Confessions of a Real Estate Entrepreneur: Dealing with Professional Service Providers
August 19, 2020 | By Mark Zweig
In keeping with a couple of my recent blog posts on the subjects of speculative real estate investing and what I have learned about doing speculative house renovations over the years, I wanted to put out one more post on my best advice for dealing with the various professional service providers one has to deal with in the course of this business as well.
Here are my thoughts and best advice:
Real Estate Agents
You want to find and work with the most successful real estate agent you can find. Don’t get a part-time “hobbyist” agent who is already a friend or someone you just happen to meet at an open house. You want someone who has proven over time that they can sell a lot of real estate. Here in Northwest Arkansas, that means selling at least $10 million to $20 million a year.
This person will have better connections, do a better job marketing your property, be a better negotiator on your behalf, and most importantly, anticipate problems that could crop up in closing a sale. And when you show loyalty to them by never cutting them out of a sale, you will engender loyalty from them to you. All the good deals they discover (and if they are very successful they will come up with deals) will go to you first.
This relationship with the right agent may be one of your most critical relationships you have in this business. My agent, for example, is someone I have worked with for 16 years. He has his own firm, is an attorney, and he also teaches real estate nationally. He has functioned as a true partner over the years even though he never had any ownership in our business or projects, and we never would have been as successful as we were in this business without his involvement.
Attorneys are specialists, and it seems to me many people who employ them forget that very important fact. Divorce attorneys do divorces. Patent attorneys work with patents. Criminal defense lawyers work with criminal law cases. Real estate attorneys deal with real estate issues.
You want someone who is experienced in real estate that you have a relationship with who can deal with any problems that come up. I like to find someone who is first and foremost responsive. If they can’t return a call or email quickly to help me with whatever my problem is, I am not going to use them. You also want someone careful.
The right attorney will be an invaluable member of your team.
I have had some less-than-great experiences working with local accountants over the years. I say that because you will need to get some really good advice in terms of how you set up the legal form for your business based on what you are doing.
Do you only flip? Or do you hold onto properties that you lease out?
The rules for capturing losses and tax treatment of gains are sometimes complex and constantly changing, and you need someone who understands these things. You also may need help with matters such as bonding if you get your contractor’s license as we did. This required meeting certain balance sheet requirements and the proper accounting treatment to show values of properties came into play.
Again, as is the case for most professional service providers, specialization and experience dealing with businesses like yours for accountants is crucial! We have had better success dealing with larger regional firms than small one- or two-person accounting firms because the larger firms have experts in a variety of issues.
A good insurance agent is another relationship you will want to have. I discovered after years of doing projects I had the wrong one. He was insuring various renovation projects we had underway with rental policies vs. construction policies. If we had a claim due to fire or other disaster when our project was insured with a rental policy, we may not have been covered.
When I confronted the agent with my discovery (thanks to a review of all of our insurance from another agent who is a friend), he said that his firm doesn’t offer construction policies. If he was good — and honest — he would have told me that! Get the right agent who sees you as a long-term client and treats you accordingly.
Again, I value long term relationships with our title company just like I do with our other service providers. They have all of my information and because they know we are a source of repeat business they treat our closings as a priority. Also, a good title company gets on things early so if there are problems that evidence themselves we have time to deal with them before our contracted closing date.
Construction Contractors and Subcontractors
I probably need to write yet another article on this topic by itself. Finding the right contractors and subcontractors based on project type, location and ability to perform is one of the most difficult aspects of this business. Our own inability in recent years to do so is one of the reasons for our decision made several years ago to wind down the one-time Inc. 5000 fastest-growing company we started in 2005.
What we have learned is that the larger the project (think commercial or multi-family) we did, the greater the odds we would be able to find and afford to work with competent contractors and subcontractors. On the residential side, we struggled for years to find firms or people who were reliable, did quality work and who didn’t overcharge us due to either greed or incompetence.
When you do find a firm or person you can work with, it’s crucial that they have proper insurance coverage because if they don’t, your insurance company will discover that in an audit and you will be responsible for their insurance costs after the fact.
I like long-term relationships with people I trust. When you have that, you can’t price-shop every time you need their services. One thing I know for certain is that these people don’t like to have to bid every job. Cost estimating takes time away from doing work, and doing work is the only thing they get paid for. Being able to dispatch them quickly and trust that they won’t overcharge you is critical if you want to be in this business.
It takes a lot of research and trial and error to get the right construction team.
Architects, Engineers and Planners
These professionals are also critical to your success, especially if your business moves beyond just doing single-family renovation projects. Architects and engineers are specialists, too, and not just anyone is good for any type of project. You will likely need different architects for your commercial projects than you will for single family.
Some are more versed at historic projects and renovations than new construction. Some have a bent for modern design and some for more traditional design. Some will work with you and do only what you need, and others will insist on providing a more complete package of services.
There are great variations in costs. Engineers don’t like small projects. You will need a one-person structural engineer who will help you at times on call, and they aren’t always easy to find. You will also need a civil engineering and/or planning firm that is familiar with site specific planning and permitting issues. Those who just do work for government clients will not be good to use.
It’s hard to put a price on good design because it greatly affects construction costs and the ultimate value of the completed project. The right design professionals will be invaluable when it comes to working with the myriad of standards and regulations and zoning issues that you have to address in order to get a permit. The relationships your design professionals have with the people in the city could determine whether or not you can get your project permitted.
I could go on here but am out of time. I need to get back to winding up the few remaining projects we have on our books now!