ADPI_020: Risk Management And Building Your Investment Team

Aug 27, 2018

Episode Transcription:

Hey what's going on team how you doing out there. Mike foster here. We’re going to talk about building a real estate team. we're going to talk about certain members do you want to have when you are investing and these are members are going to be critical to backing you up and making sure that you are getting the most that you can out of your investing experience. All right sit tight.

Hey freedom fighters welcome to the active duty passive income podcast. The only place where military members, veterans and their families learn how to build wealth through real estate investing. I'm your host Mike Foster and I'm here to show you how to stop wasting your benefits. Now get off your ass, step up to the firing line and make ready for today's lesson. Shooter stand by. Hey hey what's going on guys Mike foster here. Welcome to the active duty passive income podcast.

This is the place where you will hear all about how to real estate invest if you are in the military alright. This is an awesome podcast. If you guys haven't subscribed yet please make sure you go ahead and subscribe. you're going to hear a bunch of awesome stuff right we have here from you know interviews with other military investors, interviews with other service professionals that are killing it in the game and we'll help you out and today we're going to talk about a lesson on building your real estate team and who you kind of want to have in your back pocket either if you're getting started or if you're just looking to maximize what you've already had going on.

Okay so and these are just a few right folks and I'm going to go ahead and talk a little bit about each. So you understand where I'm coming from. But you know obviously no team is one-size-fits-all right. Everyone has their own flavor and everyone has their own leadership style right. So if you are a person who likes to be more hands-on, you're going to have less of these people in your pocket and if you are someone who is less hands-on, you want to be more of that passive investor; then you'll probably have more of these guys’ right and/or girls and that is quite alright.

You know I mean in the military it is very hard for us to separate that time to focus on a lot of things outside the mission and outside a family you know if you have one. So definitely you know understand and do a little more research and figure out of these members who you can have that's going to best benefit you and your investing style okay.

Alright let's go ahead and get started. So we're going to talk about your legal team. I want to talk about must-haves first okay before I go into the good to haves. So the first and the must-haves is your legal team okay. Legal team can be right title company, can be you're a lawyer or you know whether you're a part of LegalZoom and you get that legal advice that they advertise right. That is all good stuff to have because when you're drafting up contracts, when you're drafting up or you're look searching titles right you want to make sure that your legal team is on point.

Because you don't want anything legal going wrong throughout your process of closing, throughout your process of you know owning the home right and god forbid you know you own a home, rental property and someone you know stubs their toe or you know breaks their foot or you know whatever something right and they try and go after you; you want to make sure that your legal team is helping you put these investment properties under an LLC okay. You want to make sure that you have some kind of incorporation. But primarily an LLC. Because those will better protect you when it comes to asset protection right. When it comes to taking property out of your own name. I can't stress how important that is and there are a lot of people that don't know about this or that maybe they do but they don't do enough research into it and it ends up you know hurting them. Case in point while I was on deployment I was talking to a senior chief petty officer and he has a bunch of multi family’s right. Like I think he said he had like eight or so like five or six unit properties, which was amazing.

I mean incredible. you know he makes so much you know passive income on the side and then and he's in the reserves you know so he does military part-time and he does real estate investing as his full-time job. Great great career to have. but he was telling me you know that he has his properties in his own name and I started talking to him about you know legal protection and the ability of how having these assets out of your own name protects you in the case of someone you know getting hurt on your property and trying to sue you and then that conversation ended up going into a place where you know he was very vulnerable with me and he admitted that he had gotten into a lawsuit you know with a tenant of his.

I think it was you know three years ago or so and he's still you know facing the payments from that and ended up costing him almost a million dollars and that's crazy just to think about how something like that could happen you know. I mean with the legal fees, with medical and all this and that and it was crazy. But I forget what he told me.

I think someone had fallen you know from height, like one of the stories or something like that. It was bad, it was a big accident. But yeah he said with everything all together cost him almost a million dollars and he was still paying that off to this day. Crazy guys alright. Make sure that you take your assets out of your own name. If you are buying a home with your VA loan and you are moving right to another location and you refinance it, make sure you refinance it and you put that under an LLC right or some other kind of business entity. Because you don't want to have them in your name. God forbid something happens and they try and come after you.

Because if it is in your own name right they can come after your other assets. They can come after your car, your house right. I mean whatever it is right. So you got to make sure that you do a good job and you get your legal team right or legal advice wherever you're getting this from to help you incorporate properly and get yourself set up. Okay you can do it yourself. But we don't recommend that you do it yourself if you haven't done it before. I mean there are many ways to researching on how to do its fine. But we do recommend that you guys get legal advice, just to make sure that everything is set up properly okay. So legal team is important. Your tax team all right another important team to have.

Even if it's just one person all right that's fine. You know we talk about a team in it being someone other than yourself. Someone that can help you not only you know to give you that backup. But you know also to give you advice and expertise.

Especially if it's something they've been doing for quite some time. Tax team is critical man. I mean with taxes you can save up to 30 percent of your profits each year and that is, it's almost 30 percent extra profits if you think about it right. So make sure that you are you have a good team in place. Whether it's with a tax company or whether it's with a tax advisor, definitely want to make sure that you have that team in place. because again those tax savings if you're a real estate investor let's be honest, okay if you are a real estate investor you should not be paying taxes hands down.

Okay because if you are investing properly and you have everything you know done correctly, those taxes should count against your income tax as well right as a federal employee or as an employee in general right. It doesn't matter with [08:32 inaudible] or not. As an employee in general your real estate tax should you know add up and count against your income tax. So you shouldn't be paying taxes which is great right.

You should be getting money back which is even better and you can use that to invest in your properties. but you want to make sure that you have a proper tax team in place that know what they're doing with real estate, so you can get the deductions that you need and get the benefits that you deserve and you know have them help you out okay. So definitely want to make sure that that's in place and a book that I recommend with regards to tax, highly recommend you guys read tax-free wealth by Tom wheelwright. Okay he's one of the rich dad poor dad advisers and you'll see the book recommended in the show notes.

Okay so I will definitely make sure that that's there for you. but highly recommend you go and check that out if you are one of those like me who doesn't like to really sit around all day and read a book, but has plenty of time in between going to work and coming back or sitting down or even working out right and you want to listen to it; audiobooks are a great way. That’s how I read it and I learned a lot of great nuggets. There’s a lot of awesome wisdom in there. Tax free wealth by Tom wheelwright, definitely go check it out okay. The next team you want to have in place is your insurance team. This is another must-have okay. If you are you know investing in multiple properties, you definitely want to have good insurance in place. Because again god forbid anything happens you want to be covered okay and I'm not just talking about you know the personal injuries that could happen from my examples before.

But this is more along the lines of you know what happens if a hurricane comes. Another hurricane Katrina comes and wipes off your property from the face of the planet. You know I mean you got to have some good insurance in hand, so you can claim it and then get that you know check in the mail and go take that money and go buy another property right.

I mean that's the whole reason you get insurance if anything happens. Whether it's a storm, whether it's a fire, whether it's you know hail or something right you know anything right. Something happens whether it's a leak in your home. Something has uncontrollable that's out or I'm sorry something that's outside of your control and comes in and you know causes severe damage or destruction to your property.

Definitely want insurance for that because you know that stuff will help you out in a tight spot. If you need to make serious repairs, whether to the roof, whether to the floors or needs to pay tenants for medical expenses right. In case you know they do end up getting hurt. You know I mean that all this stuff is what if right. But insurance is just that and for something that can cover you as big as replacing your home, it's definitely important to have and it is cheap in the long run if you think about it.

I mean it what's a few hundred dollars to make sure that in the event you know a hurricane comes through and destroys your home and destroys your property around it, you know they give you a check for $300,000 or $200,000 or $400,000. However much your property is assessed at by the insurance company and you know all the insured property that's around it.

However much that they give you for it. What is a couple hundred or what is a thousand or two thousand dollars a year? All right divide that by 12 months, that's what you're going to pay each month for your insurance cost. You know it does pay to have that kind of protection. But it is good to have and God forbid you don't have it and something happens right, you don't want to be in that spot. So as an investor right it's important to start thinking about ORM. All right when it comes to your wealth and it comes to your future investments okay. ORM for those of you who don't know is called operational risk management.

It’s a very very key term when it comes to military. Especially in the Navy I'm not a hundred percent if they call ORM and all the other services. But right if you're doing anything risk assessment that's what I'm talking about and it comes to mitigating your risk. Insurance is a huge thing to have when it comes to mitigating your risk as an investor okay. So definitely make sure that you have that. Legal as well right, huge benefit to have a legal team that makes sure everything is legit for you before you sign okay. So that makes sure that the amount of risk you assume after you sign and anything going wrong is mitigated. Because you've already had a legal team verify that things were good to go before you went down and closing that property okay.

You're team mitigates the tax risk that you have at the end of each year in case things aren't you know budgeted correctly or if things aren't you know accounted for correctly right. your tax team gives you that help and they make sure that the IRS doesn't come knocking on your door saying that you've got a few years of tax evasion and you need to get audited right and a tax team also gives you that assurance too or a little more assurance you know at least they should that if they do come and knock on your door and you need to get audited that they'll have your back okay.

So if you've got a tax team make sure that they come with some kind of you know protection or someone to help you handle an audit when it comes around or if it comes around. God forbid it ever comes around for you, hope that doesn't. But if it does you want to have that just in case right.

So yes those three are the absolute must-haves when it comes to your real estate investing. Now again depending on your real estate style, you might be more hands-on, you might be a tax pro and you don't need a tax team because you wanted your own taxes. Okay that's fine. But we do highly recommend that you get someone to back you up just in case. Why? Because no one's perfect and you don't want to have the one year or maybe two years right where you made minor errors. because you didn't know all right maybe you didn't know something and or something changed and you weren't aware and you know IRS comes knock on your door saying hey what's going on you know.

So just kind of you know take it with a grain of salt and you know maybe just get someone to back you up and just you know verify that you did them correct and you itemized everything that you could. You also on the other hand don't want to leave dollars on the table right.

Why? Yes it does cost to have a tax advisor okay. but if you don't know what you're doing right why not pay someone to you know help you out and get more money than you otherwise would have just doing yourself. You see what I mean and it's the same with the property management. Oh yes I'm sorry this is definitely another must have. Okay this is live right here, doing this enough.

Property management okay. Now I'll say that this is like halfway between the must-haves and the good to have. But going in the lines of exactly what I just said all right why not pay someone to help you out and get you more money than you otherwise would have if you try and do it by yourself okay. Property management guys very very underutilized from the conversations that I have with some people who have been investing for a little bit.

They say that they like to manage it themselves. Because they don't lose the ten percent or you know whatever it is that they otherwise would have paid. Which if you're getting property management I'm telling you right now you should not pay more than ten percent. Do not pay more than ten percent on your property management for a month a month okay, do not. If they're charging you more than that they're charging you too much.

Okay I'll tell you that right now. Anyway all right sidebar. But yes a lot of people like to manage it themselves and you know there's nothing wrong with that if you like to do it and there's nothing wrong with it if you want to learn right. but at the same time if you've been having unsuccessful experience after unsuccessful experience and now your real estate investing is reading this hour, because you don't want to get property management right, because you keep having tenants that are either A, taking an advantage of you, B, not paying you rent or you know C, you just can't find tenants right to begin with and every tenant turnover is like a two or three month process. Get property management guys.

I mean ten percent of each of your rent from each month is not nearly as much as not having rent for three or four months. Because your property is vacant, because you can't find a tenant who wants to stay with you. Either because of your work schedule or because you don't know how to go out there and find them you know what I mean and there are so many people you know in the areas. Especially if you're in a military town. You should have plenty of people around you that one around.

I mean I could understand for those who are in those obscure bases. You know that are the middle of nowhere and there's really not much around. Okay I get that. But if you are in a Navy base and you're on the coast of some city or a Coast of some state, you definitely should have no problem finding any tenants right. There should be at most like a month tenant turnover and just because you know you're having trouble finding people, because your property management company sucks or something you know what I mean. Like there definitely should be no issue there.

Now again I say that right I'm not a trained property management you know company owner. But I'm just saying as far as vacancy rates go, vacancy rates are predominantly a lot lower around the coast okay. So East Coast, West Coast you went on the south all right you should have lower vacancy rates. Which means you should have a lot less time between your tenant turnovers. Okay so property management team to me is a must have.

Maybe to someone else is not a must have. But evaluate yourself as an investor, how much time do you want to spend taking calls for leaky faucets right or taking calls because the cable is broken or taking calls because you know whatever right. Whatever the case may be.

You definitely don't want to be in the position where you're at work right and you can't take away whether you're on deployment or whatever and your tenant calls you and calls you and can't get you, because they're having this emergency or this issue and you can't fix it. Because you can't take the time away from mission right. Let that sink in okay. Now I get it, a lot of people are stubborn and they want to manage these properties by themselves. but let that sink in.

But didn't realize that either someone fell overboard or something happened and now you guys can't communicate at all and you have zero commas with your tenant’s right. I mean again ORM right. Operational risk management, whatever team you need in place to have your back definitely make sure that you have that if you're getting involved in real estate investing okay, just saying. Okay so moving on. Let’s talk about some good to haves okay.

So some good to have players on your team, one would be your realtor. Now this is not at all necessary if you are investing. Because you can do the same things that your realtor does you know and you can just talk to people who are selling their homes you know one to one right. There’s this thing called sale by owner. If you haven't heard of that definitely make sure you check that out.

Because there are a lot of people that don't want to deal with Realtors you know not that they're you know all bad or anything like that. Just that you know a lot of people don't want to deal with all the closing costs and they like to negotiate things one-on-one. If you're looking for creative financing and you don't know what for sale by owner is, you definitely need to go check that out okay. Because you'll find a lot more deals or you'll find it a lot easier to negotiate deals rather with folks who are trying to sell it on their own okay. Versus going through a realtor or a broker alright.

So having a realtor or a broker can be good if you have a good one and you have one that you trust and one that's going to find you some good deals out there okay. also if you're you know selling your property right, having a good realtor who's going to you know help you sell it at the maximum amount market value that you can if above or at whatever or just you know there to help you sell it in general if you want to get rid of it you know and he's got some good buyers.

Definitely want to have a good real estate agent or broker to help you out with that, that's fine. If you were investing in foreign markets right now by foreign I don't mean international. At this time I actually mean like out of state. so if you're investing out of outside of your backyard right, you definitely would can should consider having a realtor in your team and the only reason I say this is because you know Realtors have experience in that area that you don't and that's you know if you're in Florida and you're trying to invest in California or you're trying to invest in Mississippi or whatever right, someplace that you are not physically at or you have not seen change over time and that's it too.

Right that change over time that realtor might have a better insight as far as you know where the place is going. Now obviously every realtor is trying to sell you something so don't you know assume that your realtor, your broker is going to give you the real story 100% right. Obviously they're still trying to make a sale. So if you don't know this realtor at all, 99% chance they're going to sell you that place okay. So go into it with a lens of all right I'm going to trust what you're saying but I'm going to verify right and get the opinion from two or three or four different real estate agents or brokers.

Because then you'll be able to tell you know some people might say oh well everything is going good in this area, but this is not really going good right and then if those start to differ then you realize okay here's probably what's really going on and also make sure you check online. We have awesome resources online to check out indicators rent, indicators of you know people coming in and out. If you haven't heard of HUD right, Hotel Uniform Delta; HUD.

The Urban Development Division of each right area. HUD, home and urban development, I'm sorry home and urban development right division of each area they put out documents right we call them HUD documents that put out information as far as population going on right. Jobs that have come up in the area or come down. They got to give you the overall scope or everything from transportation to population to you know homes and different sectors. Whether it's multi-family, single-family right you name it. All the HUD documents definitely tell you a lot of good information and you want to make sure that you're checking those before you start investing in a foreign area okay or I'm sorry in an area outside of your backyard okay.

Definitely check that out and again use those to compare with what your rulers are telling you. Because that's how you trust and verify and make sure things are legit. Another awesome good to have on your team is your inspector or your contractor okay. they are good to have when it comes to finding a property and them giving you that information on what it's going to take to get it rental ready or while you're trying to inspect the property all right, what is going on behind the scenes like what you can't see.

If you are investing in a different market and it's again not in your backyard; this is actually crucial. You should definitely have a good inspector and contractor as a part of your team. Right this is kind of one of those that also borderlines the must-have versus good to have. Because again any information that you can have to paint that picture for you on this investment is critical all right. Critical, you definitely want to make sure that you fully understand what you're investing in before you invest in it and having a good inspector in a contractor is you know something that will help you out.

Now if you're dealing with a contractor understand that there are many contractors right just like there are realtors out there, there are many bad realtors out there, and there are many bad contractors out there too. So do not get swindled by you know one in particular.

Go to a few, ask them the same questions. Try and see if the answers are. Because you should see some commonalities. If you don't there may be an issue. I'm not saying that one you know contractor may not be more experienced than the other, that's completely possible.

However you should hear some continuity and when it comes to things that are in code, right that should all be the same. Three contractors should not be telling you one thing, let's say if electrical right is. Let’s say if it's a certain box that needs to be in a certain place, those contractors should not be telling you different things in regards to that one problem if they're saying that it's in code right. In accordance with the code right, in the cords with the code, everything should be uniform. So those three contractors should tell you the same exact thing. whether it's inches from door whether it's you know whatever wired in a certain way with closed in a junction box with the lid on it right, all that stuff needs to be the same.

So you definitely need to make sure that there's continuity at least there across the board. Otherwise you got some serious problems. But also right if you're going to be looking for quotes from a contractor, make sure that they show you a scope of work and make sure you ask for it too.

All right a lot of times they won't give it to you. they'll say oh hey you know I believe this is what it's going to cost and then you go into it right and you say okay go ahead and have them do it and then over time they eventually keep increasing the price. Because this goes wrong or this goes wrong a lot of stuff.

Now there understandable that a contractor doesn't want to cover you know everything if it goes wrong. Because anything you know wrong or buying a house right and if that was the case contractors be losing money left and right. But understand that if something goes wrong and it's their fault or something goes wrong and they should have caught it prior to right.

Then there needs to be a little room for negotiation. Because you shouldn't be footing the bill on a twenty thousand dollar fix that was their fault. You see what I mean, you don't want to do that and you don't want to get into that issue. So make sure you do those negotiations prior to the start and you have a good scope of work that itemizes all these things out and you guys get both signed, so everything's legit before you start okay.

Just a little word of advice. All right cool. Another good to have is a lender. Now I say good to have this is again is one of those borderlines right depending on what kind of investor you are. If you have a lot of money or if you have access to a lot of money, then you know maybe a lender is not as important to you. Because you just want to buy your properties cash or you know whatever you just don't mind putting them under a regular mortgage. That’s fine that's whatever.

But you know if you are someone like me and doesn't have access to buku capital right, it doesn't really have access to any capital, you'd ever really want to make sure that you get a very good lender on your team. Someone who you understand the process, someone who is not that difficult to work with and get funding. That way you can just keep getting funding every time you find a good deal okay. This is crucial.

Definitely want to take a look at smaller banks in the area. Maybe credit unions. Those give you a lot more wiggle room okay than the bigger banks do. Bigger banks are typically very strict when it comes to Freddie and Fannie rules. for those you don't know what I'm talking about Fannie Mae and Freddie Mac, those are just two you know really really big mortgage buyers and in banks, bigger banks that work with them right they take all these mortgage loan and make sure that they follow these very specific rules and then they package all these mortgages together and they sell them off to the highest bidder. Okay so when it comes to dealing with banks that do that, every little thing they will scrutinize.

I'm telling you whether it's you know pay that you got from a certain location that wasn't your typical source one month to you know things that are just out of line with your documents. I mean they’ll ask you to verify as you do this and all that it's kind of a bit of a long process. But it can get a bit strenuous. So just make sure that you have a good lender when you trust, when you've worked with either before or you're going to build a relationship with. Just so that it feels like continuity between you know you and your lender and that could also help you out too with interest rates and you know financing fees and stuff like that in the future too. So keep that in mind. All right and then last but not least someone on the ground definitely helps. That’s a good to have not always need to. But someone on the ground for an investment that you're making either.

If it's at home or if it's you know in a different market okay and the reason I say that is because again operational risk management right in case something goes wrong, it's good to have someone you trust that's in the area that can you know step in and handle it for you on your behalf. If it's a dispute let's say you're managing the property yourself, which you shouldn't in my opinion you shouldn't but whatever right.

If you're managing the property yourself and something goes wrong with one of your tenants and you're unemployment or you can't be reached for whatever reason and you need someone to step in and handle that dispute or handle that issue, it's good to have someone there.

If you are investing in a different state and either something goes wrong with your property, maybe your property managers aren't managing your property the way they should and you need someone extra pair of eyes to go and take a look at something because either you got a complaint from a tenant or you suspect something's going wrong a really high bill that ends up being 10 times the cost like a high water bill. Ends up being ten times the cost one month in another month. Not speaking from experience there. Definitely not speaking from experience there. I'm kidding totally kidding, I'm definitely speaking from experience there. but you know just make sure that you have someone who can go in and shut that water off from someplace that they definitely didn't shut the water off without showing up in the house all right. I'm sorry I can go on and on about this last property management company that I had in Mississippi.

Man they were terrible okay. Word to the wise don't use CTC. I'm sorry I won’t call them out. I’m telling you my experience was that bad and I left them a bad review. That is my word to advice okay do not use them. Anyway all right regardless there um yeah so just make sure you have you know someone on the ground. I mean again you don't have to. but it's nice to have someone on the ground that can help you out in the event you experience some kind of problem okay and that's it guys all right. That’s really it. That’s all I've got.

Honestly you know this is just one way to build the team. This is definitely not like I said one size fits all for any of these. but you know ideally depending on your type of investment style right, those are the folks you want to have and again at the very least you want to make sure you have a legal team, a tax team and an insurance team in place that can help you out with those critical three areas in your investing career.

Again all those things add up and over time you can either lose a lot of money or you can make a lot of money. It’s really up to you. So anyway hope you guys find this stuff useful. Thanks again so much for listening. I'm Mike foster I appreciate your time. All right make sure you go ahead and check out Make sure you hit us up at our Facebook, our Instagram. Connect with us.

We want to hear from you. We want to hear what’s going on in your life out there, in your investing, what kind of questions you guys had. We are excited that we get to share what we do with you guys and we want to hear from you so we can help you out in case you need it or you know point you in the right direction as we don't always have the answers. But you know we definitely know there are plenty of people out there that do.

So we will help you out as best we can and also be on the lookout for our new e-book guys. Our new e-book is coming up, house hacking 2.0 it's going to be amazing alright. Definitely make sure you check it out and hey we are looking for ambassadors who want to spread the word and help share our book when it launches. Okay we're looking to hit the top sales on Amazon and in order to do that we need to have a lot of growth within the very first like 48 hours or something like that.

Right it's crazy. but so the for the first 48 hours again it's going to be something ridiculous, like $0.99 right purchase for this book and after that it's going to go up. so the more people we have buying the book at that $0.99 cents right at that one dollar level, the better off it will be for our rankings and more people will find it and then we'll be able to help more veterans right take advantage of their benefits.

Because that is what it's all about? Okay not about the money man. It’s all about making sure that you guys have what you need to succeed. Okay so please help us out and spreading the word. when it comes out and make sure you take advantage of it at that lower price limit, right that one dollar mark and spread the word please, spread the word get as many people out there to go and check it out when it launches. It’s going to be great and I'm at a time alright catch you later.


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