The definition of “Core 4” has become synonymous with team building for performance, leadership, or service. This Core 4 tenet will apply to the characteristics of the members selected for a productive real estate investment team.
When considering the values of team members to provide the opportunity, management, work, and access to capital, the Core 4 members of a real estate investment team are the:
- real estate agent
- property manager
- contractor, and
- private money lender
These team members will transform the investor’s vision into reality.
Key Takeaways
- An investor needs to follow the tenets of Core 4 when building the team
- An important tool to identify the team members is the power of the network
- A productive team is incentivized through work
- An effective and cohesive team will lead to successful investments
This article is geared toward building a productive real estate investment team for the residential asset class over a long-term hold. The team members will take the investor through the processes of locating and evaluating an opportunity, performing the renovation scope, and accessing capital to close the deal and fund the renovations.
There will be other professionals through the process, but this article will focus on the Core 4 of the investment team.
Where and How to Begin
As the investor with the vision, you cannot build the team from a transaction-based approach. The approach must be from a relationship-based perspective. The building of relationships will take referrals and advice from your network. As an investor, you know properties need to be in affordable markets with value-add opportunities to optimize cash flow.
While building an investment team may seem daunting, it can be easier than you think with the power and leverage of your network. An array of local real estate meet-up events can be easily found on meetup.com, facebook, biggerpockets.com, etc. Meeting and building relationships in person should be a great starting point to further your real estate investing journey.
The Real Estate Agent
Real estate agents are a dime a dozen. But a good agent with a deep network and market knowledge is priceless. These agents are hard to find and best located through referrals and reputation, especially investor-friendly agents as opposed to homebuyer-oriented agents.
A productive agent can source deals either on the MLS or through off-market leads. The agent can represent you as a buyer’s agent, or you can seek an agent who exclusively represents sellers. The type of representation will depend on your business plan.
A broker with a solid reputation as a seller’s agent may be able to present property information, like valuation and inspection reports, at the time of the introduction to the deal. A buyer’s agent may not have access to this information until the property is under contract.
The Property Manager
A reputable property manager is necessary for evaluating a potential deal. A property manager with experience in the market can advise on the expected rent, the type of tenant, and whether the neighborhood is the best area for the investment objective.
The property manager will also advise on the feasibility of the renovation scope and whether the market can support the rent needed to achieve the investment return. These services are part of the location process.
The services of a property manager will prove economical over a long-term hold. An investor with the fix-and-flip objective may pay a higher fee if the services are limited to evaluating a deal and locating a tenant.
The Contractor
If you are not comfortable with the referrals from your network, you can rely on the agent or the property manager to find the team’s contractor. There may be the opportunity for a full-service property management firm to have in-house General Contractors (“GC”)that handle the “typical” renovation scope.
A solid working relationship with a GC who knows the residential product and understands your objective can save thousands on the budget and limit the accrual of vacancy losses.
The Private Lender
Your access to capital needs flexible loan terms tailored to the deal. A private lender will seek value-add opportunities for investment where a conventional lender cannot.
Traditional lenders, like banks and credit unions, are funded with institutional money. These lenders are mandated to offer a rate at a risk level necessary to meet the criteria of the secondary markets of Fannie Mae or Freddie Mac.
The loan structures provided by conventional lenders will not, and cannot, fund a renovation scope or recognize value until it is created. The operations must be stabilized with recurring cash flow before investment properties are qualified to close.
A private lender looks for value-add opportunities and will underwrite a deal upon an after-repair value.
It is essential to know that a private lender will position the property to qualify for a conventional loan later on if needed. A value-add investment will not close without a private money lender or the injection of significant equity.
As deals progress with the same private lender, the process becomes smoother over a shorter time. This is important when the property is under contract and the time under the contingency period is running.
A short application-to-close period is the next-best position to a cash closing. No debt-to-income ratio in place is another significant plus factor.
Characteristics of the Core 4 Members
You will need to build your investment team on what is important to you. The team members will need to meld with how you operate and be afforded the flexibility to do what they do well. The general characteristics to consider are:
1. Timeliness
How important is working within a set time frame to you?
2. Responsiveness
What is your definition of non-responsiveness when it comes to a call, text, or e-mail?
3. Trust
It is hard to believe that one would agree to work with someone who cannot be trusted.
4. Performance
Can the person do what they promise within the time frame they set? What is your tolerance for
delays or for work that is not as agreed?
This is where references from those you trust in your network and from past experience become part of the member’s qualifications. You should not be reserved about asking open-ended questions. Prospective team members can be recognized as a potential fit when their responses are honest, complete, and spoken from experience.
How to Keep the Team Happy
The best way to keep your team members happy is through work. If their business grows with your portfolio, then the team members are making money along with you. Like your investment objectives, the team members all want to grow their businesses and position their reputations in the market.
Think about it:
- the agent will earn more commissions on the deals you close,
- the property manager will grow their book of business from consultations on the front end, and from the management of operations,
- the contractor will have more rehab work and turns from the deals you close, and
- the private lender will earn more fees and interest with more investment opportunities
As the investor with the vision to create work for the team, you want to be the first in their mind for deals, to receive competitive bids, and to qualify quickly for a loan. None of this will happen if the team members are not cohesive and do not enjoy working together.
Your goal is to create a win-win-win-win for everyone.
Maximize the Team’s Effectiveness
There was a comment earlier in the article to provide the members with the flexibility and leeway to do what they do best. Sure, there will be issues. But, if their characteristics align with yours and your objectives are understood, there is no reason to micromanage the process.
Communication is another feature of effectiveness. It will be necessary for everyone to be updated on the status and the issues faced by other team members. When there are problems, and there will be, it is often better for a problem to be solved by the team than by one member.
Empowerment and member buy-in will maximize the effectiveness of the team.
The team members will look to you for leadership and direction. Always let the team know if a direction needs to change or if an objective needs to be modified for the deal’s sake. You should lead by example, not by words.
You will get the same in return when the team perceives you as attentive, trustworthy, and open to new ideas with active listening skills.
A productive investment team is the key to successful investments.
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