Hello James,
Based on my experience, less than 1% of all realtors are able to select and analyze an investment property. Before starting my business over 15 years ago, which provides investor services, I purchased around 20 properties. All the realtors could provide me were MLS data sheets for the properties I selected. I had to do everything else on my own, which required a significant amount of time and wasted money.
What you need is an investment realtor. In this post, I will discuss the differences between investment realtors and residential realtors, and provide a process for finding an investment realtor.
Residential or "Investor Friendly" Realtors
Residential realtors facilitate the buying and selling of homes. Homebuyers select properties, and the residential realtor provides access. The process is simple. Once the buyer selects a property, the residential realtor facilitates the offer and closing process. Some residential realtors may also sell real estate that will become rental properties. However, they typically only provide MLS data sheets and offer limited value beyond that.
Investment Realtor
Where residential realtors sell homes, investment realtors sell income streams. Investment realtors also provide the information you need to evaluate an investment property. Below is a comparison of the information a residential realtor can provide vs. what an investment realtor provides.
Investment realtors are always part of a team. Only a team of experts can provide the end-to-end processes, skills, and knowledge necessary to bring a property to market. See below for a diagram of the process we follow.
House hacking adds an additional level of complexity. You need to buy a property that will make an excellent long-term rental and a good house-hacking property. This gives you a fallback position if house hacking is not the best option for you at the time. Also, renovation items are different for a property for house hacking versus a long-term rental.
How do you find an investment realtor?
There are thousands of residential realtors in a metro area, but only one or two investment realtors. How do you find one?
Candidates
Start by compiling a list of candidates. Get names from
- Real estate investing websites (such as Biggerpockets.com)
- Property managers
- Local investors
- Talk to real estate brokers
- Google searches
- Local meetups
Once you have a pool of candidates, evaluate each using the following interview questions. The primary purpose of the questions is to determine the individual's character and capabilities.
Interview Questions
Before you start interviewing candidates, create a list of 10 or fewer questions. You won't have time for more, so it's important to choose carefully. Ask the same questions of each candidate and take note of their responses.
Below are some sample questions, along with acceptable responses. Keep in mind that you might not find a candidate with the "perfect" answer to every question, but they should at least provide reasonable responses.
- Tell me about your investment team. - You're looking for a response like, “I've worked with X property manager for years. We've completed X properties. "I work with several renovation companies..."
- Do you or have you owned investment properties? - If they have not personally owned investment properties, I would reject the candidate.
- How many investment properties did you close in the last 12 months? - Some realtors only sell two or three properties per year, which is not enough repetition to develop the necessary processes, experience, and resources even if all the properties were investment properties. I believe that a minimum of 12 investment properties per year is necessary to become and remain proficient.
- Did you or your client select the properties? This is an important question. Residential and investment-friendly realtors do not pick properties. They send MLS data sheets for the properties the client selects. The client evaluates the properties and selects one or more to make an offer. If you do all the work, what value is the realtor providing other than access to properties? Reject the candidate if their client selected the property.
- What were your primary selection criteria? - It could be the initial return, appreciation, tenant pool, or something else. You're looking for a plausible answer based on analytics, not opinion or “feelings.”
- Tell me about the tenant pool you target. - Understanding the concept of tenant pools and their characteristics is not common knowledge. It requires someone with a lot of investment experience. If a candidate cannot provide a plausible answer or does not understand the question, move on to the next one.
- What is the average tenant's stay? - If the realtor is working with investors, they know how long the tenants of a specific tenant pool segment typically stay in the property. If the realtor has no good answer, move on to the next candidate.
- How did you estimate rent and time to rent? - They should be able to describe a process like, "I look at recently rented comparable rentals." Another good answer is that they work with a property manager who supplies this information. If they answer Zillow, Redfin, Rentometer, etc., they do not know how to evaluate investment properties. No real estate sites that I’ve seen provide usable estimates on rent or time to rent. This is critical information when you are looking for investment properties.
- Tell me about your renovation process. - You are looking for an answer similar to, “I work with the property manager to determine a list of renovation items. Next, I work with XXX company to get a quote. Once escrow closes, the renovation company does the work, and the property manager does final acceptance.”
- What else should I have asked you? - This is an absolute golden question. I've learned a lot by asking this question at the end of interviews. For example, I was checking out a neighborhood in an area of Las Vegas I did not know. Nothing looked unusual or concerning. I came across an older woman sitting on her front porch. I talked to her about the neighborhood for a while. As I was about to leave, I asked her, "Is there anything else I should have asked you?” Her response blew me away. She told me that when two drug dealers were on the street, they would occasionally shoot at each other. One was sent to prison about a year ago, and the remaining drug dealer keeps things quiet. I saw nothing to indicate the presence of drug dealing and would not have known if I did not ask the "What else?" question.
If the candidate answered all questions satisfactorily, you can be reasonably assured that they know what they are doing. The next step is meeting their team members.
James, I hope this helps.
