In the ninth and final part of our series on Building Your Real Estate Investment Team we will take a look at how to round out your team and provide a quick recap of our series. As your real estate portfolio grows, your need for additional team members may grow as well. Whether you need a second Realtor who is an expert in the new region you’re looking to invest in or want to add an administrative assistant to help with some of the day-to-day tasks of running your real estate investment business, the principles we’ve covered throughout this series still apply.

Real Estate Investment Team selection criteria
As we’ve covered in each part of this series, here are 6 criteria to consider when selecting members for your real estate investment team. Look for professionals who:

1. Own investment real estate themselves
2. Care about your goals
3. Have the appropriate qualifications
4. Have specific experience working with investment properties in the area
5. Have reasonable fees
6. Provide positive chemistry

Team Members
Throughout this series we’ve covered the details on selecting a number of professionals for your team. These pros include:

• Mortgage Brokers
• Realtors
• Lawyers
• Home Inspectors
• Insurance Brokers
• Property Managers
• Accountants

As you progress in your real estate investing career, you are bound to work with several other parties to accomplish a variety of tasks. The good news is that you can still use our 6 criteria as an initial screen when seeking out new relationships. Whether you are looking for general contractors, painters, handymen, electricians, landscapers, administrative staff, or any other help, you can use the list as a starting point.

How to Find Quality Professionals
In each part of our series we provided details on how to find quality professionals. While there may be specific places to look for each type of contact, the local Yellow Pages or an internet search will provide an abundance of contacts in your area. The easiest way to narrow these names down is to ask for referrals from other investors or members of your team. Recommendations from fellow investors are more likely to turn up other contacts who own investment real estate themselves, and this creates a great foundation to establish a new working relationship. Referrals who are familiar with the rental business are more likely to share similar attitudes and are often more knowledgeable on topics specific to real estate investors.

Conclusion
While it may take some time to stack your Real Estate Investment Team with great professionals, having the right team behind you can make all the difference in your business. Having the right financial, property, legal, tax, insurance and operational advice can save you hundreds of dollars and hours by preventing problems before they arise. Work with competent professionals to ensure all of your bases are covered and your portfolio will grow faster while you sleep well at night.

Building Your Real Estate Investment Team Series:
Building Your Real Estate Investment Team – Part 1: Introduction
Building Your Real Estate Investment Team – Part 2: Selecting a Mortgage Broker
Building Your Real Estate Investment Team – Part 3: Selecting a Realtor
Building Your Real Estate Investment Team – Part 4: Selecting a Lawyer
Building Your Real Estate Investment Team – Part 5: Selecting a Home Inspector
Building Your Real Estate Investment Team – Part 6: Selecting an Insurance Broker
Building Your Real Estate Investment Team – Part 7: Selecting a Property Manager
Building Your Real Estate Investment Team – Part 8: Selecting an Accountant
Building Your Real Estate Investment Team – Part 9: Conclusion

Real estate can offer great opportunities to increase your monthly cash flow and many real estate courses teach you that cash flow is king. I encourage you to think broader and consider the income tax effect of owning an investment property.

The principal amount paid down on your mortgage is not deductible for income tax purposes, and therefore a property that seems to have only a little bit of cash flow every month will post a large income before tax. This income is taxed based on your current tax bracket and it can end up adding thousands of dollars to your tax bill, greatly exceeding the positive cash flows you previously generated.

One can argue that this cost is reasonable as the principal on the mortgage is still being paid down more than the overall negative cash flows, and this argument is very valid, however it may not be part of your investment plan.

Please remember to include the income tax effect of your rental property in your cash flow calculation to ensure you don’t face a cash crunch when your tax time rolls around.

Welcome to the 8th part of our series on building your real estate investment team. To round out your team you’ll need a good accountant to oversee your financial picture. Having a professional who can act as your financial quarterback and evaluate the financial impacts of your decisions will help keep you on the right course as you build your real estate investment portfolio.

A good accountant will do more than just bookkeeping, taxes, and preparation of financial statements. They will be able to advise on tax issues, how to setup your business(es) and help you make level headed financial decisions that move you closer to your goals.

Real Estate Investment Team selection criteria
Here are the 6 things you want to look for when selecting members for your real estate investment team:

1. Owns investment real estate themselves
2. Cares about your goals
3. Has the appropriate qualifications
4. Has specific experience working with investment properties in the area
5. Has reasonable fees
6. Provides positive chemistry

Why Add an Accountant to Your Team?
Whether you add an accountant early on in building your team, or select someone later in the process, you’ll want to know who you will be working with by the time you complete your first deal. Your accountant can advise on a few items which are time sensitive and which should be dealt with upfront. Some of the things your accountant can help with include:

• Advise on ideal company structure for your unique circumstances and goals to minimize liability and maximize your profit
• Setup a bookkeeping system
• Setup systems for controlling cash and handling funds
• Provide tax and financial planning advice
• Prepare tax returns and financial statements

Having a trusted accountant on your team will provide you with confidence that you are on track financially and help you make the most of your real estate investment portfolio.

Accountant Compensation
As is the case with many other professionals, accountants typically charge by the hour. You’ll want to make sure that the hourly charge is in line with the experience and expertise of your particular accountant. Some accountants may charge different rates for different types of services, so get clear on the fee structure up front. Finally, some accountants bill for their staff’s time at different rates. If you plan to use their office for bookkeeping for example, this will likely be billed at a different rate than complex tax advice. Whatever the case may be, the important thing is to ensure you are clear on these rates up front.

Finding an Accountant
The easiest ways to find an accountant are by grabbing your local Yellow Pages,  using an online search, or by contacting the governing accounting association in your region. The easiest way to find a good real estate specific accountant is to seek referrals from other investors or members of your real estate investment team. Your accountant is one team member you will want to have plenty of real estate investment experience, preferably owning an income property of their own. As someone helping to ensure your business is profitable, it is imperative that they are up to date on the rules and know how to make your invested dollars work hard.

Qualifications
There are usually regional or national associations which serve as governing bodies for accountants, and you should look for a professional that is affiliated with an appropriate organization in your area and who holds the required designation to practice as an accountant. In the United States the CPA is the primary designation, whereas in Canada accountants may have a CA, CGA or CMA designation.

Investment specific experience
Taking the time to find an accountant who has experience working with investors is important. As an investor you will encounter unique situations that require your accountant to be familiar with real estate specific rules and strategies. Finding someone who owns investment real estate themselves will help you connect and ensure you are on the same wavelength when making financial decisions.

To find the right accountant, look for a few recommendations, arrange to meet, and then consider whether they meet the 6 criteria above. Once you find an accountant with the experience, expertise and attitude you’re looking for, get to work and watch your portfolio grow.

Check back soon for Part 9 of Building Your Real Estate Investment Team where we’ll provide some suggestions on working with other vendors and cap off this series.

Building Your Real Estate Investment Team Series:
Building Your Real Estate Investment Team – Part 1: Introduction
Building Your Real Estate Investment Team – Part 2: Selecting a Mortgage Broker
Building Your Real Estate Investment Team – Part 3: Selecting a Realtor
Building Your Real Estate Investment Team – Part 4: Selecting a Lawyer
Building Your Real Estate Investment Team – Part 5: Selecting a Home Inspector
Building Your Real Estate Investment Team – Part 6: Selecting an Insurance Broker
Building Your Real Estate Investment Team – Part 7: Selecting a Property Manager
Building Your Real Estate Investment Team – Part 8: Selecting an Accountant
Building Your Real Estate Investment Team – Part 9: Conclusion

When starting out in real estate investment, many investors opt to manage their properties themselves. Most commonly this is done to save the expense and improve cash flow. Another reason some investors take this approach is to learn as much as possible about what is required to manage a property before hiring this function out. In this part of our series on building your real estate investment team, we take a look at how to select a great property manager. With responsibility for such an important part of your real estate investing business it is crucial that you make a good decision when it comes to selecting property management before turning over a set of keys. Unfortunately, this decision is tougher than it may seem.

You’ll first want to make sure you have a property manager who is familiar working with the type of rental properties you deal with. If you are renting an executive suite in a luxury high-rise condo you may want a different manager than someone working with multi-family apartments, student rentals, or rooming houses. The process of finding and keeping the right tenants is a little different for each niche. In this article we’ll explore what services to look for, how to narrow down your candidates, and some potential pitfalls to be aware of.

Real Estate Investment Team selection criteria
Once again, here are the things you’ll want to look for when selecting any member of your team:

1. Owns investment real estate themselves
2. Cares about your goals
3. Has the appropriate qualifications
4. Has specific experience working with investment properties in the area
5. Has reasonable fees
6. Provides positive chemistry

Why Add a Property Manager to Your Team?
As a real estate investor, you make money by finding great deals, putting them together, getting them up to speed and then repeating this process as many times as possible. Property management is a very time intensive part of the real estate business, and if your goal is financial freedom, hiring out the day-to-day management of your properties to a trusted property manager can help you get there. Rather than dealing with tenants, maintenance and repairs, you can focus on finding more positive cash flow properties and growing your business. There is a cost for property management, but you must weigh that cost against the potential benefit.

Property managers will offer different capabilities, levels of service and expertise. Some of the things property management companies may be able to help you with include:

• Advertising
• Showing the property
• Interviewing tenants
• Tenant screening (including credit and background checks)
• Filling out leases
• Collecting rent
• Handling evictions and other tenant issues
• Managing trades for repairs and maintenance
• Coordinating lawn care and snow removal
• Regular property visits

Property Manager Compensation
Fees for property management are most commonly defined as a percentage of monthly rent or a flat monthly fee. Whatever the arrangement is, be sure to find out which items are included and which are extra.

You’ll also want to make sure the compensation structure aligns the PM’s interests with your own. If you pay a flat monthly fee and the manager is responsible for filling vacancies, do they really have much of an incentive to get that unit filled? If you are paying one month’s rent to find a tenant, do they really have an incentive to find a good tenant rather than moving in the first applicant that has a pulse?

Finding a Property Manager
As with any service you are looking for, you can check your local Yellow Pages, search online, or seek out referrals. Since a quality property manager is one of the most important members of your team, your best bet for finding a great manager is to ask for referrals from other investors or members of your real estate investment team. In the process you’ll be able to get some real life details on who offers good service in the area, and who you should avoid.

Qualifications
More so than with the other members of your team, the number one qualification when selecting a property manager is experience. There are courses and certifications that exist, but property management is a tough business which requires certain knowledge that can only come with experience. Look for someone who has been in the industry full-time for a few years, focuses on the type of properties you have, and has positive recommendations from other investors.

Investment specific experience
Most property managers work with either landlords or large property firms and have an idea of what their clients need, but finding someone who owns rental properties of their own is beneficial. A PM who owns and manages their own rental properties will share a similar mindset and understand your priorities best. Having a positive relationship with your property manager will make your real estate investment career far more pleasant, so be sure to choose wisely and keep the communication lines open.

Narrow down a few managers based on recommendations from other investors and team members (you should already have a few team members at this point) and then meet with each. Afterwards, consider whether they meet the 6 criteria above and whether your gut-check says you’d be happy working with them to build a long-term relationship. Once you’ve found a property manager you like, get your agreement in writing and be clear on what services are included, how you will communicate, and what each of your expectations are for working together.

Check back soon for Part 8 of Building Your Real Estate Investment Team where we’ll provide some tips on selecting an Accountant to help keep your finances healthy.

Building Your Real Estate Investment Team Series:
Building Your Real Estate Investment Team – Part 1: Introduction
Building Your Real Estate Investment Team – Part 2: Selecting a Mortgage Broker
Building Your Real Estate Investment Team – Part 3: Selecting a Realtor
Building Your Real Estate Investment Team – Part 4: Selecting a Lawyer
Building Your Real Estate Investment Team – Part 5: Selecting a Home Inspector
Building Your Real Estate Investment Team – Part 6: Selecting an Insurance Broker
Building Your Real Estate Investment Team – Part 7: Selecting a Property Manager
Building Your Real Estate Investment Team – Part 8: Selecting an Accountant
Building Your Real Estate Investment Team – Part 9: Conclusion

Moving on to the next part of our series on building your real estate investment team, we examine how to select an insurance broker or agent as part of your team. A broker will typically work with multiple insurers and can shop around for the best rate, while an agent will generally represent a single insurer. Before closing you’ll need to have insurance in place, and a good broker or agent can take care of all the details. For the remainder of this article, we will use the terms broker and agent interchangeably.

Having an insurance broker well versed in the type of rental properties you deal with is important to ensure you get the right coverage. As a landlord, your insurance needs are likely a little different from the typical homeowner. We’ll provide a couple examples where things may differ and give you the knowledge required to select a great insurance agent for your real estate investment team.

Real Estate Investment Team selection criteria
We realize by the 6th installment of this series, you have seen this list before and it is getting a little played out, but here are the things you’ll want to look for when selecting any member of your team, and an insurance agent is no different.

1. Owns investment real estate themselves
2. Cares about your goals
3. Has the appropriate qualifications
4. Has specific experience working with investment properties in the area
5. Has reasonable fees
6. Provides positive chemistry

Why Add an Insurance Broker or Agent to Your Team?
After passing off on the home inspection and waiving your conditions you’ll be headed toward closing your deal. Most lenders require the property to be insured as part of the mortgage conditions so you’ll need to arrange insurance on your property before closing. Better yet, working with a good broker, you’ll be able to confirm that your property is insurable before waiving your conditions.  An insurance broker can help you by:

• Evaluating insurance needs
• Advising on appropriate coverage
• Obtaining premium quotes
• Answering any questions

Having a quality agent on your team will provide you with the confidence of knowing you have the right coverage at a reasonable rate.

Insurance Broker / Agent Compensation
When dealing with insurance for residential real estate you’ll rarely encounter any fees. Most agents are compensated by the insurers they work with, and your policy premiums will be your only out-of-pocket. Of course, if you have a claim you may need to cover a deductable, but there should be no need to pay your agent upfront.

Finding an Insurance Broker / Agent
Again, when looking for an insurance representative, you can flip through your local Yellow Pages, take your search online, or best of all seek referrals from other investors or members of your real estate investment team. Often your Realtor will be able to recommend a suitable insurance professional in your area.

Qualifications
As with most types of professional, there are usually regional or national associations which serve as governing bodies for insurance agents. Look for a professional that is licensed or affiliated with the appropriate organization in your area and for someone who specializes in property insurance.

Investment specific experience
Taking the time to find an insurance professional with investor specific experience is important. As an investor you will have unique insurance needs and it is best to have a representative who understands the coverage you need as a landlord. Selecting a broker or agent who owns investment real estate themselves is an even better choice since you’ll be on the same wavelength.

One example of an issue to be aware of is the length of vacancy allowable by your insurance policy. Many property insurance policies cover only 30 days of vacancy, and despite the best of intentions vacancies sometimes last more than 30 days. If your insurance lapses due to this technicality you could find yourself in trouble with the bank. An agent who understands the needs of a real estate investor will be able to arrange more appropriate coverage and ensure you are actually covered when you need it.

Narrow down a few insurance professionals and then consider whether they meet the 6 criteria above. Meet with a couple brokers to see who you think would be the best fit for your team and then start working together to test the waters. If you’re happy with your agents work on your first deal you are done, if not, keep looking.

Check back soon for Part 7 of Building Your Real Estate Investment Team where we’ll provide some tips on selecting a Property Manager.

Building Your Real Estate Investment Team Series:
Building Your Real Estate Investment Team – Part 1: Introduction
Building Your Real Estate Investment Team – Part 2: Selecting a Mortgage Broker
Building Your Real Estate Investment Team – Part 3: Selecting a Realtor
Building Your Real Estate Investment Team – Part 4: Selecting a Lawyer
Building Your Real Estate Investment Team – Part 5: Selecting a Home Inspector
Building Your Real Estate Investment Team – Part 6: Selecting an Insurance Broker
Building Your Real Estate Investment Team – Part 7: Selecting a Property Manager
Building Your Real Estate Investment Team – Part 8: Selecting an Accountant
Building Your Real Estate Investment Team – Part 9: Conclusion

I’ve been getting a lot of letters from my bank regarding their insurance offerings. I’m not interested in their products right now, but it got me thinking about banks and their way of running things, specifically predatory lending practices. Bank insurance can be one of them, so it’s a topic worth touching up on.

Predatory lending is a broad term. Usually it is defined as “imposing unfair and abusive loan terms on borrowers”. In simple words, it’s the lender trying to trick you into a loan you shouldn’t be in, or get more money out of you than you’d normally have to pay.

There are a few categories of predatory pricing you should be aware of. Here’s a quick list:

Unjustified risk-based pricing
When a lender gives you money, you present a risk to them. The lender must account for the risk that you won’t repay your loan. Some borrowers present a higher risk than others and there are many ways of determining this level of risk (credit scores, for example). The higher the risk, the higher the interest rate you’ll get and the worse the terms. The problem comes when a lender considers you and your loan to be more risky than you actually are, and therefore, charges you higher interest than you deserve.

Single-premium credit insurance
This is the insurance your lender may try to sell to you in case something happens and you’re unable to pay off the remainder of the loan. You do not want the lender to go after your family for money, so you may be inclined to consider this. However, this type of insurance is usually very expensive and very limited. More importantly, you can purchase life insurance policies from qualified brokers that will cover you and your family for the amount of the loan and you’ll pay a lot less for better coverage.

Failure to clearly disclose terms or pricing
Loans can get very complicated. There’s a lot of fine print that the lender knows about and you don’t. Therefore, it is easy for him to tell you the things he wants you to know and leave out those he doesn’t (commonly known as adverse selection).

That’s exactly what happened during the real estate and credit crisis a few years back. Lenders gave out these loans that looked wonderful to borrowers, however, these loans had a variable rate component built into them. So after a certain period of time, the low interest rate would turn into a much higher rate, causing the borrower to default on the loan. All of that was in the fine print, but very few actually knew about it and banks just wanted to pad their lending portfolios so they kept pushing these products.

Others
There are also other predatory lending practices such as short term based loans with disproportionally high fees and securitization abuses.

Protecting your money
The best way to protect yourself in this case is knowledge. First off, be familiar with different types of predatory lending practices before you speak to a lender. Second, shop around and speak to more than one lender. Don’t put all your eggs in one basket. Make it clear that you’re speaking to several lenders. Get them to compete for your money. A great way to do this is to use a mortgage or loan broker you trust who can help you find the best terms for any type of loan you may need.

Sources:
Predatory Lending – Wikipedia