Your Relationship with Your Clients is of Utmost Importance, So Set the Right Tone from the Start
The customer relationship is vital to the success of any business. As real estate investors, we operate a unique type of business, but that doesn’t mean the value of relationships is any less important. The customer (or client) relationship, for the investor, has changed significantly over the last two decades. In years past, the “real estate investor” was typically a landlord who was afforded a great deal of flexibility in dealing with matters of tenant evictions, buying and selling property, etc.
Today’s savvy real estate investor must view this business through a different lens. Laws are generally favorable to consumers, and we’re often one misstep away from a lawsuit in what is a very litigious society. Investors are expected to handle with care any business relationship in today’s complex real estate environment. Let’s take a look at the four areas where the “relationship” plays a crucial role for the real estate investor.
Sellers
For personal real estate investors, especially property flippers, sellers generally set the table for the rest of your business. Sellers of property are often uncertain about what the final outcome of the transaction may be, so it’s essential to hold these relationships in the highest regard. As such, investors should be prepared to guide, educate and clarify multiple questions and scenarios for the seller during the sales negotiation. We find it’s best to gain perspective by viewing the proposed transaction from the seller’s position. It’s wise to always keep the relationship personable but professional.
Buyers
So you finally have a property fully renovated and ready to sell? It’s no doubt an exciting time for you and your team. To keep emotions and risk in check, we prefer to define our sales strategy well in advance of placing the property on the market. Here are a couple of other suggestions to help keep your business and profits in line when dealing with the buyer relationship.
Using a licensed sales professional—As an investor, if you are not a licensed real estate agent, we strongly suggest you find and work with a good one. Unless you have many years of experience under your belt handling For Sale By Owner (FSBO) transactions, there’s simply no debate that a skilled agent will save time and put money in your pocket from the initial offer to contract closing. The back-and-forth negotiation process is often too time-consuming and complex for the newbie or do-it-yourself investor (seller) to navigate. Don’t make the mistake—simply hire a licensed agent.
For Sale By Owner—There are a few scenarios where using a licensed listing agent isn’t the best option. For the very experienced real estate investor, dealing directly with the buyer and saving the 2 percent to 4 percent sales commission can be an attractive alternative. We suggest placing a lockbox on the property and allowing the potential buyer or buyer’s agent to view the property themselves as long as you are comfortable with other parties visiting the property without your being present. Another option is group showings, which can be a real time-saver if you choose to show the property yourself. Group showings of properties for sale—just as with rentals—create a friendly atmosphere of competition, which often may increase both interest and offer pricing. The greatest challenge for investors who wish to market and sell their own property is the closing process. It’s imperative to remain in control of the deal flow and buyer-seller relationship. Also, pay careful attention to your contract documents and their requirements.
Tenants
If you are a rental property investor, it’s no great revelation that working with tenants sometimes can be one of the more frustrating relationships of the real estate business. As a self-manager, investors should realize when your schedule doesn’t always align with theirs—and the owner-investor should set the parameters of the relationship. For example, the first sight of minor pests during the early spring months doesn’t qualify as an “emergency,” now does it?
How an investor responds to tenant issues will set the tone for the duration of the tenancy. Be sure to address problems as they arise, but don’t bend to a tenant’s every request. Our philosophy is to consistently remain “fair but firm.” As you begin to take this approach to tenant relationships, you will realize a difference in both your work-life balance and the tenants’ perception of your role as the property owner and manager.
Contractors
At some point in your real estate investing career, you will be faced with the decision of hiring a contractor. Whether it’s flipping that first house or resolving a property maintenance request, the contractor relationship will impact your bottom line. Hiring the wrong contractors can make this business of real estate practically unbearable. While the full scale of the owner-contractor relationship is beyond the scope of this column, here are some quick tips to help ensure your next contractor relationship is a success:
• Ask fellow investors for recommendations but perform your own research (such as AngiesList.com, Porch.com, Houzz.com, etc.)
• Get at least three estimates and request itemized pricing
• Remember, the lowest price isn’t always the best price
• Request to see the contractor’s license prior to beginning work
• Require a Certificate of Insurance (COI)—commercial general liability insurance and worker’s compensation, at a minimum
• Avoid payment in advance (under most circumstances)
• Avoid payment by the hour (get a fixed price for the job)
• Get it in writing—define the price, scope of work, work schedule, change order process, payment schedule and plan for debris removal, at a minimum
• Include a financial penalty for missing the project deadline
When two parties engage in a formal business relationship, the potential for risk is significant. Real estate investors can avoid such misfortune by defining the terms of the transaction and the relationship, in advance, to ensure mutual success.
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