How to Find and Qualify an Investment Team
In my blog last week, I reviewed a proven roadmap for successful real estate investing. One critical step is to find an experienced investment team. Successful real estate investing is not a hobby but a serious and expensive business. And, unless you know what you are doing and have the right resources, you could lose a lot of money.
The problem is that everything you learn from books, blogs, websites, and seminars provides only general knowledge. However, you'll buy a specific property in a specific location, requiring specific renovations that comply with local rules and regulations. Only a local team of experts can provide what you need to find, vet, inspect, renovate, and manage a property. You need a diverse set of skills that only a team of highly experienced experts can provide.
Will working with an investment team cost you more? In our case, we've delivered over 550 investment properties. In all but 8 or 10 of these properties, the seller—not our client—paid our commission. Restated, our clients paid nothing on ~540 out of ~550 properties. So, there is generally no additional cost but you gain a master-class in real-world investing.
Clarifying, you will pay for inspections, renovation, and property management. But you would have to pay for these services whether you work with a team or not.
Finding an Experienced Investment Team
The investment agent is the most important team member since they lead a vetted investment team that typically includes:
- Property manager
- Renovation company
- Property inspector
- Tradespeople
- Contacts to lenders, insurance providers, and others.
The challenge is that while a metro area may have thousands of residential agents, you'll typically find only one or two investment agents. Residential and investment agents are fundamentally different.
Residential agents
Residential agents help clients buy or sell homes. The process is simple: Clients scan real estate sites or drip feeds and choose the properties they want to see. The agent provides access to these properties.
If the buyer wishes to submit an offer, the agent facilitates the offer. If the offer is accepted, the agent facilitates closing.
Except for adding the buyer to a drip feed, providing access to the properties, and handling paperwork, residential agents provide little value to an investor.
Investment Agents
Investment agents assist clients in purchasing income streams, not homes. They must understand finance, market trends, property analysis, and tenant demographics. These agents always work as part of a team because only a team can provide all the necessary services.
All investment teams must provide similar processes and services. Below is a high-level overview of our processes and services:
- Define the client’s financial goals.
- Develop a property profile that supports the client’s financial goals.
- Find conforming properties and generate analytics.
- Perform an on-site evaluation for properties of interest, including sending annotated walk-through videos to the client and property manager.
- Obtain the property manager’s evaluation of the property based on the video, including estimated rent, time to rent, and recommended renovation items.
- Prepare an initial estimate of the renovation cost.
- Recommend offer price and terms.
- Manage due diligence, including inspections and in-person walk-throughs for property managers.
- Obtain quotes for all renovation items.
- Perform a detailed team evaluation of each renovation item, determining its necessity, cost, and payback period.
- Overwatch renovation after the close of escrow.
- Facilitate property manager take-over and rental listing.
How Do You Find an Investment Agent?
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
After compiling your list of potential agents, thoroughly evaluate each one to ensure they have the required skills and resources.
Interview Questions
How can you tell an investment agent from others? By asking the right interview questions.
Before interviewing candidates, compose a list of 10 or fewer questions; you will not have time for more. Ask each candidate the same questions and note each response for later comparison.
Here are sample questions, along with acceptable responses. Will you find a candidate with the “right” answer to every question? Probably not, but make sure they provide reasonable answers.
- 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,” or “I work with several renovation companies…” They have no value to you if they are not part of an investment team. Move on to the next candidate.
- Do you own investment properties? I would reject the candidate if they have not personally owned investment properties.
- How many investment properties did you close in the last 12 months? Some agents only sell two or three properties per year. Even if all were investment properties, there is insufficient repetition for the needed processes, experience, and resources. A minimum of 12 investment properties per year is necessary to be proficient.
- Did you or your client select the properties? This is an important question. Residential and investment-friendly agents do not pick properties. They send MLS data sheets for the properties the client requests. The client evaluates the properties and selects one or more to make an offer. The agent adds almost no value if you do all the work. Investment agents select potential properties and provide analytics. Reject the candidate if the client selected the property.
- 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 segment you target: Understanding the existence of tenant pool segments and their characteristics is not common knowledge. It requires a person with investment experience. If they do not have a plausible answer or do not understand the question, go 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 that they use Zillow, Redfin, Rentometer, etc., they do not know how to evaluate investment properties. No real estate sites I’ve seen provide usable estimates of rent or time to rent for specific properties. This is critical information when you are evaluating investment properties.
- Tell me about your renovation process: You are looking for an answer like, “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.” Renovation is a critical success factor.
- What else should I have asked you? This is an absolute golden question. I’ve learned a lot by asking this question at the end of interviews.
For example, I was checking out a neighborhood I did not know. Nothing looked unusual or concerning. While walking around, I saw a woman sitting on her front porch. I talked to her about the neighborhood for a while. I was about to leave when I asked her, “Is there anything else I should have asked you?” Her response blew me away.
She told me that when two drug dealers lived on the street, they would occasionally shoot at each other. One was sent to prison about a year ago, and the remaining drug dealer keeps things quiet. I saw nothing to indicate the presence of drug dealing and would not have known if I did not ask the “what else?” question.
If the candidate answered all questions satisfactorily, you are reasonably assured they know what they are doing.
Final Thoughts
Ask the right interview questions to determine whether an agent has the skills you need. Once you find and vet an investor agent, that person will bring the team of people and resources you need.
However, much like running any business, the investment team will only function as well as the leader, which is you. You are still responsible for directing the team and making all major decisions.
