If you mostly work with traditional residential home buyers, you might be missing out on a more lucrative segment of real estate — the investment property purchaser. This post will demonstrate the advantages of working with property investors and show you how to get these buyers into your client base.
There are four main reasons it's worth learning to service these clients:
Establishing yourself as an investor-friendly real estate agent can transform your business, allowing you to close more deals in less time and with fewer hassles.
Successful real estate investors tend to work with a team, and they're loyal to agents who add value to that team.
"Rich Dad, Poor Dad" author Robert Kiyosaki said, "Realtors or other agents are your eyes and ears to the real estate market, so they’re essential parts of the team. They know the trends, they recognize patterns, they know the market, they have access to information you need, and they can tip you off to deals."
To attract this kind of client, you'll need to become an expert in your local market and develop a network of people who can pass non-publicly available property information to you. Devote part of every day to this.
Stay on top of upcoming development projects, zoning changes, and amenities and attractions in the area. Know the local schools, shopping and dining options, and public transportation and parking. Study the features people want (and don't want) locally. And research the local rental market. Investors will depend on your expertise when pricing and renting out their investment property.
Continually expand your knowledge to include real estate and economic policy news and housing statistics. Get in the habit of reading real estate investment blogs and using real estate investment apps.
Of course, you don't have to be an investing whiz to start working with investors. It's smart, however, to understand a few fundamental terms and learn as you go if that's your comfort zone.
Investors routinely use terms such as "ROI", "cap rates," "1031 exchanges," "cash-on-cash returns," and "net present value." You should be able to converse in that language comfortably. Your local real estate board probably offers a class if you need to brush up.
There are two main categories of real estate investors — the fixer/flipper and the landlord. Flippers will tell you they make their profits when they buy, not when they sell. It's up to you to find those great deals that maximize their profit. They want to know what it will cost to acquire the building, needed improvements and cost, and the price range they can sell it for. And they'll appreciate an agent who can save them time by providing this.
One of the easiest ways to evaluate a potential flip is the 70 percent rule, which says that you should only pay 70 percent of the after repair value (less repair costs). Run the property numbers to avoid presenting deals your clients won't want. This Bigger Pockets calculator can give you a more comprehensive property evaluation for your flipping clients.
Landlords are investing for the long haul. Chances are, they have a minimum cap rate, ROI or cash flow in mind. They might want pristine properties (the cap rate will be lower for those because the maintenance will be lower) or fixers (to add value by renovating before renting). Learn how to evaluate the income potential for these properties and figure out the rent people can afford in the area if you plan to work with landlords.
You can become a valued member of an investor's team by taking on tasks he or she doesn't want to do. That often means establishing yourself as a resource for financing, maintenance, property management services, contractors, inspectors, and other tradespeople. Do your research to find the best providers and get to know them. When your client needs an emergency repair, you'll be glad you established a great relationship by sending good business to good people.
Get to know lenders. Investors borrow from private (hard money) lenders, portfolio lenders (they sell investor loans, bank statement loans, and other niche products), and mainstream residential lenders, which allow up to ten financed properties under certain conditions.
It's very helpful if you invest in real estate yourself. Established real estate investors are likely to ask you questions like these before working with you:
The harsh truth is that most experienced investors want an experienced agent. So how do you conquer that catch-22 and get the experience you need?
How do you find investor clients to work with? There are a few strategies:
Once you leave newbie status behind, you can ramp up your production and target heavier hitters.
One option is to deal in foreclosure and HUD Homes. These are foreclosures financed by government-backed loans. HUD requires buyers of these homes to work with licensed real estate agents. You can publish these listings to your own website and offer your expertise as an investment property specialist.
Create relationships with bankruptcy attorneys to unlock distressed property selling opportunities before they become public.
To expand your reach, consider taking on a partner agent. In many states, you'll probably have to anyway because of prohibitions against dual agency. Having a partner would allow you to help your investor purchase a good investment and then find a buyer for the improved property. Completing this "double flip" yourself is considered ethically questionable by many real estate boards and is illegal in some states. You can provide better service and stay above board by having a partner handle one end of the deal.
Becoming a real estate agent for investors is not for the lazy or part-time agent. But it can generate spectacular commission income for those willing to pursue excellence in this segment of real estate sales.
Luke Babich is the Co-Founder and COO at Clever Real Estate, the nation's leading real estate education platform for home buyers, sellers, and investors.
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