Real Estate Investor vs. Real Estate Agent: What's A Quality Investment Property?

There has been some discussion recently on active|rain regarding the usefulness of real estate agents to the real estate investor.  And I think it is a discussion worth having.

Here are two recent and related blog posts:

Agents vs. Investors: language of real estate investing
Realtors & Investors: Are You Speaking The Same Language?

Let me start this out by saying that if you are a real estate agent even remotely interested in learning more about real estate investing you should do three things:

1. Read the 3 books pictured throughout this post
2. Read Bawldguy - One of the best real estate investing agents in the country
3. Read Real Estate Investing In The Real World - A great look inside the mind of a working real estate investor

We need to get a few things straight before I go any farther.  First, this blog is directly targeted to the "house" agent out there who will always answer "YES!!!" when asked if they work with investment property or real estate investors.  You need to know that investors think VERY differently than you do. So before you say "yes" you better understand what you are saying "yes" to.  Secondly, if you think you can bluff your way through a transaction, either on the buyer's or seller's side, with a REAL real estate investor you will find out quickly that you are wrong.   And lastly, if you are one of the commercial agents reading this, I'm obviously not talking to you.

THE LANGUAGE, ART & SCIENCE OF BEING AN INVESTOR'S REALTOR

I could do 10 different posts on this subject alone.  In fact, I keep toying with the idea of writing a book on the subject.  So I'm going to be brief here.  Real estate investors are looking for returns on their income property investments.  And if you're their real agent, you better be adding to the return and not subtracting from it.  Because they are buying present or future cash.  That's what investing is.  Get used to it.

It will take hard and time consuming work on YOUR part to learn about real estate investing.  You need to know how to measure returns and what the most popular forms of measurement are.  Ever heard of Gross Rent Mulitiplier, Cap Rate, Internal Rate of Return?  If you are going to work with investors you better google them an start studying. You better know what a cash on cash return is and what the standard for your community is before you say "YES!!! I'll work with you."

You can bring value to the tablefor the professional real estate investor by bringing them pre-packaged rental properties with all the returns laid out before them that meet their criteria.  What is criteria?  Learn what returns are important to them.  Location?  Multi or single?  Any architectural preference?  To the investor it just might be worth something to them if you have these properties all ready for them instead of them wasting their time looking for them.

TWO DISTINCTLY DIFFERNT KINDS OF REAL ESTATE INVESTORS

Pay careful attention here.  As a professional real estate agent actively working the investment property market in the Greater Kansas City area I can break down my calls from real estate investors into two very distinct categories;

1. Those buying for cash
2. Those buying for growth

You need to know from the outset that as a professional real estate agent you will make far more money and spend far less time working for those investors in the second category.

Everyday I get calls from investors looking for housing that can be purchased at 50%, 60% or 70% of ARV  (That is After Repair Value)  so that they can buy, rehab and sell.  Want to have some fun?  Get on your MLS right now and look for properties currently priced at 50% of their neighborhood's value that won't require the other 50% to bring it up to value.  Go ahead.  Let me know how many you find.

Those kinds of investors work very hard, turn over every stone and risk a lot of their personal time and money to make their livings.  They are generally doing their work full time and they are, if they are to succeed, very good at what they do and very tight with the money they spend.  They have to be.  Especially in this market.  They don't really have time to work with agents that will waste their time and cost them money.  About 2-3 times a year I find a property for one of these guys.  Can you make a living on 2-3 transactions a year?  I didn't think so.

Those investors that fall into the second category help me to make a very good living.  They generally aren't the people who watch HGTV or A&E's Flip This House.  They are generally professional with good incomes that don't have a lot of time to spend trolling for houses.  They want good rental properties that will help them secure a Retirement Worth Having. 

And here is the key, they will remain loyal to you so long as you save them time and generate the kinds of returns they are looking for.  Simple as that.

But don't mistake their willingness to work with REALTORs as a weakness or a lack of understanding about real estate investments.  They are very demanding on how their money works for them.  That is why they have the jobs they have and the savings to invest.  They expect professionalism, an agent that can calculate returns and even coordinate attorneys, tax advisers and property managers for them. 

THE PERFECT STORM

I've been working with real estate investors for 5+ years now.  I have taken accounting classes, tax classes, commercial real estate evaluation classes, real estate investing classes and much more on top of the continuing education classes required to keep my real estate license.  I read every day.  I regularly counsel with other residential and commercial real estate investment agents around the country and I routinely will question my investors to see what they can teach me and what service I can add-on for them.  I also own my own properties.

So I cringe when I hear some agents in my office going out the door with obviously new investors.  I know that agent's experience with income property and I can tell their client is an avid watcher of A&E's Flip This House.  (Click this link to see fraud from that show.)  And I think to myself "there is a foreclosure waiting to happen."   One party walking out the door is eager to join the country's real estate millionaires.  The other party doesn't have a real clue as to how to advise them to move forward. 

BECOME AN AGENT OF VALUE TO THE REAL ESTATE INVESTOR

The scenario above doesn't have to be repeated week after week.  It makes investors think badly of our profession and it makes you want to quit when you can't sell them anything after working with them for 6 months.  There is an easy answer to this.  You can do one of two things:

1. Learn about real estate investing.  Heck, buy your own income property!  Take the time to truly educate yourself as to what it is an investor is looking for and how you can assist them in their goals.
2. Refer your client to an agent that works regularly with investors.  Someone that really knows their business.

And before you think point #2 is self-serving, and to a degree it is, you need to understand that I'm smart enough to know where I don't belong.  Want me to list or help buy a track of land?  Great. Let me introduce you to Larry Kueser, Kansas City's Land Man.  Looking for a luxury home?  I'll refer you to Jim Smith.  By introducing you to those two men for those two categories you'll get better service and I'll get a referral fee. Everybody wins. 

And isn't that what it's all about?

NOTE:  It was brought to my attention that Fox no longer has the video link that I was linking to.  So here is a link to the Kansas City Star story on the subject.