Entrepreneurs will tell you that they learn more from their mistakes than their successes. My definition of an entrepreneur is a person who has earned enough money to pay for his own mistakes (I fall in that category). We have found it incredibly helpful to reflect upon our mistakes so that we can learn from them and not repeat them. In the previous Article, we discussed bed bugs and septic systems.
Let me recap our thirteen biggest mistakes:
We would like to tackle the next two mistakes on our journey to 674 units.
Incompetent Team Member:
An incompetent team member can be a huge drag on your business, not to mention detrimental. When hiring a potential team member, start by asking your current team and those in your sphere of influence for referrals. When it comes to those who aren’t doing their job the right way, give them time to get it right, but if it doesn’t happen within an adequate time frame, don’t hesitate to replace them as quickly as possible.
We have employed several incompetent team members, including accountants, lawyers and maintenance technicians. Our first accountant was referred to us by a team member, but she clearly had very little experience in dealing with real estate. We quickly replaced her before the problems began to accumulate. It was our mistake not to interview her more thoroughly and ask for more references. Be sure that the team member has adequate experience in the job that they are being hired for.
This will be a recurring mistake in your business if you don’t address it immediately or if you don’t demand quality work from your employees. From the first moment of contact with a potential employee, we discuss and focus on our company’s mission statement, and expect them to uphold and work towards its attainment. If an employee finds it difficult to adhere to our mission statement, then we find it easier to part ways.
Signing an Exclusive Buyer’s Agency Agreement
When we first began our search for multi-family properties in Knoxville, we ran into a broker who wanted us to sign an exclusive agreement. The terms stipulated that he would represent us in all transactions in Knoxville for a specified period of time. We declined because we felt that it would limit our ability to work freely with other brokers in the market.
One week passed, and this particular broker pitched us on a “hot” deal, one that we’d already come across just a couple of days before. We told him the deal wasn’t so hot and that another broker had already presented it to us (who never asked us to sign any agreement with him). He proceeded to lecture us and say, “That’s not how you do business down here. You’ll never make it in this town!” We were both a bit intimidated and unsure of how to proceed.
A couple of months passed, and we found a deal listed on Loop net with a local broker in town. We ended up diving in, and as luck would have it, we formed a terrific relationship with the broker (without an exclusive agreement). We closed on the deal sixty days later, and we purchased our next three deals with him. There was never a mention of an exclusive agreement.
Keep in mind that if you sign an agreement, it will limit your ability to work with other brokers, so think twice before making that move. The only time we would consider signing an agreement is if the broker has access to a large number of listings as soon as they come to market.
When purchasing residential property, it is sometimes customary to sign a contract with a “buyer’s agent” whose sole purpose is to scour the listings for your dream home. Don’t confuse buying a single-family home with an apartment complex.
Call the listing broker directly when trying to acquire a deal. They’ll keep the entire commission, which will give the broker some flexibility when you negotiate the price. Just remember that the listing broker is working for the seller, not you. Be mindful not to divulge any details about your strategy to purchase the property.
Write out a mission statement for your company and convey the message to all team members. Use Indeed as a platform to begin hiring new employees. Ask current team members for any recommendations when hiring a new employee. If an employee does not fit your company’s mission statement, do not procrastinate and part ways quickly.
Do not sign any exclusive agreement with a commercial broker. It will hamper your efforts in locating new deals. If a broker expects you to sign an agreement, tell him “No Thanks”. You do not want to be controlled by one broker. Establish as many relationships with multifamily brokers in the market, and call them whenever they post a new listing.