For decades, there has been a question about whether investors and real estate agents can or should sit at the same table. The answer is yes they can and should. In this article we are going to discuss how a positive investor-agent relationship can be mutually beneficial.
Why Agent-Investor Relationships Fail
Lets start with why investors and agents have a history of failure. The answer is, frankly, there are problems on both sides of this partnership. The main problem is rooted in the same basic issue. Lack of experience and knowledge. For investors, the dream of becoming a real estate investor can blind them to the reality of what it takes to find success. An investor looking to get into the game with no capital is probably barking up the wrong tree looking for deals in the general real estate market. And in a commission based field such as real estate sales, many agents are willing to try any specialty with little to no experience or knowledge. So, in our opinion the same issue has created the debate about the effectiveness of these relationships.
Lack of knowledge and experience.
So should only well capitalized investors use agents? Should only knowledgeable, experienced agents work with real estate investors? Maybe, but maybe not.
How an Investor Can Find Success With An Agent
The above is not to say a new investor should not work with a real estate agent. Nor should a new real estate agent not work with investors. It lays the groundwork though for identifying the pitfalls in these relationships that are magnified when both parties have little experience. The purpose here is to provide tips to investors and agents to enhance their business relationship. Frankly, together investors and real estate agents should be able to make tremendous partners. Like any business relationship though, having the correct expectations and standards is primary in order to find success.
On-Market Opportunities Require Agents – Why Not Work With One You Trust?
An on-market real estate opportunity means a listed property by a real estate agent. Unless the listing agent is the agent you have a relationship with, having independent representation will give you a partner in the negotiation of the transaction. Real estate agency laws differ from state to state. It is fine to approach the listing agent when you are NOT already working with an agent. But understand what level of representation they may provide.
Having an experienced agent to work with will give the investor an advantage. The more investment real estate the agent has been involved with the better the skill set to assist the investor in providing objective opinions and analysis.
An Investor Should Be Able To Tell An Agent Their Objectives
Frequently, when an agent asks an investor their objectives the response is associated with returns. As an investor, there are a number of different ways to invest to shoot for tremendous returns. At some point though, being specific as to what you wish to place your money into is important to making the actual investment. Any agent who is told that an investor wants a 12% return and is looking for opportunities that will provide that is being given a huge slate. A slate so big that they may not really know where to begin.
For the investor, success with an agent will come from being specific with your investment goals. Give your agent a set of criteria for what you want to invest in. Not just a return. For instance:
“I want to invest in duplexes that need a small amount of updating and are located on the edge of an area with restaurants and entertainment. I do not want to invest more than $50,000 and need to borrow the balance.”
This is incredibly helpful information for an investment agent. They can focus on deals around $250k, in small multi-family on the border of exciting areas for nightlife.
Don’t Expect an Agent to Tell You the Return of an Investment Opportunity
An agent may or may not have the skills to help an investor determine returns. But an agent should be seen as an opportunity finder. An investor should be seen as a person who can analytically review and determine return. An agent can research and provide numbers such as rents, appreciation and taxes. An experienced investor should have their own comfort points for reserves and capital expenditures. All of these inputs will assist in projecting return for the investor.
In other words, use the agent as your partner for presenting opportunity. The investor should not be learning their investing knowledge from the agent.
Agents Know Lenders and They May Know Other Sources of Financing
Your agent should be able to introduce you to multiple sources of loans. The advantage of working with an investment real estate agent is that they have relationships with lenders who specialize in financing investors. These may be both institutional and private lenders The more experienced the agent, the better the chance they may have sources of private investors who actively seek returns on their money by lending to real estate.
An Investment Real Estate Agent Should Be Able to Connect
Connect in this case does not mean finding opportunities as discussed above. No, connection means the agent works closely with a property manager in Indianapolis. The agent knows multiple contractors who can provide estimates for any work needed at the property (be careful not to burn out contractors asking for estimates). We discussed the lending contacts but there are other beneficial contacts such as accountants where an agent may connect you.
Investors – Shop And Marry
The biggest cause of friction and dissatisfaction between agents and investors is when an investor tries to use multiple real estate agents. Sort of a challenge to see who can find the investor the best deal fast. Since agents work with on-market deals chances, when given a clear criteria, the investor is going to be sent the same opportunity multiple times from different agents. Like most things in life, when building a relationship trust is essential. Agents generally will not be interested in spending time with an investor they do not trust. Trust is defined as loyalty. Remember how the agent earns a living. Only the worst agents will be willing to be part of an arsenal of different agents an investor is using. Hence, one of the foundational issues as to why investors and agents have a long history of distrust.
This is a tough fact that many agents will not address, but they should. Let the investor interview as many agents as they want. At the end of the day, the investor should decide who they feel most comfortable working with to accomplish their goals. Let the other suitors move on. In this way, the agent selected moves forward as a partner and not a commodity to the investor.
Making It Work Better Going Forward
The agent-investor relationship has often denigrated to the point of a commodity due to both parties not focusing on the benefits of a relationship. Hopefully the objectives noted above will allow for more investors and real estate agents to develop healthy business relationships.