Real estate is a fantastic investment opportunity if you have the money to make it happen. Property offers the dual benefits of residual income and future capital gains. But to make the most of it, your typical investor needs to hook up with a few key partners. Vetting those partners should never be a question.
For this post, I will be concentrating on investors whose focus is acquiring properties they plan to rent for considerable periods of time. One investor might put his money into residential properties he plans to hold until retirement. Another might prefer commercial properties he has no plans to sell. They will be passed on to kids and grandkids.
Regardless of an investor’s strategy, there are two key partners that should be vetted thoroughly: lenders and property management companies.
Financing Property Acquisitions
The smart property investor does not pay cash unless it is absolutely necessary. It’s better to finance new acquisitions with loans. As far as loans go, investors can arrange traditional financing or work with a hard money lender like Salt Lake City’s Actium Partners.
Actium reps say that hard money is preferred by many investors because it offers speed, minimal documentation requirements, and flexibility. But it is never guaranteed that an investor will be able to find a hard money lender willing to get on board.
Both conventional and hard money lenders should be thoroughly vetted. Property investors need to know exactly with whom they are dealing. Proper vetting involves checking license status, looking at history, asking for and checking references, etc.
The purpose for vetting lenders should be simple enough to understand. Property investors need to protect themselves against unfair, unethical, or predatory lending. They also have a responsibility to look out for their own best interests in every deal. Vetting is one way to do that.
Working With Property Management Companies
It is not unusual for a new investor to self-manage those first few properties. But as the investor’s portfolio grows, in-house management becomes more difficult. A portfolio can eventually grow so big that the investor has no choice but to bring in a property management company.
Outsourcing property management is actually a very good idea. It allows an investor to get back to what they do best: investing. Meanwhile, a partner that specializes in property management can take care of that portion.
Investors should be vetting property management companies for the same reasons they vet lenders. They need to protect themselves against partners that fail to meet their obligations. They need to make sure they are not being charged excessive fees. And yes, investors even need to make sure that their potential partners are actually up to the task. Some aren’t.
When Things Go South
Investors obviously want everything to go well with each and every investment they make. But the truth is that things can, and do, go south – sometimes, very quickly. When things start to go bad because a partner was not thoroughly vetted, the situation is only made worse.
Not properly vetting a lender could leave an investor on the hook for excessively high interest rates and fees. An investor could ultimately spend way more than necessary to fund properties. Meanwhile, failing to vet property management companies could leave an investor working with a partner who continues to charge monthly fees but does not deliver the agreed services in return.
There is money to be made in property. When partnerships are involved, investors have no excuse for not vetting their partners before hooking up. They should be especially careful with lenders and property managers.
