Latest / Cash Flow for Life / Chapter 13: Expand Your Success Team—Stage 2
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- 01;00;01;05 - 01;00;30;03 Part two Buying and Managing Property. Chapter 13 Expand your Success team. Stage two. At this point in the book and in our courses, some readers may be further along than others. We've covered the major components of successful rental property acquisition for positive cash flow. You now know how to go about locating prospective properties and how to evaluate their rental potential and value. 01;00;30;05 - 01;01;04;05 This is a good time to look at the stage two of Building your Success team. We'll be looking at the contributions and attributes of these future team members accountant. Bookkeeper, appraiser. Handyman. Partner. As in stage one team member selection. You should begin your research and networking to locate these team members. Now, you may not need one or more of them at this very moment, but you don't want to be looking for a team member after a need arises. 01;01;04;09 - 01;01;35;26 Accountant. Making money through real estate rental is our plan, and we plan on creating lifetime cash flow. One lifetime cash flow component that works against us is taxes. We all want to pay our share, but that share can be very different for each investor and frequently is more than it should be. While an accountant or CPA, services can cost between 300 and $1000 or more a year, and even more if you have a corporation, it's money well spent. 01;01;36;02 - 01;02;14;12 Not using one or using the wrong one can save you much more than it costs. Also, consider the future value of every dollar you save this year when it's invested in rental property. What that's worth many years from now. So without any hesitation, find an excellent accountant. What to look for. You want someone who works with other real estate investors and understands real estate taxes, while a corporate accountant dealing with retail businesses may be quite good in that specialty, they may not have the specific expertise you need as a real estate investor. 01;02;14;15 - 01;02;40;19 Where to start? Ask your other team members for referrals. Real estate agents, mortgage brokers and attorneys usually have experience working with accountants who serve real estate investors. Join your real estate investment club, a place where they may actually be an associate member who is an experienced real estate accountant. You'll definitely be able to ask other investors whom they recommend. 01;02;40;21 - 01;03;08;05 What you get. Primarily, you get services that help you stay out of trouble. Not having the money to pay taxes you owe when you owe them is a tough situation to be in. Your accountant can keep you on track, meet with you regularly, and give you a plan to be certain that your tax planning is on track. Another area where business owners get into trouble is with payroll taxes and worker's compensation insurance. 01;03;08;08 - 01;03;29;29 The government is serious about these withholding obligations. Shortages in these areas can result in more than fines. There could be court action and business closures. These are a real possibility. Your accountant will keep you informed about your obligations and help you set a procedures to make these deposits. Remember, you don't need all the information or to be an expert. 01;03;30;05 - 01;03;55;10 You just need to be connected with the expert with all the information. Accountants also reduce your audit risk. They can alert you to potential red flags, such as when your deductions in a certain area are higher than the norm for your type of business. It's possible that you merely categorize some of your business deductions incorrectly, but you need someone to monitor this for you. 01;03;55;12 - 01;04;22;24 Your accountant or CPA will help you avoid overpayment and underpayment of taxes. Overpayment is a negative cash flow and takes away resources you could use for investing for greater lifetime cash flow in your life. Underpayment creates penalty fees and interest payments, which are definitely not a wise use of your money. Set up periodic meetings with your accountant to bring them up to date on changes in your investments and your business. 01;04;22;27 - 01;04;45;07 Accountants can't do their job in a vacuum, so you'll need to provide timely and accurate data and information after these meetings. Your accountant may adjust some of your withholdings or tax payments or installments in response to your business adjustments. It's better to be out in front with accounting and tax issues than scrambling at the end of the tax year. 01;04;45;09 - 01;05;06;18 Bookkeeper you usually don't want your accountant also keeping your books, even if they are willing to do this because the cost would be too great. You need a bookkeeper for this function, and he or she will be very hands on in your daily business. You can usually find a detailed, oriented, and efficient bookkeeper for between, say, 20 and $30 per hour. 01;05;06;23 - 01;05;28;23 Of course, depending on where you live, depending on the size of your business, you may be spending up to $500 per month when you're managing a group of properties. Remember, love the numbers. If this cost works within the numbers of your business, then you're still profitable and it could be worth it. Where to look? As with all team members. 01;05;28;28 - 01;05;51;24 Start by asking others for referrals. If you've joined an investing club by now, you can ask the other members if you're connected with Key Spire members at Key spire.com. You can ask them, definitely ask your accountant because he or she will know bookkeepers who are sending in data from their clients. The accountant will know who is the most organized and up to date with the information. 01;05;51;26 - 01;06;13;12 If your accountant is part of a larger accounting firm, they'll probably have bookkeepers in-house on staff that they can send to you. Doing it yourself. At this stage, you can be looking around for a potential bookkeeper, but shouldn't be hiring one just yet. Early in your investing business, the record keeping should be manageable enough for you to do on your own. 01;06;13;14 - 01;06;36;06 That's unless you absolutely hate numbers. You can't use spreadsheets. You don't want to learn, or you're bad with math and numbers in general. If this is you, or if you're just super busy with no extra time, then hiring a bookkeeper is probably the wise thing to do. Otherwise, you should be able to do this yourself for a while recording the transactions in your business. 01;06;36;09 - 01;06;57;07 You may have a trusted family member who's good with numbers and spreadsheets and can help you with the bookkeeping. When we started, we like to do our own. We tracked all of our receipts we have in the proper forms, as well as great spreadsheets to keep up with the cost and income by property. Later on, we built our own software to track all of these items. 01;06;57;09 - 01;07;22;01 There are also many good property management software packages out there. They can be both inexpensive or very costly to purchase or use monthly. So you shouldn't just jump in unless you really need the specialized software. And even then, be sure to thoroughly research the features before you make a decision. When your business grows to the point where you want to incorporate a bookkeeper is even more valuable. 01;07;22;03 - 01;07;48;26 There will be more paperwork and record keeping involved in running a corporation. And if you have one or more employees, a bookkeeper is almost a necessity. However, as a real estate investor, you'll probably be using contractors so you won't have any payroll obligations. You will have tax reporting requirements for payments to those contractors, however. What to look for in a bookkeeper. 01;07;48;27 - 01;08;20;28 You'll want someone experience with keeping books and financial records. Bookkeepers must be proficient in the use of spreadsheets because they'll be tracking a lot of financial data. Good spreadsheets have alerted many investors to areas of their business that need the attention before they become big problems. Bookkeepers serve a variety of functions, including helping you to pay bills, prepare checks, balance bank statements, analyze operations, costs, and revenues. 01;08;21;00 - 01;08;51;06 Manage tax records and record transactions. A good bookkeeper will significantly lower your end of year stress levels. Your records will be in good order and up to date, and they'll be forwarded to your accountant periodically to keep you on track for financial and tax planning. Appraiser appraisers assess property values and prepare value reports mostly for lenders. If you're making a cash purchase, you might want to use your own appraiser. 01;08;51;09 - 01;09;21;05 If you're getting a mortgage, the bank or lender will choose the appraiser from the list of approved appraisers that it uses regularly. While you may not be able to influence the selection by the lender. Knowing something about the local appraisers is always helpful. Some are more conservative than others, and some select comparables a little differently. An appraiser normally gets paid by the job somewhere between 200 and $500, and even more. 01;09;21;08 - 01;09;45;15 If you're getting a mortgage, it will be a cost charge to you in the closing process in some cases. In some cases, the lender will pay for the appraisal. The price depends on the size of the property, geographical location, and whether a site visit is necessary. These days, computerized appraisals are becoming more and more accepted by lenders, but it's an individual situation specific to each deal. 01;09;45;18 - 01;10;09;26 Many will still require the appraiser to physically inspect the property. Who pays may be negotiable. If you're doing a refinance, the bank will choose the appraiser, but you'll pay for the appraisal. In most cases, you'll also pay when a new mortgage is being sought. However, we've built up a track record of purchases with our mortgage broker and certain lenders, and we always ask for the lender to pay for the appraisal. 01;10;09;29 - 01;10;33;08 Sometimes it works, sometimes it doesn't. But it's always worth asking the question. Where to start? The bank will take care of this for you. However, as you progress in your business, you may want to hire an appraiser for cash deals or to help you evaluate a property for other reasons. So researching to find an appraiser for your team is appropriate. 01;10;33;10 - 01;10;55;17 Now and then you may just want to ask a question about investment valuation or market trends. You'll appreciate having an appraiser. You can call for this. Ask other team members or investment club members for referrals. Even if you just meet and get to know an appraiser with the goal of asking a question now and then, it's good to have one on your team. 01;10;55;19 - 01;11;02;27 Appraisers keep detailed data on market trends which could help you in decision making. 01;11;02;29 - 01;11;25;00 What an appraiser does. Banks want to make loans that are as secure as possible. They want the security of knowing that the money they have loaned on a property is well covered by the value of the property. If the borrower defaults on the loan, the bank wants to know that it can get the full value of its loan when it forecloses and sells the property. 01;11;25;02 - 01;11;51;11 When the appraiser provides an opinion of value that's lower than the purchase price, the bank will not approve the loan at that purchase price, or it will want more down payment from the buyer in order to get the loan value to an acceptable level relative to the appraised value. When the appraiser provides an opinion of value that is at or above the purchase price and you have the required down payment, then the deal goes to closing. 01;11;51;13 - 01;12;25;26 The appraised value is influenced by a number of factors, including the following. Comparable sold properties in the area. As in our CMAs, the condition of the property. The quality of the finishes, appliances and materials, amenities and upgrades that enhance value. Size of the property, bedrooms, bathrooms, floor plan and livability. The current market conditions in the area. Appraisal isn't a structured science. 01;12;26;04 - 01;12;50;28 It doesn't offer a table of values to apply to a situation, as we might plug and play into a spreadsheet. Some of the job is done that way, but some of it is subjective as well. More art than science. This is particularly true when expensive amenities are involved, such as a swimming pool or tennis court. The appraiser must add some value for the pool, but how much? 01;12;51;00 - 01;13;09;27 It may depend on how many days of the year the pool can be used, or whether every third home on the block has one as well, or none of them have one. If many of the homes in the block have granite or quartz countertops and the subject home has laminate countertops, how much does this lower the value? If any? 01;13;09;29 - 01;13;39;09 It's in these more subjective areas that differences in appraisals can be found. If there are plenty of potential comparables but the appraiser hasn't been inside them, then even the selection of comparable homes can influence the value opinion. If the appraiser happens to choose the only three homes in the area with laminate countertops, then this home will farewell. If the selection is three homes with granite, then it might not get involved. 01;13;39;12 - 01;14;04;01 The bank selects the appraiser, and the bank, or one of the real estate agents involved, will likely schedule the appraisers visit to give the appraiser access to the home. There aren't going to call you up and tell you about it. You'll need to call them and tell them you want to be there for the appraisal. Whether you're buying or selling, you should be there as your actions and informations can help you get a better result. 01;14;04;03 - 01;14;25;00 Or at very least you need a great contact in your real estate business. A new appraiser. As a seller, if you're selling you want as high in appraised amount as possible. There was already a contract and the appraiser has a copy of it, so the appraiser knows the minimum number. He or she must hit not to kill the deal. 01;14;25;03 - 01;14;48;27 The purchase price. There's some reality to understand here. The appraiser knows the purchase price and knows that hitting that number will allow the deal to go forward. Coming in below that number will probably kill the deal. As the seller, you want the purchase price to be hit as well, but any amount over it will make the deal look better to the bank and smooth the path on closing. 01;14;49;03 - 01;15;10;06 This is a good thing. However, the reality is, even if your home is worth significantly more than the selling price, there is no incentive for the appraiser to say so. The appraiser has that purchase price number to hit, and a small cushion is a good thing. But much more just adds risk for the appraiser. So why would they do it? 01;15;10;08 - 01;15;33;09 A default later will have the bank looking to capture that appraised value, so keeping it at a level not too far above the purchase price is less risky for the appraiser. Now, we mentioned you want to be there during the appraisal. Bring along some comparables at either you or your real estate agent compiled that are favorable to your deal, and make sure you give them to the appraiser. 01;15;33;11 - 01;15;59;22 Appraisers often don't mind saving them a little work, particularly if they see that there are recent and solid comps, or the appraisers might find you a little bit annoying. But what do you care? You're driving your business, and you're doing the best thing you can to get the value that you need to get the deal to closing. Also, if you're the seller, consider bringing along a list of all the improvements you've made to the home over your ownership period. 01;15;59;25 - 01;16;22;20 New heating and cooling equipment, roof work, new appliances, and all major renovation or repair work should be listed. Appraisers are supposed to notice all of this, but you can help them out with your list as a buyer. It's no great leap to know that your interest as a buyer are very much the opposite of those. As a seller. 01;16;22;22 - 01;16;45;17 You want to purchase a property at the lowest price possible for ROI and cash flow. While it's true that you have already signed a purchase contract by the time the appraiser arrives. This doesn't mean that the price must stand as is. You're getting a mortgage, and the deal may completely fail if the appraisal comes in lower than the contract purchase price. 01;16;45;19 - 01;17;07;18 However, there could be another outcome. The seller could just reduce the price to the appraised value to keep you as a buyer. You just negotiated a better deal and the appraiser did all of the work. Now just be cautious of where you are in the process. If you have signed a firm deal, then you often can't go back and change the price of the deal after the appraisal comes in. 01;17;07;22 - 01;17;32;20 So just be aware of where you are in the process, and take your negotiating points where you can meet the appraiser with a good attitude and a list of problems you see with the home. You have done your due diligence and know the problems, and your inspector has verified them between your team's handyman and some contractor estimates. You can give the appraiser a list of all the home's condition issues and the cost to make the repairs. 01;17;32;22 - 01;17;56;04 Your list could result in lowering the valuation by thousands of dollars and possibly a price negotiation. At the very least, presenting your list of home condition problems will serve as a checklist, so the appraiser will not forget any of them when preparing the report. Now be very cautious with this. If you are at a point in the process where you cannot go back and negotiate the sale price, then you do not want to lower the value. 01;17;56;05 - 01;18;18;17 You don't want to rescue closing on the deal and getting the loan. So this technique only works if you can then negotiate a lower price because the appraisal comes in lower. Whether you're buying or selling, there will almost always be an appraiser involved. It's a good idea to learn about the local appraisers and keep some contact information data on each handyman. 01;18;18;19 - 01;18;41;25 A handyman or home repair person is a must add to your success team early on in the appraisal section. We mentioned that the handyman is a person to help you assess the condition of a home and the cost of repairs. However, over the long haul, their value is in providing repairs to your rental properties and keeping them in good working order for your tenants. 01;18;41;27 - 01;19;05;26 What to look for. Hey, Michael, the furnace in the Hall Street house is down again. Jack says he's done all he can do with it. And replacement should be our next step. I'll get some estimates, Scott. And maybe Jack can help with the installation and save us some money. Let's ask him. This exchange points out one of the most important criteria for selection of a home repair person. 01;19;05;28 - 01;19;32;29 Being trustworthy. You want someone who knows what he or she is doing, but is also willing to tell you when you're spending too much on them and should take other action. Other attributes you should look for include a knowledge of carpentry, electrical, plumbing, and general repairs. An accessible person who will come when you call someone who is mobile and has the right tools. 01;19;33;01 - 01;20;01;23 A personable approach when interacting with your tenants and trustworthiness. A very important attribute because you'll be giving him or her keys to your homes. The home repair person will be one of your most valuable and relied upon success team members. So choose well. What is the cost? Now this cost can vary wildly all across the country. Repair people normally work on a time and material basis. 01;20;01;26 - 01;20;24;12 They charge a labor rate, and then they mark up the cost of the parts they provide in order to make their profit. This type of work generally carries a labor rate of between 40 and $60 an hour at the time of writing. If you give them steady work, some will even discount their labor rate because they want to stabilize their workweek and have less downtime with no income. 01;20;24;14 - 01;20;53;18 Some repair people will also discount their parts. If you have a number of rental properties and you're using a steady stream of parts, you may want to buy some yourself through a wholesaler and keep them in stock. It also speeds the repair process, especially on weekends. Where to start? As always, ask your other team members. Ask real estate agents because they are frequently calling on this type of help for their sellers who are getting properties ready to list. 01;20;53;20 - 01;21;19;11 Real estate agents who handle a number of foreclosure properties definitely have repair people on call, and they probably are dependable and reasonably priced because the bank is paying the bills. Your handyman is an independent contractor, so you won't have to pay wages or worry about payroll withholding. However, you will have reporting requirements to show that you paid him or her over the course of the year, especially in the beginning when your business is still small. 01;21;19;18 - 01;21;41;19 Your handyman can help you out when you're too busy by doing small jobs around the properties. If you want to leverage technology, one of the best ways we found to get jobs done, big and small, is by using an app called bid.com b I'd mi.com for us is the easiest way to find, hire and pay contractors to get it done. 01;21;41;21 - 01;22;03;22 You simply take a picture of the job it gets bid out to multiple contractors, you communicate through the app, they show up and they get it done. So this is a great place to start with today's technology when you grow. Once you have multiple properties, you'll move past the single handyman phase and need a general contractor or a home repair company. 01;22;03;25 - 01;22;28;22 At this stage, be sure to verify that the contractor or company meets its legal payroll and workmen's compensation insurance requirements. You could pick up some of your own liability insurance if the contractor does not have any, and if one of its people is hurt on your property, you'll be covered. We'll talk more about this in stage three of building your Success team partner. 01;22;28;24 - 01;22;53;08 Whoa. You say I want all this profit for myself. I don't need a partner. But listen, we're living proof that you'll reap ten times the rewards by splitting half of the profits with the right partner. Two people can get much more than double the work done. And the leverage from having two people involved in financing properties will allow you to grow faster and larger than you can on your own. 01;22;53;10 - 01;23;19;08 What to look for in a nutshell. You. You're reading this and working with us because you're totally committed to building lifetime cash flow. You know, it will require hard work, and you know that it won't happen overnight. You want someone with the same attitude for sure. Motivation is important, and you want to partner motivated for success and willing to give 150% in effort to make it happen. 01;23;19;10 - 01;23;44;14 Two of you doing this creates 300% output for success. In this case, one plus one equals three. While you'll probably become friends. This isn't a requirement on the short list. You need someone with motivation and the right attitude and commitment. Most of all, you need someone you can trust. Tying your financial future to someone else, both legally and personally, is a big step. 01;23;44;16 - 01;24;07;29 So the choice of a partner is far more critical than any of your other success team members. Try to find someone who has the opposite attributes of you. Someone who has skills that you don't. If you're a starter, try and find a finisher. If you're a finisher, try and find a starter. If you're good at fixing things up but not good at the numbers, find someone who's good at the numbers. 01;24;08;01 - 01;24;43;01 The partner should complete you. Where to start? It's also when to start. While your business is a small sole proprietorship. You may not want to consider a partner. However, you could partner with people on individual deals. This could allow you to complete a deal you couldn't have handled financially otherwise, and over the course of the partnership, you'll be able to evaluate this single deal partner for future deals or a full business together later as your business grows. 01;24;43;03 - 01;25;08;23 And when you are considering changing its structure, you can consider whether to partner. Synergy is a great business builder. Two people bringing similar attitudes but different skill sets and opinions to the table can bring better decision making as well. You and your partner will have double the financial ability so you can buy properties faster. You'll half your risk in the venture. 01;25;08;25 - 01;25;34;08 Creativity is likely to more than double in the business because you have someone to bounce ideas off of, and you'll get new ideas back. Your partner is not just someone who loans you money for the business. Your partner has a stake in the property or in your business. He or she is a part of your business. A co-owner you often shared decision making, and your partner will have his or her say in how things go. 01;25;34;10 - 01;25;59;27 However, you might be surprised how often you agree when the business principles are sound. Your partner makes money and losses when you do so. You're a true team with aligned interests. Action steps one. Start looking for a good handyman right away. You want to be able to take your time and get references. So starting before you have a property is great. 01;26;00;02 - 01;26;24;24 Also, if you own a home, you can use this repair person for your home repairs. Test them out. Don't forget, if you want to really leverage technology, you can go to bid Mi.com and use that program to find your contractor and have everything handled within the software. Two. Begin to network to find a good accountant. Before you bring in the first dollar from rentals. 01;26;24;26 - 01;26;55;04 You need to have the right accountant on board. Guidance before your first purchase is critical to help you get a better start. Three. Add a bookkeeper. When you're ready for. Begin to think about a future partnership and to size of potential partners as you grow your business. What's next? Some of the best deals you'll make will be homes that the casual retail buyer doesn't want, because of repairs or renovation issues. 01;26;55;06 - 01;27;08;05 The ability to size up the problems and come up with the cost to repair them is half the battle. The other half is the after repair value or a r v calculation. We'll help you with both in the next chapter.