dpW&l One of the biggest decisions you first must make is whether to invest in real estate at all.
Secondly, you have to select the kind of property in which you plan to invest. How you plan to manage your property is an important issue in making this decision. The two basic choices are managing a building yourself or hiring a manager. This decision usually is based on the investor's competence and experience with the kind of building, the building's location, the amount of time you have available for management duties, and whether the investment produces enough income to make hiring a manager possible.
I've been told that when recommending another professional's services, a real estate agent always needs to recommend three people. If you recommend only one or two and they turn out to be bad news, the person to whom you made the recommendation can hold you liable in court for the other professional's incompetent actions or advice. (In an era in which people successfully sue for damages because they spilled hot coffee on themselves, I suggest you don't even think about this possibility too much, because it will give you a of three headache.) I can't guarantee that you'll escape a lawsuit even when you recommend three people and they all turn out to be bad. So if you do recommend an attorney or accountant or other professional or tradesperson, always recommend three. And I must add, make sure these people you recommend are professionals you'd rely on yourself. Remember, every time you recommend someone else's services to your real estate client or customer, you're putting your reputation on the line.
Many investors start by investing in small residential properties (such as one- or two-family houses) close to home. They're usually familiar with residential properties, and the close proximity enables them to keep an eye on the property. Many small investors who own one-and two-family houses think they can manage them themselves. Moreover, these kinds of investments don't provide enough income (at least initially) to warrant paying for outside management services.
On the other hand, someone who never has owned an office building before and has no familiarity with the needs of people who rent office space probably will hire a professional manager. Because an office building is used primarily during the day, providing on-site management or at least service people during business hours may be necessary. An office building is also more likely to generate enough income to support a property manager's salary.
A real estate agent may be asked to advise a client as to whether a property manager should be hired and may be asked to recommend a property management company. As with any recommendation, the agent should try to understand his client's need as well as possible, make recommendations with the understanding that any decisions lie with the client, and always recommend at least three reputable companies to do business with. You can find out more about making company recommendations in the sidebar "The rule of three," earlier in this chapter.
For more about property management and the duties of a property manager, see Chapter 3.
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