Order of Operations

Hey, I’m new both here and regarding real estate. (1 week here, ~7 1/2 months studying REI) I would be what one of the forum mod’s here lovingly referred to as a 20-year old chasing a pipedream. (Not 20 quite yet, but that’s besides the point.) All hilarities aside, I was looking for some advice as to some orders of ops here, as I have heard various differing opinions on the road to REI riches. Cashflow is my primary objective, and thus duplexes up to larger apartment complexes will be my focus. I’m not really into the flipping or other capital gains investing quite nearly as much. I am, however, definitely interested in options, their modus operandus and taxing/liability protection strategies (if any for the latter). Liquidity is secondary.

I have a list of various checkpoints, if you will, to a stable, productive REI future, and would like input on their timing/scheduling and relative importance. Thanks for the help:D

  1. Create a “team” of advisors (CPA/attorney/broker/agent/etc)
  2. Education, books vs real world. (At what point should I get my feet wet? What should I be learning and in what order? Specifics?)
  3. LLCs (When, why, how many, and where to incorporate. I live by the border.)
  4. Pre-approved mortages (700-750 credit scores, 5600 school loans, classic student employment)
  5. Mentorship (If at all possible. I’m assuming this would be highly valuable, but doable is another problem>.< Also, types/focus/day to day jobs/etc)
  6. Joining a local REIA (~$100+ worth it? Not exactly rich… Yes I have more than 100 to scrape together without busting my bank, but I’m trying to start very disciplined in my expenses)
  7. Anything I’m missing.

Thanks in advance!

(Also, I was wondering on what questions I should be asking that I’m not.)

Edit - Clarification

On a semi-related note, would it be more wise to go the flipping route instead? I have read somewhere that continued flipping jeopardizes the IRC 1031 exchange for future purchases, which was the initial justification for cashflow throughout. Is it more wise to start with options, move to flipping, then to duplexes->multiplexes? I’m trying to figure out my plan so I can start to tailor my education and searching a great deal more. I have access to the MLS through a contact. Are agents still a priority? Just a few extra ?s to add to the mix.


Here is what I would choose as the order of ops:

  1. Education - it is ABSOLUTELY imperative that you learn the basics of the business before you buy anything. The vast majority of newbies fail in a short period of time because 1) they have a negative cash flow, and 2) they don’t know how to properly deal with tenants. Learning the “real world” basics of the business will greatly improve your chances of success.

  2. Join your local REIA. Make friends with the successful investors in your area. Your new friends will be happy to help you (mentor you) for free.

  3. Learn your market. Start out by looking at 100 or more houses that are for sale in your target investment area. Look at them inside and out.

  4. Then, get pre-approved for a loan, build your “team”, etc.

Good Luck,



How necessary is it to build a team, and what parts are very important, and what parts are negligible? Positions(CPA, tax attorney, property manager, broker, lender, agent, any I may have missed)

For example, John T Reed argues very vehemently against the usage of property managers (no disrespect at you!), and mentions that most rei’s shudder at the “one time they used one”. Meanwhile, I have read numerous posts of users here that have some success with them. Is his information outdated and current PM’s stepping up? Or is there something I’m missing here?

(For the record, yes I have read Kiyosaki’s books. They motivated me, but were full of fluff and inaccurate data that I have cross-referenced. I’m not sure if he’s brain-dead, schizophrenic, or some combination of the two. Thus they form no basis whatsoever on my view of PMs.)

I think the first thing you should do is define your goal, then develop a plan to accomplish your goal. Once you have a plan, then some of the big picture starts to fall into place.

If your plan does not include rental property ownership, then you don’t need a property manager. If you are only buying and selling, do you really need an attorney on your “team”? Are you in a title company state? Any title company can handle the settlement stuff. Do you plan to buy FSBOs and sell youself? Then why do you need a real estate agent on your team?

You see where I am going with this. Bring the professionals in as you need them, you don’t need everyone from the start and certainly not all the time.

Set your goal and develop your investment plan. The rest will become obvious as you begin to implement your plan.

While John T. Reed argues against using property managers, I think a lot of John T. Reed’s “rants” are used to prop up the sale of his own materials (you don’t need a property manager if you have my book,or, the lease/option gurus are bogus – my book tells you how to do it legally).

Propertymanager likes to manage his own properties personally. He contains his overhead costs and keeps a tighter rein on quality control when he supervises his own contractors. Nothing wrong with that and he seems to enjoy it.

I personally don’t like the day to day business of rental property management. I don’t know the intricacies of the landlord-tenant law. I don’t know how to handle evictions. I don’t always have the time to schedule property showings and to interview rental applicants when it is convenient for them. I like my privacy and time at home and don’t want to be disturbed with a stopped up toilet call in the middle of the night.

I hire professional property managers to do all that for me. A professional property manager takes care of all the day to day operations stuff and stays current on the law so I don’t have to.

For me, professional property managers allow me the freedom to invest in areas outside my back yard. At one time, my wife and I owned out of state investment property in five different states. No way we would have been able to manage all those ourselves.

Yes, you will run into some duds but you will also find quite a few professionals, too. Most states have a licensing requirement for property managers, usually a real estate broker license. My home state of SC has a separate property manager license requirement. There is a National Association of Residential Property Managers. I consider it an excellent qualification if a property manager also belongs to the association.

I have been fortunate in my 26 years of landlording to have fired only two property managers. I am currently working with six different professional property managers in three different states. In order to geographically diversify my rental property portfolio, professional property management is mandatory, not optional.

I also would not get too overwrought with the LLC either. There are a lot of successful real estate investors who don’t have an LLC. If you are just starting out, how do you know you will “take” to this business. If you don’t, why go to the expense and effort of establishing a business entity in the first place. I say get into the business first, find your niche and establish yourself. Then consider how an LLC will support your estate planning and business continuity after your business is well established. About six years ago, I asked an attorney and financial planner whether I needed an LLC for “asset protection”. Their response was “probably not” since I have a passive income activity, use professional property managers for all my rental properties, keep my properties in good condition, and have adequate liability insurance for each property. Their feeling was that in the unlikely event I should ever get sued any judgement awarded will be within the policy limits of my insurance. Their suggestion was to consider using LLCs when my net worth exceeded $2 million, when I have significant assets to protect. Today, my attorney is saying that I don’t really need the LLC just because my net worth is over $2 million. He is advising me to just get an umbrella liability insurance policy for $5 million and to increase the policy limit when my net worth goes over $5 million.

“7 1/2 months studying REI”

What have you done so far besides “studying”?

While reading your post, I can sense that you spend way too much time “thinking things through” and not enough time taking action.

When you first start off in creative real estate investing, your initial strategy while almost never be the same as the strategy you have 1 or 2 or even 10 years later. It is important to spend some time developping a strategy but 7 1/2 months is way too much time.

Go out there and start getting things done. Too many newbie investors “think” themselves out of the business.

You are focusing too much time trying to get answers to things that don’t mean jack squat if you don’t know how to go out there and find deals.

You should be asking questions about finding good deals and less questions about order of operations. Order of operations don’t mean anything without a good deal.


I think the “team” concept is more guru nonsense than reality. Yes, you will need other people such as a tax preparer, lawyer, and maybe a realtor, but you don’t need them until you need them.

As Dave said, I manage all my own properties. By doing so, I not only have better control over my properties, but I also have double the spendable cash flow each month because I get paid for the management and maintenance.

I disagree with Dave about the LLC. I think they are imperative. Most insurance policies and balloon policies do not cover many of the hazards that are prevalent today, especially mold, lead paint, asbestos, etc. There are things that the scumbag contingency lawyers love to sue over. If you get sued over these issues, your entity may be your only layer of protection. Also, many balloon policies will only cover a few properties, not a significant rental portfolio.

Good Luck,


This is over rated in the beginning so I would have to agree with Mike… At the most your team should be a title compnay, termite company, roofing inspector, maybe home inspector, and posibly a real estate agent. I did leave out what could be the most important person and they are those around you who you count on for support… Make sure they are on your “Team” or your done before you begin…

Get your feet wet… My goodness… Although it could be dangerous you have to begin…

There is a guy out of California who would be a great person to talk to about this stuff Google Glenn Wilson, you’ll find him… He is the “Investors” accountant, a go to guy when it comes to this sort of stuff. And again I agree with Mike have your protection in place. Although dont worry too much until you have something worth losing.

I have said enough about this in other posts

Yes hire a mentor… Make sure youre hiring the guy and not the guys assistants… Also make sure he or she understands your world of investing… I hate rentals so I wouldnt be a canidate… Theyre out there just look.

They are a lot more expensive then that… They will suck you in to buy this and that and that other thing and before you know it youll have spent 10k… Rule: go to them without your wallet or credit cards…ALWAYS…

Yep but we all have…

And the fact that you don’t have a lot of money to begin with is all the more reason why you need to forget about cashflow and start worrying about cash NOW, and that means flipping.

Flip flip flip as many houses as it takes to build a comfortable war chest of cash.

Forget cashflow if you are broke. Cashflow doesn’t solve yesterday’s money problems. Cash now (capital gains) from quick flips does.

Dave T -
A lot of what you say makes a lot of sense. You seem to have some experience with PMs, and seem to be considered a reputable source around here, so can I get some screening tips for checking various potential PMs? I’m go ahead and research licensing reqs for PMs and assume NARPM should be a make or break point for my first few investments. Unfortunately, I cannot claim to have holdings in three different states, so I don’t seem to have the problem of needing PMs. Should I start with one just in case?

Regarding the LLCs, have you seen any difference in LLC laws for different states? Unfortunately, most of our laws are dependant on the location’s political slant, and you’re in a conservative stronghold of the country. The state I live in is liberal (MI), and the other is centrist/conservative (OH). How are you able to secure such strong insurance policies? Have you been sued against? What were the experiences like and what were the financial ramifications? Thanks for all your help.


I haven’t done that much besides studying. I have watched some of my father’s deals, and through him I have some access to the MLS. However, he lives in NYC and is an agent. Thus the experiences will not be all that similar.

I suppose that 7.5 months does sound like a lot of time studying, but at the time I started, I was pulling up to 100+ hours/week (75 avg) as a Supervisor/Head Fry Cook @ Friday’s, and I was an Resident Advisor @ my university immediately following that. I haven’t had as much time as I would like, so I would say a "lite 7.5 months, if that makes any sense.

I am somewhat of a perfectionist, which can be construed as either a fault or a good thing. (Loss for words, sorry) Either way, I don’t have as much discretionary cash to afford many mistakes, so I figure to eliminate some of my potential mistakes by a little more studying. Also, I have my parents in my ear telling me not to do anything until I graduate. But I want to be a self-made man. I will, however, strive to try and be more active!

I definitely agree that my strategies will need to be strongly fluid, but as you may have surmised, I haven’t spent 7.5 months only developing a strategy. I plan to study the IRC + the landlord/tenant laws before I take the full dive into duplexes->multiplexes. Should I instead start with options? It seems much more simple and less cash-intensive initially.

Thanks for the advice on what questions to ask! So… let’s start with just that. How do I find good deals? Tips? Thanks for all your help!


I have no doubt you are absolutely correct on the “guru mumbo jumbo”. I take what they say and think about it, and it makes sense to try to establish relationships with the same people once you find good people to work with. Perhaps it makes more sense to have them compete with each other and get the best deal each time? I always have felt that it’s a people world and saving .1% wasn’t worth making enemies-.-

So, I’m getting a tax prepper (thinking like a tax firm?), an attorney (what type?), and maybe a realtor is all I need. Anything I’m missing?

Yes, I’m very interested in how you manage your properties. Would you recommend that I go into property managing before I go into REI? Or should I simply study up on those things? Or is it pretty self-explanatory? What does that entail? What do I get from being my own PM that I wouldn’t get from contracting one besides savings?

Out of curiosity, what state do you live in with your stance for LLC? A liberal, centrist, or conservative one? So you recommend I form an LLC before I start? Should it be in the state I do business in or the one I live in? I’m on a border state. Home is liberal, business is centrist/conservative, with a new liberal gov/reps. (MI + OH)

Thanks for all your help!


Okay, so necessary is a title company, a roofing inspector, home inspector (only a maybe? ← what jobs are his that I can pretty much emulate if he’s not necessary?), and maybe an agent (I’m not looking to do a FSBO/sell switch, but should it be something I try to start out with? I’m assuming I would need to get a realtor’s license for this) As for supporters, I’m afraid I don’t have many of those. Everyone that I care about is against me trying to make my own way until I am done with school, have a family, have kids, establish an income that protects me from everything under the sun,. etc etc. I simply cannot put myself to potentially risking everything if I had mouths to feed besides my own. I’d rather fail now than if I had kids. Also, with the opportunities that will start coming, I’d like to get my feet wet before the perfect time comes, circa 2-3 years from now from what I can tell in my region.

Thanks for the tip on the Glenn Wilson guy! Unfortunately I’m having trouble distinguishing him from his similarly named peers:( I’m assuming starting with (in google) the search syntax as:

glen wilson -baseball -techno

is a good start. How much of a tie does he have to CA? Or MN/MD/Reagen/State Farm/etc?

Also, you mention “hiring” a mentor. I’ve always heard it working for a mentor for a little while. How would I go about “hiring” a mentor instead? Is it a bright idea?

Regarding REIA, I’m definitely coming without my wallet, but I’m seeing that a ~100USD fee is necessary to join. Is that the case or is that some disguised package they are trying to sell me?

Unforunately your last message was relatively vague and cryptic, so I won’t bother trying to get a hold of it, besides that I’m definitely still a noob:D

Thanks for your help as always.


My argument for cashflow was that since I can pretty much make my way through college without incurring too many more loans, I should try to build some cashflow so I get some experience as I work my way up. Is this unwise? Does it make more sense to start flipping more and focussing on capital gains immediately? I’m worried about the initial costs + heavy taxation. But obviously more cash is helpful, and less makes cashflow infinitely more cumbersome to try. Does flipping now jeopardize tomorrow’s 1031 exchanges? I’ve heard from a few random sources that it does, and that makes me somewhat leery. Also, I’m hearing that options is a better way to start with low income. What should be my route to eventual cashflow? I’m trying to build a roadmap, and getting some outside opinion from those who’ve been there first seemed like a bright idea:D

Thanks again for your help.

There’s lots of good info presented and I won’t reiterated it. Let me just add some information about LLCs. The jurisdiction is irrelevant. You are subject to the laws of the state where you do business regardless of where you organize. The protection of an LLC vests in the operating agreement, not state law. A properly drafted agreement will overcome any deficiencies in statute. From a liability standpoint, they don’t do anything unless you have wealth outside of the business. If all you have is a personal residence, your state’s homestead exemption may be enough to protect it from creditors. If you take an active role in the management of the business, you create a nexus to your personal assets through personal liability and need additional planning to cover those holes. That can get expensive very quickly. Focus more on building your business and do the planning when you actually need it. Most lawsuits settle for the insurance limits and an LLC won’t do any good if all your wealth is in it.

Forget cashflow if you are broke.

Start spending more time in the marketing forum and read Michael Quarle’s posts about marketing. That will get you started.

A beginner starting out without any cash should focus 100% of capital gains and short term flips to build cash. Cash is king in this business, it keeps you alive and it pays the bills.

Flipping comprises of different kinds of scenarios:

  1. Tie up a property you find undervalued and “flip” it to another investor. Investor pays you anywhere from 2-10K depending on how good the deal is.

  2. tie up a property using an “option” and sell the property for the homeowner and pocket the difference between your option price and sale price.

  3. Buy a property without using any of your money. Do a little bit of cosmetic work to it and then sell it retail to an end buyer.

Flipping is merely getting “in” and “out” as quickly as you can and putting that cash into your pocket.

Being a perfectionist is a good and bad thing depending on how you look at it. I am a “perfectionist” in certain respects as well, I have a very analytical mind sometimes that just doesn’t stop working until I find an answer to a challenge or situation. This often times eats up a lot of my time and energy but I don’t allow my analytical mind to disallow me from taking action. When I decide that I need to take action right now to get a certain task or objective done, I take action immediately, i don’t allow myself to “think it over” again and again and again.

Ah, Glenn R Wilson, thanks:D

3 Flip/1 Rent sounds like a good way to start. I’ll explore different ideas of that mold. I’ll post more when I sound slightly less of a moron. Heh.


Mhmm. I only know the definitions of flipping. I’ll start looking into that more. Should I be studying the rehab forum to glean more details? Thanks for the help.

As a shout out to propertymanager, as he seems to be the rentals guy here, is this also the course of action you recommend?


Your point is not lost. However, the casual reader needs to be aware that property flipping is an active income business. Property flipping profits are ordinary income (not capital gains) and may be subject to self-employment income taxes as well.

Before you start with anything, have you defined your goal – how will you define success? When you have a goal set, then you can develop a plan to achieve it. Embarking off on multiple investing strategies without a solid investment plan is like saying “Ready, Fire, Aim”.

Start at the beginning, set your goals, plan to achieve those goals, then implement your plan.

I tend to look for property management companies that only do property management. I don’t want the real estate agent that does property management on the side. I also don’t want the property management company that is a new startup, or a one-person shop. A viable property management company will have at least 100 properties under management.

If you are interviewing PMs, some questions you may want to ask:

  • Fees, who pays for what. In addition to a monthly management fee, is there a leasing fee, and a supervisory fee?
  • Who pays the cost of advertising and postage?
  • How many properties does the company manage in the same neighborhood or subdivision as your property (more the better)?
  • How about late fees, who keeps them?
  • Are you required to pay accrued interest on security deposits? If so, is the security deposit invested in an interest bearing account? Who pays the interest, you or the management company?
  • Does the company have electronic funds transfer (direct deposit)? When are owner’s distributions disbursed?
  • Does the management company require a maintenance deposit. If not, how are bills paid when the property is vacant?
  • What about utilities – will the service be in the tenant name or your name when the property is occupied? When the property is vacant how are the utilities paid?
  • If I decide to sell the property to the tenant, will I owe you a sales commission? What if I sell the property to someone else after the current lease expires?
  • How are emergency calls after hours handled?
  • Can I terminate the management agreement without penalty if we don’t have a good chemistry?

I do not exclude PMs who don’t belong to NARPM, I just give them a little more weight in my consideration if they do. While you are doing your research, ask your investor friends for referrals or better yet for suggestions on which companies to avoid. Interview as many of their positive recommendations as you need. Once you interview at least three PM companies, and ask the same questions, you will get a sense of which one stands out from the crowd.

Rentals = wealth.

Which stage of your life you are in will depend what strategies you use.

There is a cash strategy as well as a wealth strategy as well as a combination of the two strategy.

If you don’t have any cash it is a no brainer which strategy you should be using.