This list is certainly not exhaustive, but it’s a good start for investors wanting to make more profits and reduce liability risks. In no particular order, below are five things you should do in December 2014, in order to make 2015 your best investor year ever.
#1 Review Your Business Plan
Don’t have a business plan?
Draft one as soon as possible. Not having a plan is, as the expression goes, planning to fail (“failing to plan is planning to fair”). A business plan is essential to business success. Even a simple plan, more like an executive summary, gives you clarity of purpose and mission. You can avoid mistakes and identify opportunities by drafting and periodically reviewing your plan. As education without implementation is just entertainment, a business plan without implementation is just a dream.
For real estate investors, a critical component of a business plan is a Schedule of Real Estate, preferably in a spreadsheet format. The schedule lists these basic data in columns, with each row representing each property you own or purchased/sold:
- General description, such as 3-2, double, 10-unit, etc.
- Purchase price
- Sales price, if sold in 2014
- Monthly rent
- Monthly costs, including insurance and taxes
- Monthly NOI
This gives you a great tool to look at your properties any time and quickly identify issues, evaluate each property and determine how your portfolio is performing. This tool can be used by both landlords and “flippers,” with some simple modifications.
#2 Go see your Lawyer, CPA & Insurance Agent
“An ounce of prevention = a pound of cure.”
Spending the time and fees to consult with your professional advisors is a critical way to ensure that your business is operating properly. It not only minimizes risks, but takes full advantage of opportunities and cost savings. A $250 bill from a lawyer might save you $1,000s, by identifying just one mistake you are making. It is frequent that the lawyers at GRIFFITH LAW GROUP consult with a client and within 15 – 20 minutes we have discovered that the client is violating a statute, using the wrong legal form or deal structure, or is otherwise taking on risks unnecessarily. This is a common experience of professional advisors, including CPAs and insurance agents. The big mistake is in being “penny-wise and pound-foolish” by refusing or failing to see professional advisors on a regular basis as a way to avoid costly errors. Our smartest, most successful clients use us frequently in 30, 10 or as short as 5-minute chunks of time to get simple questions answered in order to avoid big problems later.
#3 Fix Your Contracts
Using a bad contract form is often as bad as using the wrong contract form. Or, as we often see, an investor tries to be his/her own lawyer and tries to modify a contract form. The result is often a bad contract full of ambiguities and errors that will be applied against the investor in court. Another common problem is that an investor will improperly execute the contract form, making themselves personally liable for the business affairs of their limited liability entity (a corporation or LLC).
The better course is to use professionally-drafted contracts from a lawyer knowledgeable about that particular area of law, and make sure you are selecting the right contract or deal structure. Again, a five-minute call to your lawyer could save you thousands of dollars.
Avoid forms on DVDs or websites that are not written by knowledgeable, experienced lawyers in your state. A contract from Michigan may not work in Indiana. And, with the exception of professional sites such as LegalZoom and Rocket Lawyer, avoid other forms sites. For more information about virtual law services, read more about the American Bar Association rules on the delivery of virtual law products and services on our Virtual Law Site: www.indianavirtuallaw.com
#4 Dump Your Dogs: Apply Pareto’s Principle
Assuming you created a Schedule of Real Estate, you should be able to identify your best and worst performing properties. Pareto’s Principle applied to real estate tells us that 80% of our problems and risks come from 20% of our properties or tenants. . . or contractors. And, 80% of our profits come from the top 20% of our properties, tenants or deals. So, dump your worst 20%, and replace it with properties, deals, tenants and contractors that look like your top 20%.
#5 Attend INreia Meetings
No matter what trade you are in, you have to follow the trends and developments in your industry. The same holds true for real estate investors. You should be reading and following speakers, writers and groups that have an altruistic approach to helping you. Look for groups and resources that stay current on the law, emphasize ethical conduct and help you grow and learn as a professional investor. Avoid groups that are designed to “sell from the podium.” Find a group that is investor-centric, educational, professional and real.
That’s INreia: the Indiana Real Estate Investors Association. Meetings are held once a month (2nd Tuesday). Learn more about INreia at www.myinreia.com.