How to Build Your Real Estate Investing Team

Dave:
Are you a new real estate investor wondering, who do I need on my team to be a successful investor? Or maybe you have a few properties already and you’re wondering how to find the right people to scale up and get to the next stage. Today’s show, we’re gonna be getting into how to put the right team in place so you can grow your portfolio successfully. Hey investors. I’m your host, Dave Meyer, and I am joined today by Henry Washington.

Henry:
What’s up Dave? Glad to be here. Thank

Dave:
You. Thank you for being here. So tell us what we’re getting into.

Henry:
Yeah, today we’re gonna be talking about who investors need on their team, but more importantly, we wanna talk about what are the qualities that we need to look for in these individuals and in these businesses, and also how to go find these people. So we’re gonna share some stories from our specific deals, portfolios, experiences, because there is a lot of lessons, a lot of expensive lessons that I have learned that have helped me shape who the team members are on my team and why we have such a beneficial relationship. So we’ll talk about how to find investor friendly real estate agents, how to find lenders and pick lenders because they are not all equal. We’ll talk about insurance agents, property managers, and the dreaded, that was a drum roll. It was a bad one, but it was a drum roll that

Dave:
I liked it. I thought it was pretty good. I got it.

Henry:
and the dreaded contractors, because we all know that that is a very difficult part of real estate investing. And the more you can be prepared for that on the front side, the better your team is gonna be. I

Dave:
Love these kinds of episodes because man, nothing evokes investor stories more than talking about building a team. It’s so important. Sometimes it’s a little bit painful, but when you get your great team in place, it is very rewarding and super beneficial to your portfolio. So I’m looking forward to this conversation and if as we’re talking you want to connect with the type of team member that we’re talking about, whether that’s an agent, a lender, property manager, whatever, BiggerPockets has a bunch of free tools that can connect you with qualified people, just go to biggerpockets.com/team. You can find agents, lenders, all sorts of great individuals who understand how to work with investors right there at biggerpockets.com/team. All right, Henry, let’s start with what I assume is the first person on the team. Most people get, I was, I personally believe you should get an agent first. Are you sort of on the same boat there,

Henry:
Uh, when building your team? Yes. I think you, I think that’s the hardest relationship to kind of nail down. Um, I think the difficulty with nailing down your agent first is when you’re new, you don’t really know how you’re gonna operate yet. And so it’s hard to, to train an agent or tell an agent what you need. And so that makes it difficult to find.

Dave:
Yeah, and you’re gonna spend so many hours driving around in a car with your agency. You really have to make sure it’s a good one. ’cause otherwise it’s gonna be miserable

Henry:
. That’s very true.

Dave:
So let’s just start talking about how to find a good real estate agent for investors to you, Henry, what makes a good investor friendly agent?

Henry:
Uh, like the, the air quotes, good investor, friendly agent to me is someone that either invests themselves or works primarily with investors. And, and the reason I think that that makes the best investor friendly real estate agents is because they understand how an investor is going to see a property, evaluate a property, monetize a property. Um, and so if they’re looking for you through that lens, then they’re going to send you a lot more opportunities that are legitimate opportunities versus sending you things that aren’t and it ends up taking up a lot of your time.

Dave:
Yeah, that makes a lot of sense. I think one, if, if you find someone who invests to that is really nice, but I don’t think it’s a requirement that the agent has rental properties or flips or whatever of their own. It’s really sort of that mentality of, like you said, thinking about it more in dollars and cents. Because if you’re an agent who works primarily with first time home buyers or people who are buying their primary residence, it’s a more emotional decision. And there’s nothing wrong with that. Like where you choose to make your home should be a somewhat emotional decision, but as an investor it’s just dollars and cents. And it takes a different skillset to be good at matching someone with a property that makes sense financially.

Henry:
Absolutely. But also from the perspective of, uh, what you need them to do and them understanding why you need them to do it that way. And, and what I mean by that is, let’s say you, you, you, your strategy for finding deals is gonna be looking on the market, right? A lot of people, that’s what they want to do. But when you’re doing that, it’s gonna require you to put in a lot of offers and it’s gonna require you to put in a lot of offers at less than sometimes substantially less than what properties are listed for. And if you’re not an investor, understand investors, like some agents would take offense to even, like, why are you wasting my time having me put in offers at $50,000 less than what they’re asking? Or a hundred thousand dollars less than what they’re asking? Like, they might get upset, they might not want to write those offers, they might not want to go have those uncomfortable conversations with the listing agents who are listing those properties.

Henry:
And and it takes time for you to train them up to understand why, um, and that, that maybe ends up being beneficial for you, but maybe it doesn’t. And so having an agent who understands, hey, well yeah, he has to offer, or she has to offer $50,000 less because this property doesn’t make money for them any other way. And now I know how to go structure that conversation with the listing agent so that they’re not offended and they actually want to take the offer to their seller. Like there’s some training that has that comes into play there. And if you don’t have to do that training, it, it benefits you.

Dave:
That’s such a good point. Like the, the training of an agent shouldn’t be your responsibility. That absolutely is on the agent. This is their craft. This is what they get paid for. They should know how to interact with age with investors. And the other thing I wanted to say is like I primarily look for deals on market, but in at least one of the markets I operate in, my agent sends me pocket listings all the time, like off market deals. Like people think that it’s one or the other, but if you have a good agent, they’re gonna be finding and prospecting in some ways on your behalf. Like my agent, the guy he shares an office with is a wholesaler. So he’s like always talking to people about off market deals. And I don’t get every one of ’em obviously, but I do get access to them because my agent focuses on investors and he knows the kind of things I’m looking for.

Henry:
Absolutely. I I tell people all the time, this is the reason you want an investor friendly agent. Like your goal should be as an investor. Either you need, well, it should be twofold. A you need to be spending as much time as possible around people who have deals to sell you and your agent should do the same thing. So you’re leveraging an agent. Like if you have an investor friendly agent, especially if they invest themselves, they are always around people who potentially have deals, whether that’s sellers, whether that’s other agents who have pocket listings, whether that’s wholesalers who have listings for them, like they are in the business of drumming these things up for their clients. And so you want to have that person in your pocket so that they can send you these things. The most profitable rental property I own, my agent sent me, my agent just was in the office, heard a conversation with another agent about a property in a neighborhood.

Henry:
He knows I like, heard him say that this property was about to fall out of contract. And when he heard that the first thing he did was he pulled up the address and he did an analysis of what the numbers are to figure out at the price point. ’cause it’s falling outta contract at a certain price. So let me go run the numbers at that price and see is this a good deal? He ran the numbers, saw it was a great deal, went and talked to the agent and said, Hey, what’s going on here? Got the scoop and said, all right, what price point would my client need to be at to get this thing? He figured out that number, he plugged it into his calculator, he sent me the information, and then he called me and he said, open your email. It showed me the full analysis of what the property numbers would be at that price point and said, you can get this if we jump on it now at this price point. And all I had to do was review the numbers and say, put in the offer. That’s what you want.

Dave:
Amazing. That’s unbelievable. Yeah. That’s the best possible outcome. But yeah, and you’re not, you shouldn’t expect that like right away, but that’s the benefit of having a long-term relationship and with your agent, right? Like you’ve just sort of had the same agent you’ve been working with for your entire investing career.

Henry:
Not the entire at the be he, he worked hard to get my business. I was working with two other investor friendly agents before I started working with him, and he would just always add value on top of what I was getting from these other agents without asking for anything in return, no listings, no anything. And so I naturally over time just gave him a shot and realized that, you know, he was the best solution for my business.

Dave:
Awesome. Well, that, that’s just a perfect symbiotic relationship between you and your agent. I, you know, in Denver have used the same agent for 10 years and he’s great, but recently went into some new markets. And so I’ll just give you a couple very quick tips on some, like, things that I’ve learned over the last year interviewing a couple dozen agents. Most of them, the ones I’ve found on BiggerPockets have all been great. But there have been a couple I’ve, you know, heard of from friends and I’ll just throw out a couple red flags. Like one, the overly optimistic, overly rosy picture and understanding of, of the market conditions drives me personally insane. When people are like, oh, well rent, you know, rents went up 20% last year. It’s like, yeah, well that was during the pandemic, that’s not happening next year. And like, they just don’t understand like how an investor would think about it.

Dave:
So that was like a big red flag, just sort of like glossing over reality and just like sort of painting you the dream house picture. And then the second one is a lot of people, not a lot of, uh, you know, I, I can think of one or two that were like referrals from people I just knew who lived in these cities. Um, they just like had no concept of what things would rent for. And as a rental property investor, like, well, what, we can’t even have a conversation right now about these properties. So those are two things that were, uh, were red flags for me that I sort of just started writing those people off immediately. And that’s why honestly, starting on BiggerPockets and just like working with an investor friendly agent off this off the bat will help you avoid some of those things. But just keep an eye out for some of those red flags.

Henry:
And when you’re looking for investor friendly agents, obviously BiggerPockets has, you know, cultivated an environment where you can easily access some of the people who have already raised their hand and said, Hey, I do this. But if you wanna find some in your local market too, I talk about this all the time, title companies are a great place to, to find those investor friendly agents because as a title company, you look at what they do. Oh, or in your, in your, in your state, it might be attorneys, right? But either way, people who are closing real estate transactions every day for a living, right? Typically they see everybody at the closing table. And when a deal closes, who’s at the closing table? Typically the agent, the buyer, and the lender. And so if you want to build relationships with investor friendly agents, ask your title company, who are the agents who are always at the closing table representing investor clients, right? All they need to do is give you their name. You can Google the rest of the information, they’re realtor, the information will be online. So then you can call those agents and start to build that relationship with them. I mean, you could literally get a list of the top 2, 3, 4, 5 just by calling a title company and asking who the, who those agents are. Um, and right, that’s also how you can build relationships with lenders, right? Because that’s who else is at the ti sitting at the title company table with their clients.

Dave:
We’re gonna dive into that and other crucial members of your real estate team right after the break. Stick around.

Henry:
Welcome back to the BiggerPockets Real Estate podcast. We’re breaking down how to build an unstoppable real estate team. Next up, what makes a good lender and how you find one?

Dave:
Oh, what a beautiful segue professional podcaster over here, getting us onto our next category of team member, which is a lender. I think these, these are sort of like one in one a when you talk about like who you need to find first. It’s like either lender agent, some people do it other other way around. But, uh, tell me, Henry, I know you’re big on establishing relationships with lenders. Tell me why it’s so important and what you look for.

Henry:
Yeah, absolutely. With lenders, you have to understand like how they make their money. Like what’s in it for them. I think that’s the most important part is people don’t consider what a lender is looking for or needing. They just really consider, I need some money, I need to go find somebody who has some money to lend me. But when you look at it, when you take a step back and look at how lenders or how certain lenders make their money, you start to realize what lenders would benefit more from how you invest in real estate. And then that’s just kind of opens the door for you to build a relationship. Because if you know that certain lenders love lending on single family homes and small multifamily homes, like that’s their bread and butter, that’s where they like to put their money and that’s what you do.

Henry:
Well great, then you can go have a conversation and talk to them about your business and they’ll be interested in hearing about it because that’s what they like to lend on. That’s how they’re looking to make their money. You know, if you’re in the large scale multifamily space and you want to buy apartment communities, well some banks, especially local banks, don’t want anything to do with those right now, but some still love them, right? And so you need to understand or try to figure out which, which of these banks actually like to lend on the asset that I want to buy. And then when you start talking with them, they’ll care more about what you’re talking about. They’ll want your business because you are in their little bread basket of how they like to make their money. Um, and so I just, I learned that early on when I did my first deal, it was all by accident.

Henry:
I, my, i I walked a, a contract in from my very first property into the first bank that was closest to my office, and it happened to be a local community bank. And before they ran my credit, they told me they wanted to give me a loan on it. And I just thought that was weird. And, but that lender just happened to educate me throughout the process and basically what he told me was like, bro, you’re bringing us a deal that you’re buying at substantially less than what it’s worth. Like yeah, we want to lend on it because if you don’t make your payments, we get control of an asset that’s worth way more than what you’re asking us for. And so we can end up selling that asset if we need to, and we’ll make more money that way than we would on paying you paying your interest payments. Right? So he was teaching me how lenders evaluate certain deals and why they’re important to them. And so I got to build this great relationship with them because I had the thing that they wanted to lend on.

Dave:
That’s perfect. It really helps when you’re evaluating deals too, to know if you can get a loan on it, right? I think that’s a thing that a lot of early investors struggle with, where you’re like, okay, I love this property. Can I get a loan? When you have a relationship and have taken the time to understand your lender and how they think, we were talking earlier about how, but you should also understand how a lender thinks because then when you’re looking at a property, you could say, this is a an asset, they’re gonna gobble up. Or, you know, this one is gonna be tough. Maybe we should focus on another property. That is so, so valuable and it really only happens with a good relationship. Now I’ve actually never used a local bank. I, I do a lot more traditional like off the shelf stuff, but I’ll just tell you that for me, working with a mortgage broker over I guess 14 years now, uh, still has the same kind of benefits even when they’re, you know, you going to big banks and sort of shopping you around and even conventional loans.

Dave:
Because when I moved to Europe, I read something that was like, my income was no longer going to count because it’s foreign income. And there was this whole complicated thing and I went down this spiral and I started looking for all these specialty lenders and it took like two or three days and called like eight of them. And all of them were like saying these complicated things and I was like, oh man, I’m not gonna be able to buy real estate. And this is after I already moved and then I just called my, my original lender. He was like, oh dude, I got you. It’s fine. So it was like totally solved a complicated problem that I was having because all these lenders couldn’t figure out my situation. But, but since I knew this guy for the last 10 years, he was able to just quickly solve my, my situation even though the internet and all these other people said it wasn’t possible.

Henry:
Absolutely. Well, first and foremost, I think the mistake that a lot of investors make when it comes to researching lending is they’ll speak to one or two lenders and hear about what they can’t do, and then blanket assume that that means that’s how all lenders are. And so it gets, sometimes it discourages investors and they think, well, I can’t do this. I can’t buy properties like this. I can’t make these deals happen because I’m not bankable enough. When that’s not the case, you’re just not in the box for that particular lender and what they need. Sometimes. I had a student one time, I, I told him I was getting this loan product essentially in a nutshell, I was getting this loan product from a bank where I didn’t have to put any money into the deal. Like I was buying such good deals that they were not requiring me to put money down. And I kind of talked him through that structure and I said, these exist. Most banks will tell you they don’t, you’re gonna have to call around until you find them. He called 80 banks before he found one that would do that structure. And when he did, he bought his next five properties with that bank with none of their own money. Like, that’s sometimes what you need to do.

Dave:
Yeah, it, it really is a, it’s like dating a little bit. It’s sometimes a numbers game with a lender until you find the one that works out right for you. And I think there’s lots of good ways to do it. You know, for someone like me, uh, you know, I will use BiggerPockets and a directory, but, uh, and I don’t know if you do something like that too, but also it’s also, this is gonna be a theme throughout this separate episode. It is just networking and going and talking to people in real life.

Henry:
Look, get your pens and papers out. Take some notes ’cause I’m about to give you some great information on a, where you can find the lenders and, and b, where you can learn more information about who may be the better lenders for you to work with, right? This is something everyone can do. The first thing you want to think about is if you want to look work with a local community bank, because they can be the most flexible, the one of the best places to do that is to join your local chamber of commerce. Because your local chamber of commerce typically has local businesses that are members of the Chamber of Commerce. And a lot of those local businesses are banks, bank VPs, and, um, commercial loan officers. They attend these meetings and they’re, and because it’s a part of the, it’s part of the local community.

Henry:
And so they’re invested in improving their local community. So if you can join these and they meet typically monthly, you know, once a month you go to a meeting for an hour or two, but you’ll start to meet people in the chamber and you automatically get this trust with them just because you’ve paid to be a member of the local chamber, just like they are. It’s, it shows that you have a commitment to working in your local community. And so now you can leverage those relationships to talk to them about your business. They’ll want to work with you like it’s about who you know in any business, right? And so this is a very easy way to get great lending relationships in your local market. And then the other thing you want to think about when you’re looking for lenders or researching lenders, again, ask your title company.

Henry:
So when you think about what a title company does, right? Somebody sends them a real estate contract and says, I’m gonna buy this house. And then they open escrow and then they connect with the lender that you’re gonna use to figure out, you know, how much money they’re gonna lend you so that they can get the payoff of the property, right? And so there’s a lot of communication between your title company and your lender. And so if you ask a title agent man who are the lenders who suck to work with , they will know off the top of their head, oh, I hate dealing with a BC loan company because it’s a nightmare. There’s so much red tape. Right? And then ask them, who are the ones that are best to work with, right? And ask them why. And they’ll explain to you about who these lenders are and why they’re so good to work with.

Henry:
Right? And that’ll be from a title company’s perspective, but if it’s easy for the title company to work with them, it’s probably gonna be easy for you to work with them as well. But they also have insights to what the interest rates are on these loans. They’re in the loan documents. So you can have them tell you like, who, what lenders have the best rates right now? They see them every day. So they’ll be able to say, Hey, check out a b, c lender. I’ve been seeing, you know, 8% interest rates on some of these loans that are coming across the desk. So there’s tons of great information at your title company.

Dave:
That is excellent, excellent advice. So when you, you know, I don’t know if every, if you’re new, you probably don’t have a title company, but just another example of when you buy your first deal, second deal, start to get to know those people ’cause they can really help you out. All right. We’ll move on to our third category, which is insurance agent. Do you have an insurance agent you go to regularly trust? I do.

Henry:
Yeah.

Dave:
Yes. How’d you find this person?

Henry:
Uh, through networking with other local investors and seeing who they were using.

Dave:
Okay. And does this, is this a broker, someone who takes your needs and shops it around to carriers?

Henry:
Exactly right. So when you’re looking at insurance agents, you can go direct to an agency, um, who will, who will issue a policy or you can go to a brokerage who will shop your policy around, right? Um, I choose to go to the brokerage. Um, and not because I get the best rates with the brokerage, uh, I choose to go to them because it is the most convenient and time saving option for me. They literally handle everything. When I need a policy, I just have to send my agent an address. He does all the work, doesn’t ask me a million questions, sends me back some policy options. I picked the one that fits my needs and we move forward.

Dave:
Yeah. Okay. Well, I, I have done that in the past and recently actually, just as I’ve been going into new markets, I’ve been using some of these online agencies that specialize in landlord insurance, which has made, has made it a lot easier. ’cause in the past when I’ve gone with, uh, brokerage or gone to direct to like one of these big companies, they don’t have the same types of coverage that I think a lot of landlords want. Things like income interruption. It’s more like business insurance where you need, you know, if something to your property, like I know you recently unfortunately had some storms in your, in your area, Henry, like if you can’t rent out your place, sure most insurance will cover the damage of the storm. But if you, if your tenant has to leave ’cause it’s no longer habitable or something, you’re losing that income. And so you might want to to find that. But I will update everyone. ’cause now I’m on a, I’m on a journey to get like umbrella insurance. Have you ever done this? Or like corporate insurance? Uh, it seems so hard. I don’t want to figure it out.

Henry:
Yeah. But I don’t know, man. My, maybe I’m just spoiled. My broker makes it super easy. So I do, I get a policy on each individual property and then I have an umbrella policy. So when I buy a property, I’ll get an individual policy for that property and then my agent will automatically add that property into my umbrella insurance. But your umbrella can only hold so many properties. And so you may have to have multiple, depending on how many properties you have. And then when I sell a property, they automatically go and take it out of my umbrella policy. So you just kinda have to train them on how to work with you. Um, uh, and if I always say, man, if they, like, if I am talking to an insurance company and they’re wanting me to jump through a bunch of hoops and do all this stuff myself, I just move on to the next one because that’s, in my eyes, that’s your job. Your job is to make my life easy.

Dave:
Yeah, that’s true. And you do a lot more transaction volume than I do. So if you can do it, oh, I’ll figure it out. But I don’t want to

Henry:
.

Dave:
All right, we have to take one more quick break, but when we come back, we’re gonna share our strategies for finding that elusive unicorn of a team member. Good contractors. So stay with us.

Henry:
Hey investors, welcome back to the show. Let’s jump back in.

Dave:
We’re gonna move on to our fourth category, which is property manager. To me, honestly, I think maybe even more than contractors, I’ve had the hardest time finding and retaining good property managers in my investing career. Have you had the same experience?

Henry:
100% I have. It’s

Dave:
Tough. But then you find a good one and they’re golden. Like it’s just, it’s really hard to, to nail down the right one. So let’s just talk first criteria. What makes a good property manager?

Henry:
Here’s, here’s my 2 cents. To me a good property manager is someone who is managing properties because they have a passion for either helping tenants find great places to live or helping landlords focus more on making more money than managing their properties. And I know that sounds very basic, but when you interview different property managers, what you start to see is most property management companies exist because that person who started the company owned property and didn’t want to outsource the management, right? Here’s an example, Dave. Like if you and I were gonna go start a business, any business outside of property management, we would probably start that business because we’re passionate about solving a problem. And that why drives us to make us want to have the best possible company that we can have. But in the property management space, most people own property management companies just out of convenience. ’cause they had some properties that they wanted to manage and so they were managing their own. And so they’re like, oh, we might as well manage some for somebody else. Or maybe a friend asked you to manage theirs

Dave:
Or couldn’t find a good one.

Henry:
Yeah. And so now you’re managing you and your friend’s properties and then all of a sudden it’s this business, right? They’re really not in it because they want to be the best property management company that they can be. They’re just in it out, out of convenience. And so when you’re interviewing these, these companies, I would talk to them about why they do what they do. Like what are, what are their core values? Do they have core values, right? What’s their, what’s their company mission statement, right? Ask those things, try to understand why they’re doing what they’re doing. Because if their mission statement is about improving the lives of their tenants and improving the businesses of their land, their landlords, well that’s probably a pretty good thing. But if they don’t have those things, then I would probably steer clear because it, they’re just, they’re operating out of convenience and uh, that doesn’t always make the best property management company.

Dave:
You nailed it, man. I, I didn’t really think about it in that motivational way before, but I think you, you hit it on the head that so many people get into this just ’cause they don’t have an alternative or they’re forced into it. And then you meet someone who’s just really freaking good at it and like does it for the right reasons and it’s so totally different. So I, I love that. I’ll also just add a, a couple things that I’ve just noticed about when you’re screening people, uh, and like the characteristics that I personally really care about and sort of goes along with what you were saying is the number one thing I look for is proactivity. I’ve found there are so many property managers who just wait to hear from the tenant that something has broken or they wait when I drive by, you know, every couple of months and say, Hey, that you know, something’s not looking right.

Dave:
Can you go fix that? And I think a lot of them do it because they assume you wanna save money. But like I am a long-term investor, I don’t want, I don’t care about a hundred dollars, I don’t care about $300. I want my property be to be in good shape for as long as possible. And I want you to come to me and say, Hey, that’s soffit is rotting. Or you know, something is going on with the plumbing and when you’re better off spending $500 right now, it’s gonna save you $2,000 over the course of the next three years and the tenants will be happier. And to me, that kind of mentality of thinking like the owner of the property is difficult to come by. Um, but once you find it, it’s, it’s just worth your weight in gold. Because I, I wrote about this a bit in my book, but I think property management or managing properties really is two different things. One is sort of like the operational piece, which is like just collecting checks and doing that stuff. But there’s this whole other thing that I would call asset management. It’s like, how are you taking care of the property? What decisions, what value add are you doing? And if you can find a property manager who can do both of those things, manage the day to day and also help you make decisions about how to position this property for long-term success, then you found a winner.

Henry:
100% like it, it, there is a lot that you will learn in having conversations about how they operate their business. Listen to the communication that you’re having when you’re speaking to your property management companies and evaluating how are they talking about their tenants? Like in what light? Are they talking about their tenants? Are they talking about them like their problems, like their annoyances? Because if that’s how they’re talking about them with you, that’s how they treat them. We don’t have a business without our tenants. You want a property management company that cares about the tenants and that understands your business. When I was interviewing my property management company, they don’t call their tenants tenants, they call them residents, right? They don’t, they don’t wanna refer to them as tenants. Um, that’s a mindset shift that’s, that shows you that there’s a level of care that comes with working with them and then make sure that their incentive system isn’t, isn’t rewarding them for your poor performance.

Dave:
That’s such a good point. Uh, is this about like the leasing fees? Can you explain that? ’cause it’s so important?

Henry:
Uh, a couple of things. I don’t like it when property management companies are, are pocketing the late fees, right? So some property management companies want to keep all the late fees and for me that sends the wrong message. I don’t want you incentivized by my tenants not paying rent on time. I would rather have you incentivized by my tenants paying rent on time, right? If

Dave:
You’re finding tenants that aren’t paying rent, you’re not doing your job as the property manager,

Henry:
Right? And so I don’t want you making extra money for picking bad tenants for me. Like that is just, that’s the wrong way.

Dave:
Misaligned incentive. Yeah,

Henry:
Absolutely. And then some property management companies get, um, bonuses when your property gets leased up. So they’ll take, you know, an extra bonus when they, you know, lease up your property. It might be a hundred bucks or some are, some are very different and I don’t necessarily like that structure either where you’re just getting paid for putting a body into my property, right? Your job is to find tenants for me and I want you incentivized in ways that that help you choose good tenants who want to a longer period of time. Because that’s what’s of benefit to me. And if it’s of benefit to me, then that’s how you should get incentivized. Not just by picking somebody to live there so you can make an extra a hundred bucks.

Dave:
Yeah. Some of the structures I’ve seen, I’ll just give you an example, are one month’s rent for leasing up a property. So if you’re, you know, if your property manager is charging you, let’s say 8%, let’s just use 10% ’cause it’s an easier number, 10% per month on $2,000 of rent, that means that they’re making $200 per month on that particular unit. But if they let the tenant lapse and then they can fill it, they’re making $2,000 in one month, that is the best option for them. They’re basically doubling their income on that property because they did not retain a tenant. So I think that’s really important to think about that economic incentive for them. And in fact, with I think both of my property managers now we have retention incentives. Instead I give them extra cash. If the tenants are good and they renew their lease, I pay them for that because that is what I want.

Dave:
And it’s hopefully what they want. It’s less work for them. And that’s really with all of your employees, whatever your business is like, incentive alignment is super important. But I do think in real estate, property manager owner incentive alignment is one of the stickier things with some models. And so it’s definitely something you want to keep an eye out for. So if you are looking for a great property management company, you can go to biggerpockets.com/manage me. We have a brand new property management finder tool where you can browse through tons of different property management companies and find one that is aligned with you and specializes in the type of portfolio that you are building. All right, with that, let’s move on to our last and probably most popular thing to talk about in the entire world of real estate investing. Maybe the entire world is how to find a good contractor, Henry, as someone who does tons and tons of value add projects, what are your tips, thoughts on finding a contractor? And don’t say networking. I don’t wanna hear these easy answers.

Henry:
. I don’t know, bro, this is hard. This is hard. Like I’ve, I’ve, I I tell people like, I’ve done well at this and I’ve done bad at this and it, it, it’s like this ever evolving, um, uh, kind of revolving door. You have to keep like circling through. Like it is a challenging part of the business. It’s

Dave:
Just a thing.

Henry:
Yeah, it’s just a thing. It’s a challenging part of the business.

Dave:
I like to play this game when I talk to other investors how long into a conversation it takes before you start complaining about contractors , it’s like, is it over under 10 minutes? ’cause it’s usually like four until the whole conversation just goes to complaining. Yeah,

Henry:
100%. That’s accurate,

Dave:
. But it’s just part of it that that’s just how it

Henry:
Is. Most contractors, they want business, right? And so they’ll tell you they can do something, but it may not be the thing that they like to do or the best at doing. And so I found that when I’m asking a contractor to bid a job that may not be in their wheelhouse, the bid comes back slower, the bid’s a little higher, they’re not fast to get people out to that job. Like, you know how people do when they don’t want to really do something, but they know they need the money, right? Like, and so understanding what kinds of projects you do and then finding people, contractors who specialize in those kinds of jobs will help you get people who want to do your jobs and get people to your job sites quicker and give you better and accurate bids. Um, but I mean that’s just, that’s just a small piece of it because it’s, it’s, it’s, once you find a contractor, you still have to like, maintain and, and cultivate that relationship going forward.

Henry:
What I’ve typically found is when I find a good contractor, the first two to three jobs amazing. They’re fast, the bids are good, the work quality’s good. It’s like, they’re like, when’s the next one? And then once you get to like job four and beyond, the bids come in a little slower. The price on ’em are higher. You know, it, it, it, they get a little comfortable. And so, you know, is that my fault? Is that their fault? It’s probably a little bit of both, right? We have to find a way or I have to get better at finding a way to continue just like you spoke about, uh, with property managers, like to continue to incentivize them to perform well for me. And there’s some things that you can do for that, but mostly it all boils down to if you find a good one, pay them fast and pay them fairly. Because if you are paying them quickly after they finish something, they are gonna prioritize your jobs over everybody else. ’cause one of the biggest problems contractors have is getting their payments from their, from the people they’re working for so that they can pay their guys.

Dave:
Yeah, it’s cashflow management.

Henry:
Yeah. People are slow to pay, right? Most of them aren’t business operators. They’re wre turners who ended up with a business and now they’re trying to figure out how to be a businessman when really they were good at building houses, right? And so they don’t know necessarily how to manage their cash flow in and out and keep every jobs, job’s. Finance is separate. They may not understand those things. And so money management is a huge problem. And so if you’re paying them on time and quickly, they will want to make sure that they’re doing your jobs over somebody else’s because they know if I show up for Henry and I do this job, I’m getting paid 24 hours later.

Dave:
I that’s, that’s so good. You always, I think with a lot of these situations, it’s important to be seen as the best option, especially over the last couple years when things got super competitive. But you want them to say, I would rather do a job for Henry than anyone else. And so I think that’s in line with pay them quickly, pay them fairly, be communicative, you know, you have to do as well as you can there on top of your great advice. I only have two, two ideas on how to manage contractors. This isn’t a finding one, it’s actually just the opposite. My other advice is pay ’em quickly, but also fire them quickly if they don’t work. You know, like that’s probably one of the most painful things I’ve had to learn is usually in your gut, you know, it’s not working and you just gotta rip the bandaid off.

Dave:
And I know that’s probably harder for you when you’re in the middle of a flip, you know, you have a gc if you have a GC who’s not working out, that’s a painful swap. But for people like me who do mostly cosmetic stuff, like if a plumber’s not working, just fire them. You know, like you could get another plumber and it’s probably gonna work better. It’s way easier. I just, I don’t know how many times I have to learn this lesson, but just rip the bandaid off. So that’s tip number one. The, the second tip is we, Henry and I have a mutual friend who’s sometime on the show, James Dayner. The only other tip I have is get as rich as James Dard. So you can hire, so you can hire all of your contractors in house and then you got nothing to worry about. You’re just chilling.

Henry:
. Yeah, man, that is, that is the sweet spot when they just, they work for you directly.

Dave:
Yeah, it works for everyone, but most people don’t reach that scale. So I’m just joking. But if you get there, congratulations. That’s pretty cool. Yeah, there’s,

Henry:
There’s, there’s tons of ways you can structure things. I’d say the things you gotta be careful for are make sure things are on paper and then, uh, on a contract, right? I’ve made a lot of mistakes assuming contractors are gonna do something versus they were assuming I was gonna do it and then we’ve wasted weeks, uh, because this thing wasn’t done and we didn’t know who was supposed to do it. So make sure that you have contracts in place that protect both you and them. Um, if you wanna retain contractors, try not to nickel and dime them on every price on your, on your bid sheet. Like if something seems unfair, yeah, sure or unreasonable, have that conversation, but quit trying to get them down on every line item on the sheet, uh, to reduce your cost because that’s not gonna make them want to work for you in the long term. If they’re truly a good contractor.

Dave:
It’s such an art, you know, like you don’t, like you can’t negotiate on everything, but you also can’t accept any, you gotta let ’em know you’re looking, you know, that you’re paying attention. So it’s kind of like an art that you have to develop over time.

Henry:
It’s a dance and you know, there’s, there’s not really a lot of secret sauce to finding contractors either. Uh, I think one of the, one of the best ways or most cost effective ways that I’ve found contractors is driving for dumpsters. So essentially whenever you’re driving by a site, if you see a dumpster and there’s a, there’s a project going on, stopping talking to the people who were there working on site. Um, I’ve done this several times and where it’s been extremely beneficial for me was getting roofers. And so like every time I see a roofer doing some work and it looks like they’re doing good work, I’ll stop and I’ll talk to ’em. Now, typically when you see people roofing, it’s not like, you know, a BC roofing company. It’s the guys who a BC roofing company has subcontracted to go and do that work.

Henry:
And so what I do is I go and I get their information and ask them, Hey, do you want to do, you do work on the side? And typically they say, yes, I’ll get their contact information and then when I have a roof job that needs bid, I will call them and have them go measure and tell me what they would charge me in labor. And I will call the roofing store direct and give them the specs. Hey, this is the, this is the size of, this is how many squares the roof is right? And this is what’s needed. And so I’ll buy supplies and have the supply shipped there and I’m just paying labor and I’ve been able to cut costs on projects, especially roofing projects by 40%. It’s nuts.

Dave:
That’s a really good tip. Yeah, you obviously can’t do that with everyone and, and every kind of thing, but you know, it’s like you said, there’s no silver bullet. You just kind of have to find a way to get creative network and just, you know, ha develop strong relationships. It really is another example of real estate being a relationship game.

Henry:
Go look at people’s work. I think sometimes we find a contractor, they give us a good bid and then we hire ’em and then we start to see the quality of work’s not great. And uh, if you’re new and you don’t even know what good quality of work is, that can really hurt you. Um, because you’re, you’re, you’re paying for things that are subpar. And so I like to, when I have a new contractor and I think I’m gonna choose them, I’ll ask them for some addresses of some properties that are currently going to, and then I’ll just pop in. I do not, uh, I don’t want to give them a time and tell them to meet me there. Like I just wanna pop in. I want to see is the job site clean and organized? Does it look like, you know, I’m gonna spend a bunch of money and not know where my supplies are or does it, you know, is it clear that this is, you know, people who care about the job site? Like my contractor, one thing I love is every day they clean up after themselves, they sweep everything up and they clean it up and they leave it clean so that they start with a clean slate the next day. Um, not every contractor does that. I really enjoyed seeing that when I saw that, that that’s how they operate.

Dave:
Alright, well I love how you were like, I don’t have any good advice and then you just gave a lot of great advice.

Henry:
, thank

Dave:
You. Thank you for doing that. Um, well thank you so much for, for sharing what, as you said, were sometimes expensive lessons. Hopefully this conversation has helped you all ’cause this, honestly, this comes up every couple of months. Uh, people are always asking this because it’s crucial. I think a lot of people, because real estate investing is entrepreneurial, assume that it’s sort of this individualistic thing and it is often, you know, if it’s your money, you know, you’re just kind of trying to manage it, but you really do have to think of it like as a team. Um, and the more you do that and the more you try and manage different personalities and the more you are cognizant of the different incentives and different motivations of the people on your team, I think the better you are going to do. Thank you all for listening, and again, if you guys want to connect with great team members, BiggerPockets has free, completely free tools for you to find investor friendly agents or property managers or lenders. So go check those out. It’s a great place to start your team building journey. Thanks again, Henry, and thank you all for listening. We’ll see you for another episode very soon of the BiggerPockets Real Estate podcast.