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Self Directing into Real Estate

The internet serves as a portal into many of these practices - and a brief surfing session can yield a considerable volume of information. Yet, as real estate investors, who should we be using as a guide, guru, or advisor?

By: By: Glen Mather

IRA Insights

April 2008

Whether it is Wealth, Marriage, Health, Real Estate, Vacations, Weddings, Funerals, Relationships, Families, or even Stock investors - each group has developed their own collection of "advisors" making a living dispensing wisdom to the benefit of (or harm to) the recipient.

The internet serves as a portal into many of these practices - and a brief surfing session can yield a considerable volume of information. Yet, as real estate investors, who should we be using as a guide, guru, or advisor? Certainly RealtorsTM provide a matchmaking service between buyer and seller and offer their perspective on the market. Yet, many of these professionals may not be trained or have the experience to understand the unique challenges in buying and holding investment real estate.

The good news is that there are hundreds of Real Estate Investment Clubs (REICs) across the country dedicated to assisting and advancing their member's knowledge in buying, holding and selling investment real estate. Most of the REIC members are not in the business of simply giving advice - instead, they actively practice rather than preach. Some, like you, may simply be investing on the side - looking for opportunity in a rapidly decelerating market. Others have taken the plunge full-time, often discovering through a layoff or other life changing event that not working for someone else provides the greatest freedom possible.

The key is that you have access; now you must pick and chose your advisors carefully. New investors are coming into the market daily, shouldering out those that have become disenchanted, or who were unfortunate in buying when prices were at their peak. Unlike the stock market trader, the real estate investor needs a whole new group of advisors to help reduce the buyer's risk (or at least understand the scope of the risk the buyer is accepting).

As a minimum, the real estate investor should have at least six trustworthy, proven advisors - all of which may be found through the auspices of your local REIC.

1. A Realtor or agent who is extremely active in representing buyers and sellers in the marketplace within which you are investing. Focus here on the number of transactions, knowledge of investment property and any "early" awareness of new listings, etc... Add to this advisor those that buy and sell wholesale properties that may never be listed on the Multiple Listing Service. Don't worry about the personality of the advisor - look to experience and credibility.
2. Legal assistance regarding all aspects of the purchase, lease, financing and sale of the property. Is this really necessary? In many states (not yet in Florida) legal review of real estate closing documents is required prior to closing. While any government mandate generally becomes onerous - this one may make sense, as a $200,000 + purchase may justify a few hundred dollars of legal review. Besides, a good attorney can be a huge asset during the negotiation phase of the purchase..."my attorney says".... can be a powerful tool.
3. A CPA that is knowledgeable about the tax consequences of real estate investments. He/She should be able to work closely with your attorney to ensure that all aspects of the purchase, hold and sale are structured properly to reduce risk and decrease tax exposure.
4. Multiple financing sources. Generally, many of us wait on this step until we find the perfect investment. The best deals normally have the shortest fuse, so if you haven't set up your financing sources beforehand, you may lose the deal, or likely pay too much for your financing. Hard money lenders, who can close quickly, should always be part of your network, as well as conventional lenders who may be able to provide the most attractive rates for the long term holder.
5. Companies or individuals that manage property are a critical resource for those that cannot or want not to manage their rental properties. The customary 7-10% fees charged for this service may be a bargain compared to the time and headaches involved in solving the multitude of tenant issues that may arise. Sometimes through teaming with fellow investors, the best possible rates can be obtained - although you may only own a single property.
6. Dealmakers. Simply put, those individuals that have experienced the highs and lows of real estate investing and have emerged and have succeeded. From structuring the deal, to finding tenants and buyers, these individuals can be invaluable, both for their insights on your deals, as well as identifying other key advisors.
   

How do know who will work well with you? Just ask. Query the people who not only run the club, but also the long-time members. Corporate members can provide a unique perspective - but nothing beats the discrete inquiry of other members. Look who is teaching, and ask the attendees the value of the message. Find the individuals who are making a living from investing - and get a short list of their advisors.

Why get advisors when you are smart enough to do it on your own? If Tiger Woods needs a swing coach, we all can use a good attorney, CPA and real estate agent to better our game. Our investment lives may depend on it.

Glen Mather is Director of Entrust Administration Services, Inc. a self-directed IRA administrator. He can be reached at (407) ENTRUST

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