The Importance of Responsiveness in real estate investing

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In any business, there are certain characteristics that stand out with successful people. One of the most important ones in my experience, that is often not mentioned, is responsiveness. This is applicable whether it is you as the investor, or someone on your real estate team, whether property manager, attorney, etc.
In this article, I will talk about:

  • What is Responsiveness
  • Why is it critical that you are responsive
  • Why is responsiveness important for your real estate team?

What is Responsiveness?

According to Webster’s Dictionary,
Responsiveness: 1. reacting in a desired or positive way 2. quick to react or respond

Both of these definitions can be applied in the sense of responding to peoples’ needs, be they tenants, agents, HOA, etc., whether positively or negatively, in a timely manner, and following through if something is promised.

Why is it critical that you are responsive?

The simplest possible answer to this is that real estate investing is a business, and you don’t work in a vacuum. There are other people involved, whether they be your tenants, a real estate agent working for you, a mortgage company, etc., and their ability to be successful in business depends on you and others fulfilling obligations that you make to them.
Responsiveness is really like completing an implied contract. Sometimes this is actually formalized in a agreement, as when you have a mortgage that you agree to pay on a certain date every month. If you do not follow through, there are defined penalties.
Other times, the call for responsiveness is in a more tenuous agreement, like when you tell someone you will do something for them. There is a tacit agreement that you will provide something that they are asking for as it relates to your business. Of course, this could be in your personal life as well, but that probably goes without saying. Some places where this comes into play are with a realtor who may be helping you find or sell real estate, a tenant who calls with a problem, or with an attorney who is helping you with legal documents.
Each of these situations requires you to be responsive because they all need your input in order to do some portion of their jobs, or to maintain their living space. One way to look at this is to think of everyone who needs something from you, as a client, whether an actual client/tenant or not. If you do not provide them information they need, you may miss out on a real estate deal, or miss a legal deadline, or have a tenant leave because they do not feel you are maintaining their unit properly for it to be habitable.
Not being responsive not only can cost you money and/or missed opportunities, but it also reflects on you personally. If people sense that you are not getting back to them in a timely manner, they may choose to not work as closely with you, meaning you may miss deadlines or lose out on an opportunity. There may also be an impact on your reputation, and cause other people to not want to work with you.

Why is responsiveness important for your real estate team?

Many of the same reasons mentioned above will apply to the team of people that you put together to help manage your real estate investment. I would argue that responsiveness on the part of your team is even more critical because they are working with people on both sides of the business. They need to work with you to keep you informed of any changes, needs, issues, etc., and they need to work with clients and other contractors to ensure compliance with contracts, projects, requirements, etc.
One specific area where responsiveness is critical is on the part of a property manager. If you have real estate in a location that is not close to you, and it is being managed, then close communication becomes critical. Since you are not there, you cannot visit the property to check in regularly. The property manager is your sole point of contact, as well as that of any tenants.
If there is a problem at your property, you need to be able to count on the property manager to let you know as soon as possible. This falls under the desired reaction definition, where they know that in an emergency, they need to tell you not just what is wrong, but how they are initially handling the situation, and finally, a long-term solution. If this communication does not happen, then a problem might persist, and/or get worse and propagate into additional problems.
As well, if you issue an order to your property manager, they need to respond either within a reasonable amount of time, or provide an immediate response in which they state a time-frame for action. This is important because some items are time-sensitive and you need to be confident that your directives are carried out.
You can find different examples of critical responsiveness concerning each of your real estate team members.
Finally, the degree to which your team is responsive reflects on you as a business owner. There is actually a twofold reflection on you since the focus is not directly on your interactions, but on those of people you have hired. The first impression for people is that responsiveness is a barometer of how much you and thus your team value other people’s time. The second is more second order, in that if people find your team to not be responsiveness, they may see this as a failing of the team members, but also of you in your ability to train your team, recognize critical business skills, and finally your judgment in hiring the right team members.

A responsive recap

The first thing to keep in mind is that real estate investing is a business. All businesses succeed to a degree by how they manage interactions with other people. One aspect of this interaction is responsiveness, the ability to respond in a desired and/or positive way, or being quick to react or respond to a given situation.
The need for responsiveness applies whether you are completing a task for a client, providing direction or information to someone on your real estate team, or interacting with a contractor.
If you are not responsive to a client, most likely a tenant in the real estate case, then they may very well think you do not consider them to be important. At that point, they may simply stop attempting to work with you, which may mean that problems occur at your property that go unreported, or they may simply move out, either immediately or at the end of their lease. This could mean the loss of a desirable tenant and thus steady income.
If you do not pay attention to requests or issues with neighbors, you open yourself up to potential legal action, property disputes and potential damage to your property.
Your team needs you to be responsive because in many ways, you have the final say on their tasks. If you don’t give approval, everything slows down, deadlines may be missed, and small problems may turn into large ones.
Conversely, you need to have a real estate team that is responsive as well. If they ignore tenant requests or problems, those may turn into more serious issues, or the tenants may simply leave. If they do not respond to you in a timely manner, you may lose track of where a project or property stands, and miss a deadline, or let a project get off track. This can cost you time, money and hassle. Finally, if your team is not responsive with each other, or other contractors, you will likely encounter delays and inevitably pay more for projects or services. More seriously though, in this case, is that your reputation may be damaged and you may lose the opportunity to work with the best people for a particular service or in a real estate partnership.
It is important to remember that just as it is a business for you, it is also business or a material need for your team and your tenants. When you have made a commitment to someone, it doesn’t matter if you are doing this as a part-time gig, or a full-time business, they have an expectation that you will follow through.
If you make the effort to be responsive in all facets of your business, and surround yourself with a team who share that goal, you will likely find yourself with more people wanting to work with you, and better relationships with tenants and neighbors. Taken together, that adds up to a successful real estate business.

Building a Real Estate Investing Team

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If you are going to invest in real estate, you are soon going to learn that you cannot do it alone. There are simply too many moving parts to deal with, and too many specialized things to learn. This is not to say that you shouldn’t learn as much as you can about some or all of the moving parts, but don’t expect to become an expert in them.
In the following paragraphs, I’m going to discuss the above in more detail. Specifically, I will hit upon these two main topics:

  • Why do you need a real estate team?
  • Who should you include on your real estate team?

Why do you need a real estate team?

This may by turns have the most and least obvious answers. The obvious answer that may come to some peoples’ mind is that, “I don’t need a team!!”. When you are starting any sort of a business by yourself, or even with one or two other people, it is generally a tight operation, with people performing multiple jobs, and generally needing to be involved everywhere. On the surface, it seems that this would work equally well in a real estate investing business. Give it a little time of trying to be a jack of all trades, and you may very well run smack up against the first reason for building a team:

Laws and Liability

Real estate, both on the purchasing and the management sides, is rife with rules and regulations that have to be followed. At some point, you are likely to have work performed on a property. If that work goes well, perfect, if not, the question of liability may arise. Who is responsible for whatever went wrong?
In the first case, a real estate attorney and/or a realtor, are going to have a far easier time keeping up with the laws related to buying, selling and managing a property, than you will. This is partly because they have more time to learn the information, but also because there are similarities with other parts of the legal world that cross over, whereas you would have to learn everything. The liability question is simple. If you signed a contract with some for them to provide a service, and there was a problem, it becomes their responsibility and thus, their cost, to rectify the situation. It is a question of time and money.
The next topic is closely related to the issue of time.

Efficiency

I think there is a tendency when starting any business to feel like you have to do it all. As you get busier, part of reclaiming your time is by starting to batch similar tasks together. There are efficiencies inherent in this batching process. This ties into building a real estate team because each of your team members is going to be a specialist, thus what the do are similar tasks all the time. This is far more efficient than you trying to learn a lot of different topics that you may only need to engage in infrequently with your business. This is not to say you should completely forego learning about these topics, but you should focus your knowledge on overseeing work that the specialists are doing. The best examples of this concept are with lawyers and real estate agents. Much of the interactions these professionals have with real estate is through buying or selling transactions which are very standardized. This means they likely have procedures in place to handle these operations quickly and more efficiently than you could on your own.

Organization

The last real driver for building a team to help you is simple organization. When you first start out, with only one or two properties, keeping track of everything that is going on may seem simple. As you add more properties, tenants, and volume, it will become more difficult to keep track of everything.
The larger your business becomes, the more important it will become for you to focus on managing the business, as opposed to managing the day to day specialized tasks. Knowing who to go to for any particular task, and ensuring that others know this as well, means that you do not become a funnel that everything has to pass through to get completed. While it is true that you are responsible for everything that happens in your business, trusting your organization to do their part is integral to your success.
As well, the longer you are involved in this business, the more likely it is that a question will arise that you don’t have an answer too. At that point, your team will become an invaluable resource.

Who should be on your real estate team?

  1. Realtor – Obviously you are going to need someone to help you find investment properties. This is going to need to be someone who lives and works in your area of interest. They need to have many years of experience with a focus on finding properties for investors. There are many differences between what a homeowner will be looking for in a house, and what an investor will look for in a property that they intend to rent out. Having a realtor who understands this up-front is going to save you a lot of time, as they won’t be sending you out to properties that are not good matches for you.
  2. Tax Adviser – I do my taxes by myself. That being said, there have been times when I’ve had questions about various items. It is good to have someone to turn to in the event there is a question you can’t find an answer to online, or you simply need an interpretation of a law by a professional who has likely come across it before. There are likely going to be times when transactions are going to make your tax situation more complicated than the year-in, year-out, income/expense calculations. Buying and selling property brings in capital gains, and accumulated losses, etc., that can be a real bear to figure out. Some years, it just might make sense to take your data somewhere and let someone else do the legwork. Lastly, if your intention is to increase the number of units that you own, and build a larger portfolio, it is going to become more complicated as you go along. For efficiency sake, it may make sense to let a professional handle this aspect of your business because they can do it quicker, and within a set time-frame. It is their job and is scheduled, as opposed to you having to take an increasing amount of time every year. Ideally, this will be a relationship where you can learn strategies for minimizing your taxes that may help you plan your activities for subsequent years.
  3. Attorney – Inevitably, you are going to run across a situation where you need a legal opinion. This could be simply having someone go over the purchase agreement, or sales agreement for you, to reviewing a lease, handling an eviction, or even walking through a foreclosure/short-sale situation. There are a number of services online like Legalzoom, that have many forms and documents you can use, and are appropriate in many cases. Sometimes, however, what needs to be done is a well-phrase letter on the letterhead of a law office needs to be sent to someone to force action on their part.
  4. Property Manager – I will write a more in-depth post about what to look for in a property manager later. The fact is though, that if you are going to purchase rental property that is not close to where you live. A good property manager will handle finding tenants, maintenance of the property, etc. Some items that are variable between property managers are their willingness to pay bills, and utilities. This may be an option for an additional cost. As your unit count increases, it will become more vital to have a property manager you can depend on, as they will be able to ensure that you have good tenants, and that the vacancy rate is kept as low as possible. Quick things to look for are responsiveness, good accounting practices, both for individual properties and as a whole, list of reputable businesses they use for different tasks. Average compensation is about 10% of income, inclusive of rents, late fees, etc.
  5. Contractor/Electrician/Handyman – At some point, you are going to need to have work done on your property. Your choices for this are to do it yourself, find a general handyman, or to find a general contractor. In this case, you get what you pay for, and in fact, what you get may cost you. Due to liability issues, I would recommend only doing basic work, such as painting, drywall, etc. by yourself. Anything beyond that, especially where it includes plumbing or electrical, should only be done by someone licensed and bonded. If you don’t do this, you put your investment and your personal finances at risk, if there is a problem. Find a contractor who comes with a good recommendation, get a list of properties they have worked on and visit them to see their work, etc. Do your homework. A good contractor can save you a lot of money, a bad one can cost you, big time. I list other professions because sometimes, you have one project that you need to have done. If it is specific, like installing a light, or an outlet, no sense paying double for the contractor and electrician. Similarly, for smaller jobs, like painting a whole house or other projects, a handyman can be useful. Take into account the time factor of doing it yourself, vs. paying someone who may be able to get it done faster due to experience. The money you save doing it yourself is spent by the time and possibly extra time it takes you to do it right. They key in all of these situations is to find someone reputable, who is licensed, bonded and insured. This gives you recourse if a job goes wrong.
  6. Real Estate Investing Mentor – You are not going to know everything on your own. Find someone who has been doing this for years, make friends with them, take them to lunch, pay for lunch, and pick their brains. They will have knowledge about tips for finding properties, maintaining them, finding good tenants, contractors, THE LAW, etc. Understand and respect that their time is valuable. Don’t just expect to ask them questions all the time and receive an answer immediately. They are busy, and if successful, will have a lot going on.
  7. Someone with a truck: I say this jokingly, but sometimes, if you are working on a property close to you, having someone with a truck can be a godsend when it comes to moving something, or bringing in supplies. Make it a win/win for them. Don’t expect someone to always help out of the goodness of your heart. This is a business after all. Offer to pay for gas, and/or their time if need be. If they decline, so be it, but always make the offer, it shows that you value their time and assistance.

I am sure there are other people you should have on your team. Hopefully these give you some insight into people you should probably find and try to work with, and learn from. If there are others, ideas are most welcome.