Real estate agents have an opportunity to expand their business by understanding investors and investment property.
Be an Investor Friendly Agent
The first thing to keep in mind about investors may seem obvious: Investors want to work with a real estate agent who is friendly toward investors.
Believe it or not, many investors have difficulty finding a good real estate agent who will provide the services they want. Agents who don’t understand investors lose out on opportunities to expand their business into the investment real estate market.
I’m hoping that the content of this post will provide you with some basic information about working with investors. You can be an investor friendly real estate agent.
Here are 3 things you should know about investors to get started.
1. Investors Want Good Deals
The reason real estate can be considered an investment is because of asset appreciation and capital growth or positive cash flow. This means investors want to buy property at a price that makes sense depending on their strategy. Otherwise it’s not a good investment.
The best deals in residential real estate for investors are problem properties that typically will not be sold to an owner occupant.
These types of properties are sold at a discount because of the nature of the problem associated with the property. Such problems include deferred property maintenance or the seller’s need to sell quickly.
2022 UPDATE: The post-COVID-19 real estate market has greatly affected how investors are participating in the market. Many national and international real estate investment funds are deploying large amounts of capital to acquire single family houses at a lower than normal cap rate.
2. Investors Analyze Numbers
Investors decide if a potential deal is actually a deal by analyzing the numbers associated with the transaction.
The numbers important to the investors include return on investment (ROI) and capitalization rate (Cap Rate). Another number used for more complex, multi-year, commercial deals is the internal rate of return (IRR). These numbers are derived by various calculations that take other numbers into account such as the rent rate, after repair value (ARV), repair costs, average days on market (DOM), property taxes, insurance, property management fees, closing costs, commissions, holding costs, and funding costs.
Some of these numbers will be provided by insurance agents, attorneys, and contractors. Other numbers will be provided to the investors by their real estate agent. The numbers that the real estate agent is expected to provide include the ARV, rent rate, DOM, management fees, and commissions.
When the investor has all the numbers, a potential deal can be evaluated to determine if an actual deal has been found.
3. Investors Develop Multiple Exit Strategies
More than one exit strategy is advantageous to investors. In working a deal, the investor develops those strategies prior to purchase.
For example, if the investor plans to purchase a house and make significant repairs with the goal of reselling for maximum profit in a short period of time, the investor may also want to have the option of making the property a cash flowing rental unit long term or holding the property just long enough to do a 1031 exchange.
The investor will rely on their real estate agent to provide information needed in order the develop these multiple exit strategies.
Agents With Investor Clients
The real estate agent who wants to provide investor services and become known as an investor friendly agent, will be expected to provide whatever information is needed so that the investor can evaluate a potential deal, run the numbers, and develop viable exit strategies.
Armed with a basic menu of real estate services for investors, agents can expect to attract investor clients. These clients will often buy and sell multiple properties over time. This also opens the door of opportunity to expand business in other areas to include property management, bulk transactions, land development, new home construction and commercial property.