Small real estate investors don’t have big resources from which to draw support. However, that doesn’t mean they have to go it alone. There are people and companies out there ready to help your rental property business succeed. Recognizing the importance of these three “partners” is critical to success in real estate rental property investing.
When I first began to invest in the real estate market with an eye towards owning a rental property business, it seemed daunting. There were so many regulations with which to comply. Some of which actually conflict with one another at the local and federal level. So much to learn about tax management and state corporation regulations. How could any small investor buying a rental property ever succeed on his/her own? As it turns out, I wasn’t alone. Here is a rundown of the three partners that have made my small rental property business work based on my first-hand experience.
#1. Real Estate Attorney/Tax Professional
One of the first suggestions I always make when speaking to small investors interested in real estate investing is to set up a limited liability company (LLC). An LLC is a way to organize your business legally and help to separate the holdings from your personal wealth and personal taxes. It’s not expensive to start an LLC. In fact, it can be a money-saver in the long run.
I was very lucky to find a local real estate attorney who could not only help me to establish my LLC but who was also a CPA. This is the first of the three partners I think every small investor needs. He showed me how to organize my business accounting in a way that any tax professional could make easy work of my annual tax filing. This person became my earliest partner in my business, and I was fortunate to find this help early on.
As a small investor, there are many reasons to form an LLC and to work closely with your tax preparer. The LLC separates your personal wealth from your rental property business. In the event of an unfortunate situation, this is very valuable. The big upside of an LLC is that you shield your personal funds from your business liability. Your attorney can provide you details on how it works and what its limitations are.
A CPA tax professional, and we don’t mean a local chain that does simple taxes for individuals, can be a big asset in keeping your business organized. If you are already skilled in accounting, super. However, many of us with small investments are not. My tax pro explained to me early on how to organize all of the repairs separately from renovations and upgrades and why that matters. He also helped me to create a single, simple spreadsheet on which every taxable event is recorded. This saves him time and my money each year when it is time to prepare my annual filing.
Mashvisor provides many useful tools that can help you find, analyze, and purchase a rental property. The cost to you is negligible and tax-deductible. For some, this may be all that is needed to find and analyze property. However, in my experience, I have found a local experienced real estate agent to be a huge asset when searching for an investment property, buying and selling property, and renting my properties. Let’s look at some actual quotes from my realtors that will help shed some light on how valuable a partner a realtor can be:
- “You can smell the asphalt plant from that apartment complex.”
- “The train whistle is loud near there.”
- “Trucks drive by that unit day and night to avoid the main road congestion.”
- “That property falls into the bad school district many renters avoid.”
- “That listing agent always lists properties high. You can get it for less.”
- “Did you know there is a commuter rail walking distance from that property?”
As you can see, a local agent who knows the backstreets, as well as the main streets, can be a big asset as you sort through your options.
I always use a realtor when I fill a vacancy in one of my rental units. There are multiple reasons I do so. The first is liability. I don’t want to violate any fair housing laws. That is why I let my realtor screen my tenants. I don’t ask them anything. She does. I don’t even meet them until after they have signed a lease. My agent conducts the screening, and I have been very happy with the results of her work.
Here’s one example I will always remember. It was one of the early units I filled with her help. At that point, I was closely watching her work and asking her daily questions. I asked her once why she excluded a particular tenant. She told me, “Aside from some other reasons, that applicant’s car was full of trash and junk.” She explained to me that she always takes a peek at how applicants keep their cars when she does a showing. If the cars are full of trash, so too will your rental property be.
Another reason I use a realtor is that the cost is basically zero to me. When I purchase a property, I pay nothing to have my agent involved (unless it is a bank sale). Similarly, when I most recently sold a property, my realtor got me $40K over the price I was hoping to get, much more than the cost of her commission.
My realtor also does a lot of work when filling a rental vacancy for me. I pay her the equivalent of a month’s rent. However, the work she does has more than that value to me. My time is money as well. If I have to pull myself off of other more lucrative projects to fill a unit, there is a hidden cost to that time I would spend.
All of the properties I purchased to rent were distressed properties in need of serious repairs and renovations. This was part of my personal strategy to add equity. I also take pride in maintaining the units I rent to the same standards as my own home, particularly with regard to safety. So, when I buy a new unit, there is a period of one to three months where I have a flurry of repair work and upgrades being done.
Among my most valuable partners are my handyman and contractor. Sometimes this is one person, other times it is two or more or a company with a team. It depends on the circumstances. I don’t look for the lowest price for the work I do. Sure, I want to pay a fair price, but I also value workman’s compensation insurance. I like to know the workers on my job are insured in case they are injured. I also value experience and capability. I’d much rather have one person as point-man who can let me know when a licensed electrician or plumber is needed for a certain part of the job than have to guess.
When I work with a handyman or contractor, I try to find an individual or a company who will be around for a while. Once I trust my contractors, I can give them a key and trust them to come and go on their own schedule to do work. Some, I even trust to be on-site without me after a unit is rented if a tenant is willing to be home to supervise. This saves me an enormous amount of time, which equals money.
Summary – Your Partners May Also Be Investors
One thing I have learned in my two decades of real estate rental property management is that many of the tax attorneys, lawyers, realtors, and contractors I work with also own rentals. Would it surprise you that I have gained valuable real estate investment strategies from the person who fixes my toilet? My plumbing contractor has a small investment business similar to my own. My power washing contractor has a much larger rental property business than I do. He owns over 100 units! Both have given me valuable bits of info that were very helpful to me. My real estate investment analysis model was shaped in part by their wisdom. Both also have referred me to other contractors and other professionals in my area that they had come to trust.
Networking is critical for small rental property investors. Lean on your own network when you need help. Always chat up the folks who you work with. You may be very surprised to learn that the folks who serve your needs have learned many small investor lessons and are willing to share.
One last thing I have learned is to think big picture. I’d like to be friends with some of my “partners,” but I respect that they may be individuals that have different views and lifestyles than I do. I don’t confuse “liking” an individual on a personal level with respecting or trusting them professionally.
I don’t expect perfection. My partners have made mistakes when helping me along the way. I tend to forgive and move on. If I expected perfection, I’d work alone more often than not. In cases where I have been flexible when things went off track a bit, I found that my partner made it up to me on a future project more often than not.
Mashvisor is a force equalizer for the small investor. We can offer you important tools to help you find new properties, compare them against other options, and analyze rental properties for return on your investment. However, some of us are also investors, and we feel it is important to share some things we have learned in our own businesses. Join Mashvisor today to stay connected.