020: Building a Great Out-of-State Team

SHOW NOTES FOR #020 – BUILDING A GREAT OUT-OF-STATE TEAM

Last week, in episode # 018, I discussed why I buy out-of-state properties.  In this week’s episode, I begin to look at the mechanics of buying-out-of-state.  Specifically, your first step before buying — creating your out-of-state team.

Introduction

You will hear people say that real estate is all about relationships.  And nothing can be more true.  And to be honest with you – this is also the most difficult part of real estate investing —  GETTING GREAT PEOPLE TO BE PART OF YOUR TEAM.  However, it is critical to your out-of-state investing success!!

The podcast, today, is about building an out-of-state team, that is, putting together a group of people in the city where you own properties – who are your hands, feet and eyes in that city – who are also committed to your success in that region.

At this point, however, I need to differentiate between your out-of-state team and (what I would call) your HOMETOWN TEAM.

Your Hometown Team

Your hometown team is a group of local professionals who work with you on your overall real estate investing efforts.  These key indivuals generally live near you.  Your hometown team supports ALL of your investing efforts, whether in your hometown, in your target cities/states or even internationally. They have your whole business and overall goals at heart.  Conversely, your out-of-state team is GEOGRAPHICALLY SPECIFIC!

You need to have your “hometown” team in place first, before you build your out-of-state team.  The hometown team generally consists of the following:

• Your real estate attorney
• Your estate planning attorney
• Your CPA and/or bookkeeper – Keeping proper books for real estate investments is getting more complicated with all the tax-law changes.  You need someone who understands the law and understands what you want.  The right accounting professional will do much more than that for your business.  They can help you to structure your business in the right way to maximize profits and minimize taxes.
• Your mentor/coach – This is the experienced real estate investor who is teaching/mentoring/coaching you and teaching you the ropes of successful real estate investing.

Your hometown team may also include other key support people– not necessarily geographically “local” — but who still help you with all of your properties and real estate business

• Mortgage Broker/Banker – Both can offer you a variety of lending options. A Mortgage broker can bring you many borrowing options from lenders around the country.  Bankers have their own products but can make the loan decision. They each have their advantages, and you could use both on your real estate team. In either case, it’s important they understand what you want (fast closings, lower interest, corporate loans, etc.)
• Insurance Broker – Is a critical member of your team as well. They must have experience with investors, provide volume discounts because you will bring them multiple deals. Must know types of policies (vacancies, owners, tenants).  Must have affordable coverage & premiums.  From insuring structures long term, through short term construction insurance and even business liability coverage, you must put a really good independent insurance agent on your real estate investing team.

These are your key and closet consultants and advisors who know you and your goals best.

Gary Keller, the author of the book Millionaire Real Estate Investor actually defines three team segments

Inner Circle: (Leadership & Advocacy)

• Consultants
• Partners
• Mentors/Coaches

Support Circle: (Advice & Management)

• Attorneys
• Lenders
• Real Estate Agents/Brokers
• Investors
• Accountants
• Contractors
• Property Managers

Service Circle: (Work & Results)

• Courthouse Clerks
• Masons
• Plumbers
• Developers
• Landscapers
• Title Companies
• Appraisers
• Inspectors
• Leasing Agents
• Builders
• Contractors
• Cleaning Services
• Lawn Services
• Flooring & Carper
• Carpenter
• Electrician
• Painter
• Maintenance Technician
• Roofers
• Concrete Companies
• Landscapers
• Handyman

This whole “Service Circle” group is not a main concern for the out-of-state investor.  A good property manager will have his or her key contacts and is used to managing this group well and cost-effectively.

Your out-of-state team is also different from your local “hometown” team in that they are familiar with your overall investing goals but not to the detail of your hometown team.  And most of your communication with your out-of-state team occurs over the phone and via email not in person.  In another Fun Fact Friday we will talk more in detail about developing your “hometown team.”

Beginning to Build Your Out-of-State Team

So, on to building a great “out-of-state” team.

Before you get started building your out-of-state team, you should make sure they meet the following criteria:

1. They must be experienced and knowledgeable professionals (not newbies) who can effectively help you achieve your goals . You’re looking here for the best and the brightest in the region, your “A” players, if possible.
2. These people will need to know your local needs and be in alignment with your goals
3. A large part of their business must be with real estate investors or they are investors themselves (for example a local real estate attorney who also invests himself)

Next, you’ll need to start connecting with people and industry specialists in the city or cities where you are looking to buy properties.

The first and, in most cases, most important team member of your out-of-state team will be your real estate broker – at least in the beginning.  In many cases, this person will be your first contact in that city and, more than likely, your primary referral source for the rest of your team.

Finding a Good Broker

So, how do you find a great broker?

• If you already know real estate investors or industry contacts in the city, ask them for referrals. Word-of-mouth referrals are always your best source
• If you don’t know anyone, start looking on loopnet.com or costar.com. Look at properties that are similar to what you want to purchase.  For each property there will be a listing broker.  Make a note of the broker’s name, phone and email.  Depending on the size of the city, you may notice that certain brokers will emerge more frequently.
• Post on BiggerPockets.com. This is a great place to post in the forums that you are looking for a good broker in this or that city.
• You also, might want to do Google searches for the top commercial or residential brokers in your target city.
• You can also ask local REI club leaders, property managers, title companies and commercial lenders in the area for referrals
• Once you’ve created a list, you can start calling the brokers.
• However, before you speak with a broker, write a script of what you are going to say  (an elevator pitch, so to speak) .  Your script should include who you are and the types of properties you are looking for.  Spend some time on this because this will be your first contact with a broker.  It should be concise and to the point and quickly summarize your reason for calling.  A good description will show the broker you know what you want and what you are doing and that you are serious about doing business with him or her.  Effectively done, it will also create a favorable first impression.
• Some say it is better to call about a specific property he has listed, even if you are not really interested. But if he or she has no properties of key interest, I prefer to just call and be straight with the broker.
• A call might be as follows, “Hi Chuck, my name is Bill Manassero and I’m an investor from Southern California who is investing in (name of city). I’ve noticed you have a number of property listings that seem consistent with my buying criteria and I’d like to talk further.  Do you have a few minutes?“  Let him respond and if he can’t talk at that moment, schedule a time he can.  If he has a few minutes, he will likely ask you a few questions and more than likely he’ll want to know what kinds of properties you are looking for.  That’s when you can say, for example, “I’m looking for multifamily properties for a value add move, possibly from a mom and pop seller, between 50-100 units.  Ideally, a C property in a B class neighborhood, at no more than $28K per unit.  The units can use light rehab and new management to boost its value.”  You can also add your CAP rate and Cash-on-Cash requires as well.
• Once you’ve developed a good rapport with the broker, ask for leads, get on his or her list and you’ll start receiving properties, some of which you’ll start making offers on.
• PLEASE NOTE: It’s really important that you promptly get back to the broker on how you feel about each property he sends. First, thank the broker for sending the deal.  If you like the deal, go to the next step.  If it’s not what you are looking for, then tell the broker EXACTLY why the property is not what you want — WITH DETAILS.  This will show him that you are serious, interested and truly looking to buy.  In other words, that he will not be wasting his time.
• That’s how it starts.
• Now, somewhere at this point, as you start to come across properties of interest, you might want to schedule your first trip to the city. On that trip, you will…
  • Schedule lots of property showings
  • Get tours of the city from different people – not just your broker if possible — (see the good emerging areas, the bad areas, areas of development and growth, visit downtown, see new and dominant employers, and more)
  • You’ll also want to schedule appointments/interviews with potential team members
  • Meet with potential building inspectors (one of the first team members you will need to pick before your next visit)
• As you continue communicating with the broker on this trip, you’ll look for areas of commonality and learn more about the broker. I know one investor who I interviewed on my show recently who connected with a broker who was having his first child. The investor’s wife caught hold of this fact and she went out on a shopping spree for high-end baby clothes and other “first born” baby items.  It made a huge impression on the broker who soon started forwarding the investor great ”off-market” deals, sold the investor his first property in that area and continues to be the investor’s primary source of great deals in that city to this day.
• It’s all about building a good rapport. As the rapport grows, you can then start asking your broker, “Who do you know that I should know in town?” “What would you do if you were me?” “Do you know a good… for example, property manager”… “building inspector,” and so forth

Building the Rest of Your Team

• Next, you’ll want to start building the rest of your team. The people you will need include:
  • Property inspectors (including environmental, pest
    • Keep in mind, once you get a property under contract, the first thing you do is schedule a property inspection. So, the first team member you need in place is the property building inspector.  This person is critical.  Screen this person carefully, ask for copies of previous inspections, talk to previous clients, etc. I always fly out for property inspections and insist on seeing every single unit – not just a sampling.  You have to have an inspector that is OK with this.
  • A local real estate attorney
  • Title company – After the mortgage and housing meltdowns beginning in 2007, title companies have become much more cautious, and they are operating under regulations that keep getting more restrictive. The title company can also help you in property evaluation and avoiding nasty surprises after a purchase.  The right title research and insurance coverage is crucial to your real estate investment business.
  • Escrow Company
  • Local lenders
  • Specialty Lenders – Nothing is more frustrating than to have to pass up a really profitable deal because you can’t get the short term funding you need to make it happen. Hard money, private money, and transactional lenders that investors use to get deals closed.
    • Transactional Lenders: Banks, credit unions, institutional
    • Hard money (equity based lenders) low LTV, high fees
    • Private Money – individuals, negotiable rates
  • And your most vital – A property management company
  • As I mentioned, as an out-of-state investor, you don’t need to find the contractors and service people, that is the job of a good property manager. If you don’t like the service people being used for your property then you have the right to request a change but, again, that is not a big issue for a good property manager.
• As you collect potential team members’ names, you can start making contact and doing your due diligence on the team
  • Start digging to find info on
    • Check the potential team member’s Better Business Bureau ratings
    • Google search for the names of your potential team members
    • Check out Google ratings
    • Yelp ratings
    • Facebook, Twitter and other social media
    • Call current and previous clients of your potential team members
    • And before you hire someone, do a background/criminal record check, just like you would for a potential employee

Once your team is in place, develop systems to stay in regular communication.  Good communication is key to a having a great team.  Introduce various team members (if they don’t know each other already) and get and keep them motivated for success.

Well that’s it for today!

Please note Old Dawg listeners – everything presented here today (including links) can be accessed in our show notes on olddawgsreinetwork.com.  Look for episode #020.

So, until next time, remember CASH FLOW IS KING AND REAL ESTATE INVESTING THE MEANS.  Thanks again for listening and God bless!

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