Help building a team

[Josh Scroggins]

I'm looking to invest out of state, but will be waiting 3-6 months to build up a little more cash reserves.  Right now, I'm looking at Columbus, Milwaukee, and Boston...but am heavily leaning towards Milwaukee because of two things...first, there are tons of duplexes there and the cashflow is great (even after figuring a higher than normal maintaince)...like $300-$350 per unit.

The other main reason I'm leaning towards Milwaukee is that I already have two great guys there to build a team with.  One is a lender and the other is a real estate agent.  Both are investors themselves and have lived there all their lives.  They have both been incredible so far and I like the idea of working with them.

My question on here is, what roles are the most important to your team and what order is it best to aquire those people?  I'm planning to interview property managers in Milwaukee this week to get a better idea of vacancy rates, maintenance costs, etc.  I'm hoping that those managers will either have their own contractors or be able to refer one.  What else do I need?

Also, when do I need a CPA and do I need to get one there or can I use one where I live?

[Marcus Auerbach]

For some context: I have been investing in Milwaukee for almost 15 years and if properties like this would work, I would buy as many as I could get. We are way behind our acquisition goals for the year, but I hope we can get caught up in fall before we head into the winter market. 

3005 W Stain Paul has been on the market since July with no offers. We have currently an average of 6 days on market here, so that tells you something. No interior prictures and the tenants pay currently $650 and $825, so you are looking at a huge increase in rent. There is a good chance they will not leave volunteringly. Based on the neglect you can see on the outside, it is safe to assume both units will need extensive rehab: kitchens, bathrooms, flooring, probably doors, definitly paint. If you don't know anything 25k per unit is a fair assumption if you are local and can supervise contractors, if you want the PM to rehab, budget accordingly. The building is from 1885, which is very old, even for Milwaukee. The basement is probably fieldstone and timbers, questionable footings. When you look at the sales history, it changed hands quite a bit - properties that perform well don't do that. Based on the purchase prices I doubt that any of these owners invested in a new roof, new furnaces, new plumbing, new electrical etc unless it became absolutley necessary. Looks like the siding was done at some point, so that's one thing you don't have to budget for. No garage and a busted up slab in the back. 

We have seen steady appreciation over the last 8 years in Milwaukee, currently 8.9% August YoY. It adds up, Milwaukee is not cheap anymore. A quality investment grade duplex in Milwaukee starts at 250k-300k. Anything lower is in questionable condition or a challanged neighborhood, typically both, because owners don't see the point of investing a lot of money in a property like this. They try to milk it until it get's so bad the DNS (department of neighborhood services) get's on their case and then try to sell it. OOS investors are removed, I have seen it more than once that someone called me for a rescue project and after I have seen the property I tell them they have to fly in, they see (and smell) the property for the first time in person and are in absolute shock. When I ask why they bought it, I always get the same answer: the cashflow looked great on paper.

My team works quite a bit with investors, most of us ARE investors. Locals get it, but for OOS we ask them to book a flight and spend a weekend in MKE, so we can get on the same page as far as neighborhoods and condition to prevent situations like I just described.

[Eric Fernwood]

Hello @Josh Scroggins,

Working with an experienced investment team is critical. Everything that you learn from podcasts, books, seminars, and websites is general knowledge. However, you will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is a local investment team.

There is only one crucial team member: an investment realtor. An investment realtor is always part of a team because only a team of experts can provide the necessary end-to-end processes, skills, and knowledge to identify, validate, inspect, renovate, and manage a property. Therefore, when you find an investment realtor, you have a complete investment team.

Residential Realtor vs. Investment Realtor

There are usually thousands of residential (or “investor friendly”) realtors in a metro area, but probably only one or at most two investment realtors. What is the difference?

Residential realtors - Residential realtors enable people to buy or sell homes. The process is simple. Homebuyers select properties, and the residential realtor provides access. Once a property is selected, the residential realtor facilitates the offer and closing process. Although some residential realtors occasionally sell real estate that will become rental properties, they provide limited value beyond MLS data sheets. To an investor, MLS data sheets are worthless. Below is a table comparing what an MLS data sheet contains and what an investment team provides.

Below is a diagram of the process we follow and who is responsible for each step. All investment teams will follow a similar process.

How Do You Find an Investment Realtor?

Start by compiling a list of candidates. Get names from

• Real estate investing websites (such as Biggerpockets.com)
• Property managers
• Local investors
• Talk to real estate brokers
• Google searches
• Local meetups

Once you have a list of candidates, evaluate each using the following interview questions. The purpose of the interview questions is to determine the individual's experience, character, and resources.

Interview Questions

Will you find a candidate with the “right” answer to every question? Probably not, but they must provide reasonable answers. If they can’t, move to the next candidate.

• Tell me about your investment team. - You're looking for a response like, “I've worked with X property manager for years. We've completed X properties. "I work with several renovation companies..."
• Do you or have you owned investment properties? - If they have not personally owned investment properties, I would reject the candidate.
• How many investment properties did you close in the last 12 months? - Some realtors only sell two or three investment properties per year, which is insufficient for developing the necessary processes, experience, and resources. In my opinion, a minimum of 12 investment properties sold per year is required to achieve proficiency.
• Did you or your client select the properties? This is an important question. Residential and "investment-friendly" realtors do not select investment properties. They send MLS data sheets for the properties that the client selected. The client is then responsible for evaluating the property. The realtor adds almost no value if you do all the work. Reject the candidate if the client selected the property(s).
• What were your primary selection criteria? - It could be the initial return, appreciation, tenant pool, or something else. You're looking for a plausible answer based on analytics, not opinion or “feelings.”
• Tell me about the tenant pool you target. - Understanding the existence of tenant pools and their characteristics is not common knowledge. It requires a person with a lot of investment experience. If they do not have a plausible answer or do not understand the question, go to the next candidate.
• What is the average tenant's stay? - If the realtor is working with investors, they know how long the tenants of a specific tenant pool segment typically stay in the property. If the realtor has no good answer, move on to the next candidate.
• How did you estimate rent and time to rent? - They should be able to describe a process like, "I look at recently rented comparable rentals…" Another good answer is that they work with a property manager who supplies this information. If they answer Zillow, Redfin, Rentometer, etc., they do not know how to evaluate investment properties. Next candidate.
• Tell me about your renovation process. - You are looking for an answer similar to, “I work with the property manager to determine a list of renovation items. Next, I work with XXX company to get a quote. Once escrow closes, the renovation company does the work, and the property manager does final acceptance.”

Cost of an Investment Team

Working with an investment team usually does not cost more. For instance, we have delivered over 480 properties and charged our clients a fee on only four or five of them, and only in exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

Josh, I hope this helps.