They can assess value
One of the first things that agents learn is to analyze the value of a property. Comparing the property as-is to what it could potentially be, and determining how much time and money it would take to get there is a cornerstone of both the realtor and investor worlds. How many of us have heard a realtor say the following to a client?
“It could use some work, but there is a lot of potential and the price is right.”
Sounds familiar, right? Well, that ability to analyze an as-is property is a starting point for both the agent and the investor. And when an agent says, “with some updates, you’ll immediately have equity in the home,” they’re estimating the After-Repair Value (ARV), just like an investor.
They’re constantly driving neighborhoods
A trained realtor knows just how important a neighborhood is to the sale of a home. So, most agents spend a fair amount of time driving neighborhoods, checking out other properties for sale, and becoming familiar with the immediate area. Most agents will make note of the number of distressed or foreclosed properties near their appointment, since this could hurt the sale of that home. Investors, on the other hand, are driving neighborhoods because they want to see these dilapidated properties and foreclosures. This is where they strike gold – the worst house on the block. Whether realtors know it or not, they are already “driving for dollars,” the common term for hitting the streets and looking for investment opportunities. The only difference is that when a realtor sees an eyesore, an investor sees potential profits.
They’ve got access to the MLS
One of the most powerful technologies available to an agent is their Multiple Listing Service (MLS). In each part of the country it may go by a different name (for the DC Metro area it’s “MRIS, a Bright MLS”), but these databases are indispensable to the agents using them. As good as the free listing sites may claim to be, the MLS database simply has more info and a higher level of accuracy. Realtors can easily use this wealth of knowledge at their disposal to target investment properties by searching the MLS for Real Estate Owned (REO’s) and short-sales. Another way to use the MLS to find investment property deals is to find the average property value in an area, and simply search all properties with a lower value. The MLS is a powerful tool, and with new tools and platforms being created, its only getting better.
They have an existing network
Building a network of industry players (buyers, sellers, investors, contractors, etc.) is important in order for a realtor to deliver more value and win more business. Having this network in place when an agent decides to begin investing will give them a huge advantage over most newbie investors that are starting from square one. Most investors will pay an agent (eating into their profit margins) just for access to their network of buyers. As an agent, you keep more profit and already have a network at your fingertips.
They can keep more profits AND make commission
Let’s say you’re a realtor that invested in a property, rehabbed it, and you’re ready to sell. Serving as the listing agent, you will already be collecting one commission, but what if you have a client who wants to purchase your newly renovated property? Double commission – every agent’s ideal scenario. Profits from a flip AND double commission? That’s a perfect storm of income that ‘realtors-turned-investors’ can achieve.
They’re constantly getting market feedback
Every transaction, open house, property tour, and client interaction that a realtor experiences creates a dynamic picture of the current housing market. The very nature of a realtor’s work keeps them updated with what areas are booming, what properties are in high demand, and what features are selling right now. The day-to-day of a realtor’s job inherently makes them a more educated investor. This can help them make better decisions on what neighborhoods to invest in, what appliances to purchase, and what color scheme will provide the most curb appeal. Agents tend to know the buyers of rehabbed properties better than anyone because, frankly, they get facetime with buyers on a daily basis.
They know how to negotiate a contract
This one may be a bit more subjective, but any good realtor has experience negotiating and purchase and sale of a property for maximum value. A new investor who lacks this experience can destroy their own profit margins simply by failing to negotiate a lower purchase price and being bullied by aggressive buyers on the back end. Most realtors know this game and have spent their whole career sharpening their negotiating skills.
They can diversify their income
Real estate has both seasonal and longer-term cycles. Realtors know this better than most since their income often reflects the market fluctuations. By becoming an investor, realtors can diversify their income, receiving cash injections from flips, and steady, long-term income from rentals. The long-term rental income may be especially appealing to realtors since most agents don’t have a traditional retirement plan provided by their agencies. So without a pension plan or 401k matching, realtors can look to investing as a means of retirement planning and estate building.
Most realtors already have a great foundation for an investing career. With so many tools at their disposal and a chance for investment profits PLUS commission, agents just have to ask themselves, “what’s holding me back?”