How to Get Started in Real Estate – Part 3

How to Pick the Market and the Team

This is Part 3 of a series on how to get started in real estate. Each new installment will be a bite-sized tutorial gleaned from 30 years of investing experience. The goal is to remove as much doubt and fear as possible, so you’ll begin, or continue, the process of creating enough passive income to change your life. If you missed previous posts, you may access them at www.richdoctor.com

---

 

Now you’ve picked a strategy for your real estate business.

The first thing to know is that likely, that strategy will change. It might not and you’ll become an expert in that one discipline, but experience tells me that life can often change our path.

Don’t let that bother you. It’s all part of the game.

The Team

One of the most crucial parts of your future business and financial freedom is the team you put together.

Just like your business plan, your team will change as you outgrow some of its members. That’s a good thing!

Here’s a basic list of the team members you’ll need to purchase your own property:

• Mentor/Coach
• Business partners
• Equity partners (Investors)
• Possible “Key Principals” (Those that can sign on the loan with you.)
• CPA
• Attorney(s)
• Financial analyst
• Property management
• Brokers
• Insurance agent(s)
• Contractors for repairs, property rehabilitation and maintenance
• Inspectors
• Appraiser
• Mortgage broker or lender
• Tax consultant
• Environmental consultant
• Structural Engineer
• Surveyor

You can access a comprehensive list of potential team members at www.richdoctor.com/tools

Market or Team First?

I had to think about this question because there are multiple answers.

Typically, you would like your team in place before you attack a market. It’s most efficient if they’re in place as you look for your preferred asset. That will allow you to leverage their talents and move quickly and efficiently.

This works great if you’re looking in your back yard.

What if you’re exploring out of town options?

You might have some of your team in place. Namely, your business partners, attorney(s), CPA, equity partners, analyst, and maybe a lender.

What you might have in your hometown, but not in a remote location, are brokers, property management, insurance agent and maintenance. The good news is that you can often find these team members by first connecting with just one.

Once you’ve identified a market, you can search for one or two of the people on the list.

I’ve found that finding a qualified, aggressive broker gives you an excellent chance for success and is a great way to find the rest of the remote team. Besides, that’s typically the person you’re going to go to first to find deals.

If you have other resources in the area, and don’t use a broker, contact one anyway. You’ll eventually need someone to sell your property or find you more deals.

Brokers often have lending relationships, or connections with mortgage brokers. They will certainly know property management companies and insurance agents.

The property management companies can also be an excellent source of remote team members. Not only can they help you round out your team, they can also be a source of future deals because they might manage properties that are to be put up for sale.

Your insurance, property management, broker and bank relations in your town will also be a valuable resource for referral in your chosen remote market.

Picking Your Vendors

Though you’ll get references for team members from your new “friends” in a new market, I suggest you interview each candidate. I also suggest that you interview alternatives.

I was burned badly once when I used our out-of-town contact to pick the property management. As it turned out, my contact was somewhat “ethically challenged,” and he chose a property manager with the same problem. Once it was too late, we had to pick up the pieces and move in a new direction. It cost us money.

Try to avoid my mistakes.

Interview at least two, and preferably three vendors for each part of your team. Get references from other property owners if possible.

Picking Your Market

His happens two ways.

1. You get drawn to an area by partners, acquaintances, familiarity, or serendipity.
2. You actively search for a profitable investment market that fits your product type(s).

You can’t control the first method.

There are several ways to pick your plan of attack for number two.

News
A simple method is to listen to or read the news. While I avoid the cable “entertainment news,” there are often clues regarding where people are moving. You might hear about overcrowding in one city, traffic snarls in another, or rising house prices and big companies relocating to a certain area.

These are clues that you should pay attention to. It means that people are moving to the area.

Increasing population often means lots of jobs. Both are good for landlords.

U-Haul
Another effective research tool is the “U-Haul Index.” People often rent U-Haul trucks when they move, and U-Haul keeps track of the origin and destination of each rental. These statistics have proven over the years to correlate closely with population migration.

Again, more people equal more jobs. 34% of the US population are renters. 65% of young adults are renters. It pays to pay attention.

Data Services
You can also subscribe to services such as Yardi or CoStar. These companies have huge databases and can give you information on almost any market in the country.

The downside is that both are often prohibitively expensive. The cost is typically not justified for independent real estate investors. We use CoStar in my company. It’s quite costly, but we need detailed information since we care for thousands of investors.

Other Investors
Let’s face it, a lot of what we learn comes from other people. At some point, you’ll run across someone who has killed it in a certain geographical area or product type.

The good thing about real estate is that it moves slow and there’s lots of it. If you hear good things about an area from another investor, check it out if you wish. They can’t buy everything and there is often plenty of property to go around.

However, don’t just take their word for it. Do your research and then check it out personally.

Boots on the Ground

Once you pick a market, you need to hop in your car, or buy a plane ticket and go there.

There is no substitute for personally touring the area and looking at property. Pictures will fool you. People will fool you.

You need to see it with your own eyes.

This is the time you will use to interview more folks to find deals and more people to help you manage them. Your network will grow each time you visit.

It’s not an efficient process, but a good real estate business is built on relationships, not a computer screen. You’ll need to go back multiple times, but each visit will become more and more efficient.

Summary

Though we talked about picking your market, most people cut their teeth by starting in their back yard. You know the neighborhoods, and there are people in town that you trust.

Even if the bulk of your portfolio doesn’t reside in your hometown, you’ll get the lion’s share of your education on the first few deals. It’s a good place to start and I suggest you start small, so your mistakes will have small consequences.

I’ve spoken to many of you and I’m empathetic to the fact that if feels overwhelming to pick the “right” asset class and the best place to invest. I feel your pain, but it won’t last forever.

It’s like asking an eighteen-year-old boy to decide on his life’s work. He doesn’t have enough life experience to know what he really wants to do. It’s the same when you begin your real estate career. Some get lucky, but most of us need to search for, or stumble upon our destiny. It will happen if you put yourself out there.

Each step may appear long and hard, but those steps will shorten with each execution. You’ll be able to do your due diligence on a market in a relatively short time.

Even when you find one, be aware that markets and asset classes change. You’ll likely have to use your skill again to pick a new market, or pivot to a new asset class. That’s part of the game and you’ll be good at it by then!

Next time we’ll talk about making sure you’re ready to buy.