Here it is, mid-March of 2016, and right around the corner is next month’s NFL draft. You have owners, coaches and managers working diligently and strategically to pick their team members for the upcoming fall football season.
The level of intensity and effort and diligence that they use is no different than what you, as a part-time real estate investor, should be putting forth in selecting your own “dream team.” Keep in mind that just because you are a part-time real estate investor, or you’re a one-person show, or you have no direct employees, that in no way means that you do not have a team.
You have a variety of different resources and individuals all around you to help make your real estate investing business a success. These may be contractors, Realtors, property managers, lenders, appraisers, surveyors and insurance providers. Whether you recognize it or not, these individuals are your team. They don’t have to be your direct employees, but nonetheless, you choose them as the dream team to support your business, in the same way an owner assembles a dream team to be his or her NFL football team.
Let’s focus in particular on one of those team members: your title company. This resonates with me as I continue in my business as a full-time real estate investor here in Dallas and a HomeVestors franchisee. I find myself reflecting almost daily on the role that my title company plays. I also reflect almost daily on the amount of work, effort and diligence that I put forth in choosing this title company.
I have been with good companies—and bad companies. At the end of the day, they are such a critical component of my team, as I am sure they are for the part-time real estate investor. I will also admit, when I started out as a part-time investor, I thought all title companies were the same. I thought they probably all do the same thing, offer the same service and charge similar fees. I also assumed there would be little variation in quality among them since the work they perform is so similar. Boy, was I wrong.
What makes a good team member for you?
Here are some key characteristics that make a title company a good team member and business partner for you as a part-time real estate investor, based on my own experiences.
First and foremost, you have to recognize the complexity of these transactions. As real estate investors we are buying distressed properties, and nine times out of 10, the corresponding title transactions are pretty complex. As I have said in the past, a distressed property typically equals a distressed situation, which is probably going to result in a distressed title transaction.
Here is what I mean: Perhaps you are buying a property, deeply discounted, directly from an individual who inherited it. That means that heir probably doesn’t own it. Perhaps there wasn’t even a will that conveyed the property to that person, but he or she is responsible for selling it. It’s that person’s relative’s house, and the title is still in the deceased relative’s name. Well, there is a unique complexity in that transaction and in your ability to purchase that property. You are going to need to count on a title company to get you through that.
There are reasons for the distress
And as with any distressed property, there likely also will be title issues in some way, shape or form. There could be problems with property descriptions, survey issues or clouds on the title. This is really innate in the type of properties we buy: distressed properties. There are reasons for the distress, and I have found so often in my experience that a lot of them are rooted in title issues.
You are also going to find that some of the properties you want to purchase have liens, loans or judgments on them. A lot of times, the seller is not even aware those exist. You are going to lean heavily on your title company to navigate those liens, loans and judgments—to get them released so that you can get a nice, clean title and purchase that property. Some of the good title companies with which I have dealt even negotiated those liens, loans and judgments and got them eliminated for the seller. That really made me look good in the face of that seller because I was providing a true value by getting those liens, loans or judgments reduced or even eliminated.
Keep in mind that not all title companies want to do investor transactions—precisely because of some of these complexities that I just mentioned. Sometimes the transaction is just too difficult. Or it’s too time-consuming. Perhaps it does not fit the business model of that particular title company. So keep in mind that these are unique transactions, and there are unique title companies that are willing, able and perhaps even passionate in doing these type of transactions.
It’s crucial that your title company be investor-friendly
Secondly, it is critical for you to find a title company that is investor-friendly. Not every title company is. Title companies make a lot of money doing traditional retail real estate transactions, much like the house you probably bought for yourself and your family.
That is a different type of transaction. In most cases, it’s a cleaner transaction, compared to the distressed real estate that we buy and sell as real estate investors. Not every title company wants to deal in those distressed real estate transactions. An investor-friendly title company will be comfortable with those complex, often-difficult transactions and willing to move fast.
One of the key characteristics of any investor’s business model is that we are able to close quickly. Many times, we can close in less than 10 business days. Well, it takes a certain title company to be able to do that. Not every title company is willing to or able to.
You have to find a title company that is willing to do creative things. I stress “creative,” and that does not mean illegal. For example, I’m talking about real estate assignments, double escrows or double closes. Investor-friendly title companies are able and willing to do those type things creatively, legally and efficiently to keep you and your seller out of trouble in the long run. Investor-friendly title companies are also nimble. They can quickly change direction and react to whatever issue they find when they open title and see an issue that needs to be resolved in order to complete that transaction.
Investor-friendly title companies understand the big picture
These investor-friendly title companies—and this is probably the key point—understand the big picture. They understand that a real estate investor is going to bring them a lot of transactions. So they are willing to do the tough transactions, because that may only be one out of every three. A real estate investor may bring them three, six, nine, 10 transactions a month. So if two or three are a little rough, it’s worth it because there will be another six, seven or eight transactions that month from that investor that are real quick, real easy and real clean. That is the type of title company you want.
Finally, you have to find a title company that treats your sellers like you treat them—with dignity and professionalism. A lot of times, that title company becomes the face of that transaction to your seller. Sure, you are face to face with your seller while you are negotiating the deal and the contract, but then you hand the transaction off to a title company that takes it the rest of the way. Representatives of that company will interact personally and frequently with your seller in order to get the necessary documents and ultimately resolve the title issues so the sale can close.
So that company becomes the “face” of you and the transaction. That company has to communicate professionally with your sellers. It has to treat your sellers with empathy. The title company has to recognize—as you do—that quite often this may be the only house that seller ever sells in his or her lifetime. Or it may be one of only two or three houses that person will sell in his or her life. And to those types of sellers, these transactions are very complex and intimidating. You cannot afford to have a title company that doesn’t recognize that, and does not treat your seller accordingly.
Is your title company patient, empathetic and understanding?
Your seller will have a lot of questions and need a lot of explanation, so you need a title company that is willing to communicate—and educate—with patience, empathy and understanding.
A lot a people are intimidated by these real estate transactions because they are very complex, they involve a lot of money, and they probably involve the single, largest purchase or asset of that seller. That seller needs to be confident that this transaction will be done correctly, professionally and legally. If your title company somehow causes your seller to lose confidence in you, or in the transaction, then that could be devastating to your deal and prevent it from getting closed. Your title company has got to create confidence in your seller that allows him or her to sleep at night knowing that this transaction is going to go through successfully, professionally and correctly.
So you can see how a title company can really make or break your deal. In my personal experience, title companies have made deals for me that I never thought would close. And on the other side, I have had title companies that broke deals for me, and we ended up not closing. So chose your title company carefully.
Here are some general rules
It’s OK to follow the crowd when it comes to picking your title company. What I mean is, go where other investors are going. If you do transactions, or you go to real estate investment clubs, and you hear, see or talk to a certain title company, and that company seems to be everywhere and working with everyone, then there is a good chance that company meets the criteria that we have discussed here. If two out of three of your investor colleagues are using a particular title company, then that’s a pretty good indication that the company is tried and proven, and you may want to go that direction.
Also keep in mind that bigger is not necessarily better. I like the small title companies where I get direct access to the attorney on staff. At my title company, my attorney is the person who actually closes my properties.
In conclusion, it’s kind of like the NFL draft we mentioned earlier. If you, as the owner of your business, are the quarterback on your investing team, your title company could be your running back or your receiver. You hand off and throw your deals to that company, and you count on it every day to finish that play. You need to be sure that title company can and will help you win at your investing.
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