Rich Dad Education Blog

A good Power Team is critical to the long-term success and growth of your real estate investment business. Creating a solid Power Team involves developing relationships with support professionals and allowing them to handle the various tasks and duties of running your business so that your focus is on growing your business. The development of a good Power Team does not just happen, and it certainly doesn’t happen overnight. It takes time to find a good fit, and because your Power Team is dynamic and always changing, you will find that you often need to add or replace team members. This is not always caused by a negative situation; sometimes a team member simply is no longer capable of helping your business move forward. There may also come a time when you realize that your business has begun to move in a different direction, and the people who were originally perfect for the job are no longer the best fit. The thought of simply replacing people may seem harsh, but it really is okay to replace team members. While no one likes to lose a job, a true professional will understand your need to make the change, and will move forward from there.

In time, you will find that your real estate business is no different than any other business. Certain aspects of your business may appear to be different than those of other businesses, but when you strip everything down, the principles are the same. You still have to manage cash flow, provide quality products and customer service, manage employees, etc. You still have to learn to delegate. This is why you need a Power Team.

Let’s start with a couple of definitions:

Power (n) - Ability to do or act; capability of doing or accomplishing something, delegated authority; authority granted to a person or persons

Team (n) - Group of people who share the same interest in professional development.

What kind of professionals do you need on your team, and what skill sets must they possess in order to provide the maximum benefit to your business?

These members include, but are not limited to, the following:
• Title Company
• Escrow Company
• Realtor
• Contractor
• Appraiser
• Insurance Broker
• Private Lender or Hard Money Lender
• Mortgage Broker
• Property Manager
• CPA
• Attorney
• Personal/Administrative Assistant

There are many reasons why each one of these members plays an important part in the success of a real estate investment business. Allow me to give you an overview of why each of these roles is a vital component of a successful Power Team.

Title Company

You will find that your title company is the most important member of you team. Most people think the title company is in the business of “closing deals.” While that is partially true, the title company is actually in the insurance business. The majority of their revenues come from the premiums they charge you when you buy a title policy from them at closing. While the title company is certainly essential to closing a deal, they offer many other valuable services to the investor. These services include preliminary title reports, marketing reports, materials, and, on a limited basis, creative advice on how to close in unique situations.

While it is certainly important to work with a reputable title company, when it comes down to it, most of them operate in much the same way. It is the experience of their closers or escrow agents that sets a good title company apart from the rest. The skill of these agents can have a big impact on your business. The experienced closer will recognize and point out the flaws and potential pitfalls in your deal, and will propose possible solutions to remedy the problems. Inexperienced closers will cost you more deals than they close. Because they don’t understand such methods as seller financing or double closing, they are likely to respond to nontraditional deals by simply telling you that you “can’t do that.” Unless you find a title company with good closers who have experience in making creative deals work, you will have to restrict your investing activities to those that fit within “The Box.”

Escrow Company

If you actively employ the strategies of lease/option or seller finance, the escrow company will be an important part of your team. These companies act as third party service providers; their responsibility is to collect the money from the purchaser or tenant/buyer and remit the funds to the seller or property owner. Because these companies handle and document all payments between buyer and seller, using their service helps keep everyone honest. This legitimate form of documentation of payment history provides an added benefit to the buyer or tenant/buyer when attempting to refinance their home. Escrow Companies charge a fee for this service, and some are quite expensive. They usually charge an initial fee to open an account, a monthly fee per disbursement, and a close-out fee.

Realtor

As an investor, you should be creating your own market, meaning that you should find or receive your own deals before they get to the Realtor level. Despite this fact, Realtors are an important part of your team as well. Networking with Realtors is a great way to keep your ear to the ground to find out what is going on in your market, such as whether the number of listings are increasing or decreasing, whether sales are increasing or decreasing, if the majority of buyers are owner occupants or investors, which way the prices are going, etc. When you need more information to determine if the price of a potential deal is reasonable, you can have your realtor use the MLS to obtain and provide you with sold comps, or information on the selling prices of homes in the immediate area of your potential deal. Realtors also get pocket listings. These are listings that have not made it into the MLS; theoretically, these sellers would have a little more flexibility with pricing, and the Realtor has incurred little, if any, marketing costs.

The Realtor on your Power Team should understand that, while you will not be buying all your properties from him or her, you will certainly be loyal and use him or her if you are ever in a situation in which you want or need to employ a Realtor. You may be wondering why a Realtor would share this type of information with you when there is a clear understanding of how infrequently you are likely to use the realtor’s services. The answer is simple. If you are upfront and honest with a Realtor concerning your intentions, you are showing respect for his or her time and expertise. When you make realtors feel respected, they are much more likely to be receptive to the idea of negotiating with you to create a mutually beneficial arrangement. Ask what you can offer in exchange for his or her services. As a rule, Realtors cannot accept cash, but they can accept gifts, gift certificates, an exchange of services, etc. Even if a Realtor says that compensation is not necessary, find ways to show your appreciation. Chances are good they will say it’s not necessary, but just know it’s important to create value for what they do for you.

Contractor

Whether you are rehabbing your properties or holding them, networking with contractors is important. Finding quality contractors will probably be the most challenging part of the development of your team. There are many out there who can provide impeccable references, but it is up to you to figure out which ones are the pros and which ones are the cons.

It is best to make sure that the contractors you consider hiring are licensed and bonded in your state, so you will at least have recourse, should things go awry. But remember, no contractor likes to come in and clean up other contractors’ messes; check references, and contact the Board that regulates contractors in your state to get details on their standing.
It is also wise to never pay your contractor anything upfront. Even if your contractor asks you to give him money to purchase materials, I would strongly discourage you from doing so unless you already have a solid relationship.

Appraiser

A good appraiser is valuable to you because he or she will be quite in-tune with lenders’ attitudes regarding property valuations. While sold comps can provide you with a very informal type of appraisal for your benefit, an appraiser will have a better view of the probable value of the property to a lender. As with any other contractor, it is important to find the right candidate. Inexperienced appraisers often make errors on details such as a square footage, or value the home too low or too high, which can result in the deal being thrown into technical review by the lender. For this reason, it is crucial that you know the length and extent of an appraiser’s experience in the field, what certifications he or she holds, etc. You should also look into the appraiser’s standing with any regulatory agency to verify the appraiser’s standing.

Insurance Broker/Agent

Your insurance agent is the person who will write the policies that protect you and your assets. It is important that your agent be familiar with the products that will best suit your needs, such as coverage for vandalism, umbrella liability policies to protect you in the event of any type of liability exposure, and, if you hold rental properties, loss of rents coverage. These products are just examples. Make sure your agent is familiar with your unique situation and the products available that will minimize your exposures. If your agent seems less than knowledgeable and capable in the areas most applicable to you and your business, consider looking elsewhere to find good representation.

Private or Hard Money Lender

Private or hard money lenders can prove themselves invaluable to you when it is necessary to receive financing as quickly as possible. When deals present themselves suddenly and rapidly come together, closing quickly is vital to the success of the deal. Private and hard money lenders have the necessary resources to facilitate an urgent closing.

Private money loans generally carry a higher interest rate than conventional lending, but the trade off is speed. This type of loan is usually asset based, meaning that credit history is typically not an issue. If the LTV allows it, you may be able to roll the cost of repairs to the balance of the loan.

Mortgage Broker

An experienced mortgage broker is a critical part of your team, especially with the current condition of the credit markets. Because the mortgage business is a sales business, too many mortgage professionals have a tendency to over-promise and under-deliver. This is why it is so important to find a mortgage professional that has been around long enough to understand the business, and who you feel understands your business. It goes without saying that you should have confidence in the ability of your broker to properly process your loan package and get your loan through underwriting with minimal conditions and delays.

An added benefit to working with a seasoned mortgage professional is that he or she will have worked extensively and developed relationships with various lenders, and thus is likely to have a good idea of what each lender will require. In situations in which you found it necessary to close quickly and used hard money to do so, a good mortgage professional can work with you to convert the high interest hard money loan to a lower interest conventional loan as soon as possible.

Property Manager

Many investors hold rental property at some point in their investment career, and many eventually decide that it is in their best interests to employ a property manager. A good property manager is very hard to find, but the effort to do so is well worth it. The professional manager will know the most effective way to market your property by using the correct medium to target the correct demographic. He or she will know the best ways to screen prospective tenants and evaluate their “rent-worthiness,” and will be able to recognize, from experience, the red flags that indicate potential problems down the road.
This manager will know the Landlord/Tenant law, and will act appropriately, objectively, and promptly to any issue in any situation.

CPA

Proper tax planning is another important aspect of your business. Accounting is a real Achilles Heel for most people, and real estate investors are no exception. Finding a good CPA to whom you can look for guidance should be one of your top priorities. When possible, the best scenario is to find a CPA who also invests in real estate, but if that is not an option, working with an accountant who has extensive experience in real estate investment taxation is fine. Be sure he is up to date on any recent changes in tax laws that affect the real estate investment industry.

When—not if—you are audited, you will need to have adequate representation; you should choose a CPA in whom you have confidence to represent in any matters concerning the IRS. I’ve talked to many people, W-2 wage-earners and business owners alike, who attempt to represent themselves when dealing with the IRS. That’s like going to court and acting as your own attorney—folks, it’s just a bad idea. The IRS is an expert in their field and wields immense power. There is no reason why any individual who is not skilled in tax law should attempt to go toe-to-toe with the IRS.

Attorney

Legal representation is necessary in the day-to-day life of a business owner, especially one whose business is real estate. You will need someone who can look over your paperwork and contracts and make sure nothing has been missed. When closing a deal, it’s a great idea to have your attorney review the closing documents and deed to make sure everything is in order. The best surprise is no surprise.

If you hold rental property, you will need an attorney to assist you when your tenants are involved in illegalities; at some point, that will happen. In such a situation, your property manager will not be qualified to assist you. Your tenants are still your tenants, and they reside in your property. Their legal problems can very well become your legal problems.

An attorney can also assist you in setting up any entities that you wish to create. A lot of business owners save a few dollars by setting up their own entities, but I would recommend using the services of a legal professional to make sure that everything is done properly and that there are no areas of concern. There is also the matter of recourse. If you set up the entity yourself, the consequences of any mistakes that are made rest solely on you. If you hire a legal professional to see to the set up, and he or she makes a mistakes, the responsibility is his or hers, and you may have some recourse.

Personal/Administrative Assistant

Once your business really takes off, you’ll find that your phones ring nonstop, faxes come in endlessly, and basic administrative duties pile up. If you are the one trying to handle all of the administrative tasks, you will have very little time left over to see the most important aspects of running and growing your business. When this time arrives, get an assistant to aid you in handling the mounting duties!

Many people are hesitant to use assistants for a number of reasons. They do not trust anyone else to do things as well as they themselves do, they have a fierce sense of possession toward the business they created and do not want anyone else to become involved in it, they fear that a mistake will be made that carries catastrophic consequences, or they just think an assistant would get in their way. The important thing to remember is that you are the boss! You can hire someone with whom you are comfortable, and train them in a way and to a level with which you are confident. You control the depth of your assistant’s involvement in your business, and can expand his or her duties as trust is progressively developed. If you can find someone you trust who has previous experience, it may take as little as one day to train him or her. If you already have an assistant, good for you; if you don’t, get one as soon as your business has either grown to a level that warrants seeking outside help, or you are becoming so overwhelmed with administrative duties that you cannot focus on your duties as an investor. Imagine the load you’ll be taking off your shoulders by choosing to hire an assistant! Once you hire a competent assistant, give yourself some time to adjust to having someone help you. Once you see how much time and energy are freed up for other things, you won’t regret your decision.

This is by no means a comprehensive list of the possible Power Team members that you need to forge relationships with in order to help your business flourish. The possibilities are endless, and well-functioning Power Teams are as unique as the businesses they serve. Examine the individual needs of your business in order to determine the type of professional is best equipped to meet these needs.