This is the third in a four part series for Real Estate Agents on Dealing with Real Estate Investors.  In previous EquityScout posts I investigated what investors are looking for in a real estate agent and why real estate agents should care about investors.  Here's part three:  what kind of investors are out there and how do I deal with them?

Unfortunately, in my book there are six types of investors out there, and I like to work with even "fives" (has a nicer ring to it).  So I'm going to take the first type of investor out of the equation.  This is the seasoned professional.  This guy's been around the block, knows what he wants, is decisive, has the knowledge and financial backing to close deals, and basically is a dream to work with.  Great.  But, unfortunately there aren't enough of them to go around.  And that leaves us with the remaining five.  All of these potentially are keepers, you just need to have some mitigation strategies in your back pocket. 

Type 1:  The New investor.  What this guy lacks in experience he makes up for enthusiasm.  Unfortunately, he's often unfocused and difficult to coach.  He might be looking for his first deal.

Mitigation strategy:  The good news is this:  new investors will sometimes turn into seasoned professionals.  That's the kind of investors we love, remember?  Working with new investors is a great way to seed your business for the future.  You don't want to spend all of your time teaching someone else, but bear in mind that in building these relationships you're sowing the seeds of future business. 

Type 2:  The Guru Victim.  There's a guru out there - get this - who insists that the key to getting rich is to open multiple LLC's, get business credit cards for each, and use the credit cards to finance your real estate investments.  No, I'm not joking.  And believe me, there's even worse out there.  Guru investing seminars are a menace, and if one of their recently converted disciples gets hold of you get ready to deal with a difficult customer.

Mitigation strategy:  These investors sometimes are a lost cause.  If you get a new investor client ask her what prompted her to get into the market.  If you find some wacky ideas but underneath it all there's a foundation of common sense, then it might make sense to treat her as a new investor (Type 1).  If not, you might be better off encouraging her to find another agent. 

Type 3: The Lifestyle Guy.  The lifestyle guy is tired of this 9-to-5 ratrace.  He's ready to sit back, cruse around in his new hummer, and watch the cash roll in from his real estate empire.  But as you already know, the problem here is that real estate isn't a short-term game.  If Mr. Lifestyle guy has his crystal ball then he'll be able to look into it and tell you which is the next market that's going to skyrocket at 25% per year.  But I haven't met anyone like that yet.  If you don't get his expectations in line then he's gonna make your life difficult.

Mitigation strategy:  Run the numbers and understand them.  This is a crucial skill for you as an agent.  Then show them to Mr. Lifestyle Guy; make him understand.  If he doesn't get it, send him packing - his unrealistic expectations will keep you from having a productive relationship.  If he does get it, however, then you might want to treat him as a new investor (Type 1)

Type 4:  The Tire Kicker.  This guy is putting all kinds of miles on your new car.  Enough already

Mitigation strategy:  Investors have to be able to screen.  You can help.  Send Mr. Tire Kicker out on his own to drive by the properties; this alone will narrow down the list.  Then take the short-list and run the numbers.  The ones that work: go check them out.  And take it easy on your car. 

Type 5:  The Negotiator*.  The negotiator doesn't want to pay full commission.  She wants a break back from you, whether she's on the buy or the sell end of the transaction. 

Mitigation strategy:  Okay, this one is likely to earn me some heckling, but hey, this is a discussion board, isn't it?  Here's my view:  A buyer generally has a certain set of expectations from an agent which justifies the agent getting 3% of the deal (assuming 6% commission and a 50/50 split).  The agent needs to assess the needs of the buyer, screens lots of possibilities, narrows down the list, arranges the showings, spends his/her time/effort/gasoline visiting the homes, advises the buyer on the purchase, negotiates on the buyer's behalf, takes the buyer through the closing process and in the end gets the keys into the buyer's hands. That's a lot of work, and this is why an agent's commission is well earned. 

But...some investors don't need of all of this!  If the buyer is an investor who doesn't need the time, effort, money, expertise that one would normally expect from a buyer's agent it's not unreasonable that the investor not expect to pay the same fee as a homebuyer who does.  Expect this to become more commonplace as the market increases in transparency.  The key: don't put more effort into the deal than you're getting in commission. 

*My obligatory conflict of interest disclaimer:  I'm a negotiator.  Generally speaking, I ask my agent to open the door and to fax my offer to the other agent.  The only time she comes to the closing is if she wants to network.