, you don’t want to look for only “traditional” buyers.
It will take a little time and effort to develop your winning team, but it is worth it. This is another reason why a turnkey system is so attractive to real estate investors. All of the keys are in place, and you can just plug in and take advantage of what is already in place.
No matter how you find your team members, putting together a strong team is crucial to your success.
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