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Residential vs Investor Real Estate Agents: What’s the Difference?

Summary: Your real estate agent is critical to your success as an investor. However, many newbie real estate investors don’t know what separates a good real estate agent from a bad one. In this post, we show you what to look for in an agent and outline the characteristics that define an investor-oriented real estate agent.

 

If you are just getting started in real estate investing and are working with an agent, more likely than not, you are going to need to find a new one.

Why?

The reason is that most real estate agents are focused on the residential home-buying market and do not specialize in investment properties.

When we first started investing, we didn’t realize there was a difference.

At the time we had an awesome agent who was helping us find a home in Seattle (an expensive one).

But, after a fateful trip to New Zealand, we abandoned the idea of getting a personal residence and decided to use our down payment for investment properties instead.

It turns out, we didn’t know what we were doing and neither did our agent. It felt like we were both learning as we went.

It wasn’t until we spoke to a true investor agent that we understood that there is a huge difference (really a chasm) between a residential real estate agent and an investor real estate agent.

Nowadays when people tell us that they have an agent who is helping them find investment properties, it makes us suspicious that they are really using a residential agent and probably aren’t getting what they need.

You might love your agent. Maybe he/she is your friend. But at the end of the day, if your agent doesn’t know how to recognize a good investment and/or isn’t bringing you deals, you’re just slowing your progress toward financial independence.

So, how do you tell if your real estate agent is investor-oriented? The following are characteristics of an investor real estate agent:

 

Own properties themselves (or are planning to)

For us, this is the most important thing to look for in agents. Investor agents are investors themselves. If they aren’t investors, they aren’t in the game. They won’t understand what you need and how to find investment properties. They won’t have any of the other characteristics listed below [Note: We do know some investor agents who choose to not own properties themselves because they don’t want to be seen as competing for properties with their clients].

 

Have deal flow

Investor agents are plugged into a different crowd. Most are connected with wholesalers. Many have relationships with banks or estate attorneys. Basically, anybody who is connected to a distressed homeowner is a potential source of deals.

Residential agents don’t live in this world. They don’t spend their time building a flow of investment properties, and as a result, you’ll be waiting a long time for them to bring you a good deal.

 

Know the numbers

How many residential agents know how to calculate cash-on-cash return? Probably an extremely small percentage. Any investor agent should not only know the metrics that matter to investors, they should also know where to find the numbers to plug into the calculator. For example, they should be able to provide you with accurate estimates for rents, utility costs and property management. If an agent doesn’t know their numbers, they won’t know the difference between a good deal and a bad deal, and they’ll end up wasting your time.

 

Have teams in place

Good investor agents can refer you to good property managers, contractors and lenders. These are all critical pieces to have in place when you are buying a rental property. Ideally, your agent will have used these resources for their own rental properties and be able to give you first-hand experience. This is why it’s so important to find an agent who owns his/her own properties.

 

Not concerned about an exclusivity agreement

An exclusivity agreement is a contract that agents sometimes ask you to sign that locks you into working with them for a specified period of time. While this is common practice for residential agents, investor agents operate differently. Investor agents focus on relationships and trust. They know that most investors are repeat customers. So if they help investors find good deals, investor agents know their “customers” will keep coming back to them.

As an investor, it’s important to remember that your agent placed their trust in you, so you should return the favor. Loyalty is of utmost importance. This means that if one agent brings you a deal, you shouldn’t purchase the same property using a different agent. Otherwise, you will have broken the agent’s trust, and they will never work with you again.

 

Give you their honest assessment

As stated above, investor agents know that investors are often repeat buyers. So it’s always in their best interest to only sell you good deals. This sometimes means giving their honest assessment and killing a deal. One of our trusted agents does exactly this. She has killed more deals for us than we can count. She doesn’t want to ever sell us a deal that we aren’t happy with because she knows that we’ll never use her again if she does. Therefore, the next time your agent brings you a property, assess whether or not your agent gives you their honest assessment about it or if they are just trying to sell you on it. If it’s the latter, you should run the other direction.

 

Can find hidden value

Good agents know how to find hidden value. We’ve covered some sources of hidden value in a prior article that you can read here.

Good agents can look at a listing or walk a property and give you ideas for harvesting hidden value, the cost to tap into it and an estimate of extra income or cost savings you’ll get as a result.

For example, our agent previously found us a single family home with a large detached garage. Since she owned a rental property in the area and knew the demand for storage spaces, she was able to give us an estimate for renting out the garage. She also knew the cost to run separate electrical to the garage and secure the windows. It turns out that we spent about $7,500 in repairs to get the garage in rentable condition, and it now rents for $400/month, a 64% return on investment (ROI). To read about how we use ROI to make better property improvement decisions, click here.

 

Understand financing options 

A lot of time, financing is the difference between a deal going through or not. So it’s critical for an agent to understand different financing options.

Investor agents know that anything five units and above requires commercial lending. They should understand that there are options for low money down if you are just starting out and don’t have a lot of money to invest. But beyond that, good investor agents also have relationships with lenders. These should include local community banks, which are often the best and sometimes the only source for commercial lending on a smaller multifamily property (five to 10 units with a <$500,000 loan balance). They should also have relationships with hard money lenders for properties that require a considerable amount of rehab.

When we purchased our 6-unit property in Oklahoma City, we ran into financing problems. The deal almost didn’t go through as a result. The problem was that we needed commercial financing, but we couldn’t find a lender who would loan to us because the loan balance was too small (we needed a $210,000 loan), and we were out-of-state investors. In the end, we solved the problem ourselves, but the fact that our agents didn’t have lenders lined up to help us almost killed the deal.

 

Know how to negotiate

Negotiation is where our investor agents have helped us make good deals into great deals. While I can’t tell you what makes someone a good negotiator, I can tell you a few of the characteristics that we’ve observed when watching our agents negotiate on our behalf.

First, our favorite agents go into every deal with a mindset that they will be able to get some concession from the seller.

Second, our agents gather whatever information they can about the seller from the seller’s agent. Specifically they look for the reason the owners are selling the property. As part of this process, they try to understand what’s important to seller, so that the negotiation can be a win/win situation for everyone.

Third, our agents limit the flow of information to the seller’s agent. They never tip their hand or reveal anything about our intentions. We’ve seen several of our agents do this and it generally gives us the upper hand in the negotiations. As a result, we’ve gotten significant haircuts on the purchase price, and/or we’d been able to get the seller to pay for substantive repairs before closing.

 

Conclusion

Now that we’ve reviewed the characteristics of an investor agent, you should be able to recognize if your agent is a true investor agent or not. If you don’t yet have an agent, be sure to use the above list to screen your agents.

**Also, be sure to download this Investor Agent Interview Guide so you can find the investor real estate agent who’s right for you!**

 

Did you find this article useful? If so, please share it with your friends using the buttons below or email to anyone you think would find it useful.

 

Action Plan

  1. Get referrals for investor agents from other investors or call local real estate brokers and ask them to refer you to investor agents in their office
  2. Screen agents by asking them if they own their own properties or plan to in the near future
  3. Pick an agent (or several agents) and start reviewing the deals they send you
  4. Look for your agent to be providing you with analysis, pointers about hidden value along the way
  5. Constantly reassess if your agent is looking out for your best interests

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

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Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

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