Finding the Right Real Estate Broker: A Key Tool for Investing Success
There are more than 50,000 real estate brokers in Illinois and over 1.4 million across the county. Yet, very few of these brokers can and are willing to work with real estate investors.
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From my understanding, less than 5% of brokers are even qualified or have the desire to work with investors. A specialist that can assist an investor in growing their real estate portfolio is much different than an agent who practices common real estate.
To be an investment-minded real estate broker, you must first possess specific knowledge. This knowledge can’t be acquired in daily business dealings. There is a lot more to working with investors than selling owner-occupied properties and farming neighborhoods with postcards.
From the investor standpoint, the ideal broker candidate would act as a guide who can provide the financial information to find a specific return on investment. Investors also want to work alongside someone who has experience in specific marketplaces. This includes working with a broker who is aware of any municipality requirements for specific properties based in certain areas.
Types of Investment-Minded Brokers
I often explain to investors that these investment-minded real estate brokers are very hard to find. Real estate brokers who want to or are willing to work on the investment side of things often fall into three categories.
The Beginner Agent
This broker obtained their license because they want to become your “go-to” agent. The problem is, they are often new to negotiating and have limited experience in investing. What they lack in those areas, however, they make up for in determination and tenacity. These brokers will strive to be better and learn more. Soon enough they will fall into one of the other two categories.
The Professional Real Estate Investor
When a broker becomes so good at what they do, they often stop doing it for other investors and work solely on their own portfolio. They give up working with third parties, and we lose their expertise in the day-to-day world of real estate investing.
The Investor-Friendly Broker
In the world of The Three Bears, this category of real estate broker is “juuuust right.” These brokers have a network and systems in place that are built around the investor. They have a process for vetting properties, an understanding of neighborhoods, and a network that can be a one-stop shop for their clients.
This broker has a portfolio of properties themselves and has done 50+ investment deals in their lifetime. They are willing to take that experience and apply it to working with you. They become a huge asset and mentor to the investor.
The broker you want to work with has a solid understanding of the fundamentals of real estate investing. These fundamentals are not taught in any 120-hour real estate broker course.
What Your Broker Should Know
It is extremely unique to find a real estate broker who can provide the appropriate level of expertise to help investors.
Real estate investing involves a lot of numbers. Numbers come into play when trying to back into the correct purchase price, calculating the cap rate, and breaking down the monthly cash flow. You also need to be able to forecast out what a particular investment will look like five or 10 years down the road.
This will also help you find deals. The better you understand the numbers, the greater chance you have to spot a deal. Since the real estate broker you are working with will see the opportunity first, you want them to be able to decipher if this is an opportunity or just another listing. An investment-minded real estate broker can spot the deals faster since they understand what opportunities look like in any given market.
Most real estate opportunities come in “value-add” purchases. This means you are buying a property at a discount because you anticipate investing additional money after closing. This happens via a rehab project that brings the property value up within 90-120 days after closing.
A real estate broker can help you figure out these numbers or share with you people in their network who can. A great broker will also offer an opinion on the scope of work that needs to be done to a property in order to achieve the highest return.
Real estate investing is localized and it takes a real-estate-minded broker to understand the housing stock style, supply, and tenant base. Knowing what an opportunity looks like based on today’s market is crucial. You do not want to be chasing a 10% cap rate when the market will only bear a 7-8% cap rate.
A real estate broker can provide you with insight into what is happening locally. This will help you adjust your expectations or your investment strategy to what is realistic.
There are also some neighborhoods or suburbs that are better for real estate investments. This could be due to pricing, tenant base, job opportunities, schools, or government regulation. An investment-minded broker will help guide you to the greatest opportunity based on their knowledge of the local market.
Qualities To Look For
Here are qualities you want your real estate broker to have when helping you grow your real estate empire.
- Is an investor themself. Who better to show you what to do and what not to do than someone who has made the mistakes and learned the lessons firsthand? The broker you want to work with has bought and sold many properties over the years.
- Works with other investors. When a broker is working with other investors, they will identify more opportunities for you than an average broker. Investor-friendly brokers have a network of other investment-minded brokers, investors, and service providers. Deals are shared within their network daily.
- Has access to off-market properties. The local MLS is a great source for current inventory, but more often than not, they are not great opportunities when the housing supply gets tight. You want to work with a broker who can locate opportunities outside of the MLS. This comes in the form of off-market properties for sale.
- Has an extensive network. I tell investors that if your real estate agent is not on BiggerPockets—or even worse, has never heard of it—then they might not be a good fit. BiggerPockets is where the top investment-minded brokers are. They are not only looking for deals or clients to help, but they are building their network. With this network, they will turn around and share the resources with you from day one. Most of the kinks have been worked out already, greatly reducing the learning curve for you. When a new investor takes advantage of someone else’s network, you jump on board a team that has already proven successful.
The Bottom Line
I write this with a view of what is working in today’s current market. In five to 10 years, this could all be obsolete. There will be various platforms that may be able to do much of what is stated above and probably better. If you are buying properties now, then this is all still what is real today.
After reading this, take a look at your team. You need to determine if your current real estate broker is the person you want on your team. Don’t be afraid of hurting anyone’s feelings. If you are not working with a broker that is the right fit, often they know this already.
When investors work with brokers who can’t relate to the investor mindset, it is uncomfortable for that broker. That broker is often outside of their comfort zone. Many times, that particular broker would be happier referring you to someone who is of the investment mindset.
Good luck on your journey. Remember that the broker you work with is one of the most important members of your team.
What qualities do you look for in a broker?
Tell us how you spot an all-star broker in the comments.