After writing this article on how to determine whether a city is thriving enough economically to warrant a closer look for investment purposes, many people contacted me and asked how I went about building a team while living 400 miles away from my desired investment area.
There are plenty of pros and cons to be debated about investing at a distance; however, one pro that I absolutely want to point out is that investing at a distance has taught me how to work “on” my business rather than “in” my business, like a true entrepreneur should know how to do. Instead of having the luxury of saving money by doing everything myself, I have to know how and where to allocate my funds and I have to figure out how to build a stellar team virtually.
I will admit that I may not have the best methods in place. I can talk numbers all day long; however, building and managing a team is a completely different story. I luckily had a lot of help along the way, but I learned a few best practices, which I intend to share with you.
The first part of building a team is to understand the core members of that team. Team members you will need listed in no particular order are:
- Real Estate Agent
- Property Manager
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The Real Estate Agent
A solid real estate agent is a key to investing success. I went through several while searching for properties all throughout North Carolina, and my strategy of finding the perfect realtor is a bit different than most of what I’ve seen here on BiggerPockets.
Predictably, every realtor I spoke with proclaimed that they work with tons of investors who are all very successful. I’m not one to take a salesperson at their word, so I decided to provide them with a test of sorts. My goal was to understand if the realtor understood how to serve a client who is an investor rather than a primary occupant, so instead of providing the realtors with strict criteria, I told them that I was looking for multi-family properties, what my max purchase price was, the preferred class of neighborhood (several realtors I spoke with had no clue what I was talking about when I mentioned neighborhood “class,” which is a huge red flag), and ideal ROI.
Of course, that’s not nearly enough information to find that perfect investment property, and only a few realtors inquired further about additional criteria, a positive sign for those who did.
The realtor I ended up choosing was the one who refrained from sending me 20 listings a week and instead sent two or three that he specifically picked out, claiming they would serve as solid investment properties. Additionally, he would provide high level numbers and projected cash flow and return on investment (ROI).
Now, he wasn’t necessarily 100% accurate with his numbers, but I could follow his logic and see why he recommended the property to me. He wasn’t wasting my time, as some of the others were. It felt like he was more of a partner in my business, rather than a salesperson and one that I could successfully bounce ideas off of (or maybe he was just a really solid salesperson!).
Once I picked my guy, my criteria became very specific very quickly. It was important for me to test the water with several realtors at first, as I didn’t want to waste my time sifting through tons of deals later on.
The Property Manager
Investing at a distance obviously means that I am not able to regularly check in on my future tenants. I’m not keen on trying to manage the property at a distance, so I decided I’d gladly give up a portion of my income to hire an effective property manager.
The key to finding a great property manager is to gather as many referrals as possible (from realtors, contractors, local investors), research the management company online, and then conduct an informal interview. The things I want to find information on during an interview are:
- How will the screening process work?
- How will the eviction process work?
- How will maintenance requests be handled?
- What dollar threshold should we set before I need to approve the expense?
- What software (if any) is being utilized, and will I have access to it?
- What is the full scope of services provided?
- How extensive is the property manager’s network? Are they in tight with city council and local judges? Do they have a large network of contractors?
- How will monthly reporting be handled?
- What will our communications look like (how often, technology used, etc.)?
Asking these questions will provide you with a wealth of information. Every property management company I contacted operated in different ways. The biggest things I was looking for in a property manager was how they will deal with tenant management and how extensive their network was in the city I was investing in. When you are trying to evict a tenant and your property manager has monthly dinners with the judge and his wife, you can count on being taken care of quickly.
After I decided on the property manager I wanted to work with, I entered payment negotiations. I didn’t ask about fees upfront because I didn’t want that to be a focus of the conversation. I’m not looking for best price; I’m looking for the best quality, which becomes inherently more important when out-of-state investing.
The property manager requested a monthly fee, which I was not fond of, as I don’t want to pay a property manager when I have vacant units. So to come to a win-win solution, I deducted a 10% vacancy from my expected monthly gross rents, then offered her 8.5% of the remaining effective gross income, which she took. Even though I pay a monthly fee, regardless of whether the unit is filled, that fee has the assumption built in that I will see a 10% vacancy rate.
I had to be a bit creative, but it worked out well in the end. And it turns out, I made a great choice, as I was able to lean on my property manager’s network and choose a great contractor to replace my roof.
This was a huge one for me, as I was somewhat blindsided by stringent lending requirements. The first few lenders I spoke with told me that I needed at least three hard trade lines reporting to the credit bureaus in order to validate my credit score. I consider myself financially savvy, but had no clue this was a requirement, and it broke my heart to learn I couldn’t invest.
So I hopped on Zillow, created an account, and made a post on their forums requesting (begging) that lenders who don’t have those requirement contact me. I had several contact me and chose to work with the one who clearly had investor experience.
He essentially coached me through the financial side of the deal and sometimes spent a ton of time on the phone with me. I credit my awesome personality to that, not just the fact that he wanted my money. He was very responsive, which I really liked about him. I couldn’t imagine trying to put a deal together with an unresponsive lender.
Nothing too fancy about finding the attorney. I went with my realtor’s recommendation and basically just tried to verify that the law firm provided quality and thorough service. I briefly spoke with the attorney about all of the services that would be provided by him (title search, closing, etc.) and was happy with what I heard. I also verified with my property manager (who has that extensive network), and she said the attorney I had chosen was great to work with, so it was settled.
If anyone has a suggestion on how I can improve in sourcing an attorney, I’d love to hear about it in the comments below.
Luckily, I’m a CPA and I trust that I can provide myself top-notch services for a low fee, so I didn’t worry about finding one. However, finding a CPA is important, and I’ll provide you with a few tips on how other investors typically find me.
Do not be afraid to use a CPA that is not local to you. With today’s technology, providing tax and accounting services virtually is no harder than doing so face-to-face. When people debate about using a local vs. non-local CPA, it usually boils down to personal preference.
Using a non-local CPA will grant you access to a larger pool of CPAs simply because you are no longer limiting yourself to your geographical area. This means that you have a better chance at finding a CPA who specializes in the type of real estate you are investing in. Specialized service providers will always provide a higher quality of service and expertise than that of a generalist.
Make sure you prioritize finding a CPA whose client base is largely made up of real estate investors. I often see investors in the Forums claiming a top criterion is that the CPA also invests in real estate. This couldn’t be more backwards. Why? Because the CPA could actually be a horrible investor, but an excellent service provider.
For instance, over 90% of my client base is made up of real estate investors. This means that I’m working in the industry every single day, seeing a lot of different investing models, developing creative strategies to reduce tax liabilities, and staying current on regulations that may affect our precious tax loopholes. That’s something you want to see from the professional you are about to pay hundreds of dollars.
On the other hand, I could have purchased investment property, but the property could be such a bad buy that I lose money every month (not the case for me, but just go with it for a second). When you ask if I invest in real estate, I give you a toothy, wide (evil) grin and say, “Well, yes, of course!” Wrong question, folks.
Referrals and thought leadership will be the best way to find a CPA you want to work with. Referrals prove happiness and service quality, while thought leadership proves competency. You should expect to see a few written pieces by your CPA on various topics regarding accounting and taxation.
If you are set on using a local CPA, contact your state CPA society and ask for a referral. Let them know you want a CPA in your area that has experience with real estate investors, and they may be able to put you in touch with the right person.
Building a team from afar takes a lot of work and plenty of qualification checks and verifications. Make sure you are hiring professionals that you feel will not only do a good job, but will also be great to work with. Lean on your team as much as possible through all stages of your investing career, as they will be the advisors that help your business blossom!
Investors: How did you find your best team members? What advice would you add to this article?
Be sure to leave your comments below!