Latest / Cash Flow for Life / Chapter 23: Expanding Your Success Team—Stage 3
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- 00;00;00;05 - 00;00;24;29 Chapter 23 Expanding Your Success team. Stage three. We never delegate major decisions, especially in regards to property purchases. We're at the site gathering information and getting a firsthand view of the house. However, as our business grows, we have found that more and more of the paper shuffling and less critical activities can be delegated to our success team members and others. 00;00;25;02 - 00;00;45;04 Where you need to spend the bulk of your time is focusing on deals. Following the market trends, seeking out investment opportunities and evaluating properties is where your value to the business is best realized. So those are the activities you should spend most of your time on. If you can figure out how to delegate those as well, all the better to you. 00;00;45;06 - 00;01;27;11 Let's go through the selection criteria and reasons for adding these members to your team. Administrative assistant. Handyman. Handyman. Crew or general contractor. Property manager or management company associations. Private investors. In addition to the above, you'll need the following team members to set up your business. Accountant or tax advisor. Mortgage broker. Property inspector. Insurance broker. Lawyer. These are our top level success team members. 00;01;27;14 - 00;01;55;18 And they come into the picture. As the business grows, administrative assistant. The role of an administrative assistant is to take over some or all of the day to day office and administrative tasks. The assistance value is in freeing up your time to develop your new business and to buy properties. The cost for an office assistant is usually somewhere between 15 to $30 an hour, but this changes all over the country. 00;01;55;20 - 00;02;17;05 If you keep a record of your business income in relation to the hours you spend generating it, at some point you'll see that investing in an administrative assistant is a wise financial move. Don't forget to look for virtual assistants. You can search online and find many great virtual assistants that will take care of all of the things that you don't want to do. 00;02;17;07 - 00;02;45;18 What to look for real estate or property management? Experience isn't necessarily required in an administrative assistant and would probably increase the cost anyway. You can teach a good assistant what they need to know. They can follow your system. The primary characteristic of a good assistant is organization and time management skills. An assistant needs to be organized in thought and action and able to handle multiple tasks every day. 00;02;45;21 - 00;03;09;27 Where to look. Try pacing an online ad at Craigslist, Kijiji, or Facebook Marketplace and search the internet for people posting that they desire a job like this. Ask for a resume and references and check them. An assistant who can start by working from home may be a good choice early on, because it could keep you from having to take on an office expense. 00;03;09;29 - 00;03;33;08 This may be a positive thing for the assistant as well, because some people are willing to work for a lower salary for the convenience of working from home. Your admin assistant should be personable because they will be talking to tenants in the course of handling management tasks and repair scheduling. He or she should be proficient in word processing, spreadsheets, and online services. 00;03;33;11 - 00;03;56;04 A little knowledge about bookkeeping would be a plus as well. Starting your assistant part time is okay. You can usually find very competent people who will jump at the chance to be able to work part time on their own schedule from home. When to take the leap. We didn't hire an assistant until we had about $200,000 in cash flow. 00;03;56;06 - 00;04;21;10 However, you might want to act earlier, especially if you're going it alone without the help of a partner. You have to learn to let go. Don't bother hiring someone unless you're going to get your money's worth. Which means letting go of tasks and letting the assistant run with the ball. If they don't work out, fine. However, if he or she is getting the job done with very few errors. 00;04;21;11 - 00;04;48;02 Don't micromanage. Let your admin assistant learn and grow with the business. The more assistants do and learn, the greater their value and the more work they'll take off your back. This frees up to grow your business and your cash flow. Handyman or general contractor? Early in your business, when you have few properties, having a single handyman on call is usually enough. 00;04;48;04 - 00;05;23;00 However, as your holdings grow in number, you'll need to have a more robust repair and remodel resource. Putting a general contractor or a larger handyman company, or both on your team, will give you more assets in more than one area. Evaluating properties. A more established general contractor will usually have bidding expertise and even computer software to help quickly generate estimates for repair and remodel, and they can usually access these systems from their cell phone or tablet, or their onsite laptop. 00;05;23;03 - 00;05;43;25 Having a company like this on call will give you the ability to get faster responses to requests for help in estimating rehab and renovation costs to help you evaluate properties for purchase. Once you locate a reliable company, it will be the one doing the work, so it will be happy to respond to your estimate and bid request promptly. 00;05;43;27 - 00;06;09;24 What to look for. Stability is a major factor in this regard. You want an established company with a track record and references. You can check if the company is new to the area. It may be wise to look elsewhere until it has been around for a while, and there are more references to check. Expertise is very important. Of course, the wider companies experience the better. 00;06;09;26 - 00;06;36;09 A general contractor will have specialized subcontractors to call on for different phases of the project, but the general contractor will need to have the experience to evaluate and supervise the entire job. Licensed, insured and bonded are three words to remember. Check out the contractors contracting license and if you can in your area. Check out for complaints against the license. 00;06;36;11 - 00;06;48;17 General contractors need to be bonded and insured, and you need to verify that there always have worker's compensation insurance plans in place for them and their subcontractors on every job. 00;06;48;19 - 00;07;12;23 It's easy sometimes to find a general contractor a handyman service that will jump when you call. However, if the services bids are always 20% over the norm, then you're paying too much for this response. You want general contractors to be flexible in their estimation and bidding, in that they are willing to do jobs with more economical materials rather than top of the line ones. 00;07;12;25 - 00;07;37;06 Check their references and look at jobs they've done. A good contractor will have happy customers eager to show off that great new room or the addition. Contractors should be happy to take you to past and present projects and point out their best work. Where to look. All of the old standby resources, such as flier advertising and internet searches are useful. 00;07;37;09 - 00;08;03;03 Check with local building code authorities and associations for recommendations. The inspectors working for the town will usually want to recommend the contractors who cause them to lease hassle, meaning contractors who deliver good work. Better yet, drive around and look for jobs in progress. Many contractors place a job site in front of their projects with their contact information. If not, you could pull it off a permit posted somewhere on the job. 00;08;03;05 - 00;08;27;15 If you catch them there, you can sometimes get an impromptu introduction to their work on the job site. And if you want to get super efficient and leverage technology, you can use the app that we found called Bid Me by de mi.com in bid Me. You can connect with contractors pretty much everywhere by just posting your job, getting the professional bids, and selecting the contractor that's best for you. 00;08;27;18 - 00;08;47;24 So in your next project, check it out. Bid. Mi.com. Property management. It might be good to think about hiring a property manager after you have about three properties, and even then, it's a big decision because it adds to your cost and you want to be sure that you can't manage it in a less expensive way, perhaps even hiring an assistant. 00;08;47;27 - 00;09;15;01 However, let's assume that you reached a point where you really want to let go of management and you're trying to decide how to make that happen. We'll look at two options hiring an outside property management company, forming your own property management company, or even hiring a property manager as an employee. We'll look at these two options. Remember that we mentioned the formation of a company earlier when we talked about forming a group of companies. 00;09;15;04 - 00;09;51;05 Either of these could be just right for you, or you could begin with the employee manager and end up with a company spinoff outside property management company. Hiring an outside property management company is very effective for many investors. They turn over the day to day management of their properties, as well as the tenant acquisition activities. For most, this is ideal because they either don't have the time for all of these tasks, or they don't realize that they are not well suited for them and will not do the best job of management and tenant acquisition. 00;09;51;08 - 00;10;20;08 However, the major trade off is cost, with fees running between 5 to 15% of gross rents. This is a significant expense and will impact your ROI. We recommend building property management in when you buy the property, whether you're going to pay someone or not. Making this decision after you already have multiple properties with rents, you can't automatically escalate to make up for the expense will result in a period of reduced ROI and reduced cash flow. 00;10;20;10 - 00;10;46;18 We have discussed in various places loving the numbers, and part of that was paying yourself for allowing some expense for management in case you moved in this direction later. Remember that and allow for management expenses when you're sizing up a property for purchase. You can pay yourself this fee. Then if you do move to outside management later, you've already planned for the impact of the expense. 00;10;46;20 - 00;11;16;27 What to look for A major part of the value of hiring outside management is your ability to let go of tasks. You no longer have to worry about finding and interviewing tenants, checking references, calling employers, collecting rents, or dealing with maintenance and tenants problems. However, in order to truly turn over those responsibilities, you really need to be able to trust that they are being handled legally, efficiently, and in your best interests. 00;11;17;00 - 00;11;40;05 Due diligence into the qualifications of the company and checking references is a must. So you can enter the relationship with trust in the company's performance. Thoroughly check out the property management companies time in the business. Ask for references and call them. And it's a huge bonus if the property management company has been operating in the local area for a long time. 00;11;40;08 - 00;12;02;16 They'll know all the who's who's in the real estate investing industry, and they'll be well connected and well suited to help you reach your goals. You've learned what good tenant applications and lease agreements look like. So ask to see the companies. Look for the things you want in your leases and get them to include them if they're not already there. 00;12;02;18 - 00;12;34;25 Ask about their tenant notification procedures and how they handle late rent payments and evictions. Questions you might ask include the following. Specifically, what services do you provide? How will you market my properties? Do you manage other properties in the area? Which ones and which areas do you offer e-commerce through your website? Do you screen tenants? If so, what's your process? 00;12;34;27 - 00;12;39;05 What are your fees and how are they calculated? 00;12;39;08 - 00;12;43;26 What do you charge if a property remains vacant? 00;12;43;28 - 00;12;51;16 When do you send the rental income to the landlord? Can you provide references? 00;12;51;18 - 00;13;19;19 Go into this selection process as if you're a large corporation hiring a senior level manager. Interview the property management company with a prepared list of questions. Some of the questions should be prompted by the unique features of some of your properties. An example might be if one of your homes has a swimming pool, you would want to ask how the company handles swimming pools from both maintenance and liability perspectives. 00;13;19;22 - 00;13;43;17 The next option your own property manager or property management company. We discussed having a group of companies. When you've grown to a point where it would make sense for tax and liability reasons. One way to move towards that goal would be to hire your own in-house property management person as your business and your inventory and your revenue and your cash flow grows. 00;13;43;22 - 00;14;08;13 You can expand by hiring assistance for that person and eventually spin off that portion of your operation as a different company entirely. What's the cost? The cost will vary, but you should do some research into local salaries for lower management or high level clerical people. You're going to need someone who can handle a lot of different tasks and situations. 00;14;08;15 - 00;14;40;17 What to look for. You'll need a skilled and very organized individual. Property managers need people skills to work with and interview tenants. They will need to be able to deal with problem tenants effectively as well. Some accounting or at least bookkeeping skills would be a definite plus here. This is especially true from a cost perspective, as you may be able to move your bookkeeping in-house, freeing up what you've been spending there for salary for this management person. 00;14;40;19 - 00;15;07;22 Of course, this property management person will be you for a while. However, once you decided that your time will be much more valuable spent in other activities and functions to grow the business, it's probably time to think about hiring an outside firm or filling this in-house management position. Where to start and what to do. So you're handling your property management in-house, and you have a person on the payroll to do this. 00;15;07;27 - 00;15;38;18 Even if it's you, everything we're discussing here still applies. These are the things that must be considered, and the skills that must be employed in order to do an effective job of managing multiple properties, marketing and filling units. This is an activity that you'll be tasked with until you hire someone else to do it. If you've decided to keep management in-house, you'll make marketing, media, and other decisions, and your hired property management person will implement your marketing plan. 00;15;38;20 - 00;16;06;18 At some point, you may turn over marketing to the manager completely, but you set the budget and expectations. You will provide the proper system, training and forms to your property manager. They will be expected to interview tenants, call references and employers, and get leases signed and tenants moved in. The manager will also take over all of those move in and move out tasks we've discussed previously. 00;16;06;20 - 00;16;29;16 If you set up your systems and filings as we teach you, you should be able to bring a new person up to speed very quickly. You should also be able to assess his or her performance by checking your filing and other system report output. Maintenance, repairs and renovation. In this discussion, maintenance includes cleaning when the units turn over. 00;16;29;18 - 00;16;53;07 If you're going to handle your own property management, you will ultimately function the most effectively and at the lower cost. If you become a sort of general contractor. You could end up with one or more handymen on the payroll, or you could have them as subcontractors on call. And for the more specialized work, such as extensive electrical, plumbing and renovation projects. 00;16;53;09 - 00;17;15;25 You'll be calling in other tradespeople. You can be the general contractor if local laws allow, and you'll need to be able to supervise, work and control the projects. You may or may not need a license to do this, depending on your state or province law. As your property management on staff person builds experience. He or she can eventually move into this role. 00;17;15;27 - 00;17;42;15 You're spearheading a progressive move towards a comprehensive property management operation in-house, with someone in your employ eventually handling the entire operation. Once your business grows to the point where your accountant, attorney, and you all agree that this makes sense, you can then consider spinning off this entity as its own business, which is then hired by your holding company to manage your properties. 00;17;42;17 - 00;18;10;15 Associations, groups and government. As your business grows, you'll want to become more involved in local affairs and businesses that have an impact on landlords and real estate, joining associations that are made up of other landlords and influential community members should be in your plan. The cost to be in these groups is usually the membership fee, which may be free, or a few hundred dollars, or even $1,000 or more per year. 00;18;10;17 - 00;18;31;26 However, the cost of not joining could be much greater in the long run. Keeping up with government and economic trends that will affect your rents, taxes and other operational costs is critical. These organizations can help you do that. They can also help influence actions and policies for your benefit. 00;18;31;28 - 00;19;04;07 Go online and search for landlord associations, real estate boards, city council websites and real estate investment clubs in your area. While a real estate investment club is a great place to learn and to network with other investors, it's also a place where attorneys, mortgage brokers, contractors and other influential in the local market gather. If there's a landlord, tenant board or group in your area, government or otherwise, get involved in whatever ways you can attend meetings and voice your opinion. 00;19;04;13 - 00;19;32;24 At very least, keep up with what's going on and with changes in laws, rules and policies that could impact your business. If there isn't a local landlord association, consider starting one. Contact local landlords via email and encourage them to meet with you to form local groups and discuss and protect your common interests as landlords. One huge advantage of a group like this is the ability to discuss situations. 00;19;32;27 - 00;19;54;25 Others have already had that you may encounter in the future. This is especially true of things like tenant relations, evictions, and legal issues. Learning how one landlord handled the tough situation and came out on top can help you anticipate the situation and have a policy ready for action in your business. 00;19;54;28 - 00;20;24;04 Neighborhood groups, community committees and area politics, whether through a local landlord association or your own membership and participation in multiple groups. Getting involved in all areas of the community that may affect your business is important. Attend municipal and town meetings. Keep in touch with or follow the activities of large homeowner or neighborhood groups. Sit in on as many local community committees as you can. 00;20;24;07 - 00;20;52;19 You'll want to know everything that's going on that can potentially impact your business, either good or bad. Sitting in on community meetings about the possibility of expanding a park or green space is a great example of being in the right place at the right time. Maybe your input will have an impact. You don't know for certain that the proposed expansion will put this part closer to one of your rental homes, increase its value and the rent you can charge. 00;20;52;21 - 00;21;24;26 Yes, you are going to be a busy person, but you can't overlook the importance of being involved in the community. The more properties you own, the more important it is to be involved and informed. Private investors leverage is how we grow a rental real estate business, and sometimes the normal and easiest financing solutions just aren't available. It could be due to the current lending environment where lenders are tightening, or just the nature of one specific deal, or your personal situation at the moment. 00;21;24;28 - 00;21;53;18 When we find a really great opportunity and the normal financing resources are elusive, private investment can get a deal done. These are investors who make money available for real estate funding, but they're not banks or large institutions. They're individuals like you and I. Small groups or partnerships that specialize in lending for real estate. What's the cost? Private lending is definitely more expensive than conventional lending sources. 00;21;53;20 - 00;22;19;06 These investors will charge higher interest rates and higher loan fees, and usually want a loan for short periods of time. Interest rates can vary between 5 to 12% higher than more conventional sources. Don't get confused about this rule. You want an investor, not a partner. In this case, you want little or no involvement from this investor in your business and what you do. 00;22;19;08 - 00;22;41;05 You make the decisions. This investor should be solely a money resource, not a business partner. This is one reason the cost of money will be higher, because he or she is investing with little or no control on how you manage the property. Now, bringing on a partner could also be an amazing resource for you, and in fact, it's how most clients actually grow. 00;22;41;08 - 00;23;13;22 We'll cover bringing on a partner in other parts of this book. Where to start? Actually, the path to these alternate funding sources can be through a mainstream source, such as a mortgage broker or lending institution. When normal underwriters and investors will not take on a deal, many of these conventional resources will have backup private investing pools. Ask your mortgage broker about private investors or investor groups they have dealt with, and see if you can get an introduction. 00;23;13;24 - 00;23;21;24 Ask the bank's mortgage professional whom he or she sends people to. When the rules preclude a mortgage. 00;23;21;26 - 00;23;54;12 Team members or business partners, your Success team members can be a great resource for funds. This is particularly true once they've seen your business grow and become more successful and profitable. They may want to take on a more active investing role instead of just being a tool for your business. Successful contractors and property management companies will have accumulated financial resources and cash that they may be happy to pull out of low interest investments and move into financing your properties. 00;23;54;15 - 00;24;21;05 They increase their ROI and they have direct involvement in the projects and their success. Team member status. Where are these private investor strategies come into play? The most is in getting a down payment together. If you have 20% to 30% for a down payment, it's usually not a problem to get funding through your normal sources. The more down payment you have, the easier it is to get qualified with the lender. 00;24;21;08 - 00;24;47;03 These private investors are the ones you approach to pull that down payment together, or private investors can fund the cash purchase of the property with no bank lending involved whatsoever. There are a number of ways to approach financing a rental property. Financial splits you may be borrowing from a private source via a straight loan secured by the property, with a fixed term and interest rate. 00;24;47;06 - 00;25;14;06 In other words, the sources are investing as if they were moving their funds from a bank or the stock market and loaning them to you for a better return. In most cases, these types of financial split deals will involve the investors money, your expertise and systems. In other words, all of the management is yours to do and the investors involvement is his or her financial investment. 00;25;14;08 - 00;25;40;01 The other approach used by many investors to dramatically grow their holdings is a financial partnership split of the returns generated by the rental property. This is when the private investor wants an ownership stake in the property. They want equity in the property. This shifts them from a private lender to a private equity investor. This is commonly referred to as a joint venture or JV relationship. 00;25;40;04 - 00;26;14;03 If they're providing all of the money for a cash purchase, many investors want to take this approach. Instead of you repaying a loan with interest, you take on partners in the property. You don't pay a loan interest, but you split the profits. Splits can be calculated in any way that works for you and your investor. Now, there's no real standard template for a private equity partnership or joint venture partnership, but we find that a lot of our clients will do a 5050 partnership between the money partner and the working partner. 00;26;14;07 - 00;26;36;21 The really cool thing here is that the combinations of deals you can do are absolutely unlimited. You're really just looking for a win win for both partners. Also, these are really no money down deals. It's not really a no money down. It's just not your money down. Using someone else's money. And then you can invest in almost unlimited properties because you're using other people's money. 00;26;36;23 - 00;27;02;18 Now think creatively when it comes to growing your business with leverage. Once you have a track record of positive profit performance, you'll be surprised at how many people will want to get involved because they'll get a better return working with you than they'll get working with other investments. Action steps one. If you're ready for some or all of these team members, go out there and start shaking the bushes to get them. 00;27;02;21 - 00;27;36;17 Two. If you're not ready for some of them, sit down and write out your plan for when you want them on board, what qualities you want, and how you'll go about finding them. Three. Start locating and joining associations, going to local meetings, and getting involved in local political and real estate activities. What's next? We've discussed marketing a bit in prior chapters, but it's time now to take a deeper look at the ways in which you will market your business as it grows.