Agencies that also invest in rental properties - should I care?

Question

Hi,

I live in TX and I'm looking to buy a rental property. I'm finding that a lot of real estate agencies also own rental properties/invest their own money. It seems like there could be a conflict of interest (e.g. the agency's investment arm finds the best deals/properties for themselves and pushes properties onto clients that their investment arm has already passed on).

Is this an issue or is there something I'm missing that makes the conflict of interest uncommon?

Theresa Harris · Answer

If that is the case, why not ask them how they avoid a conflict of interest because as a client you expect them to show you places that are a good rental; however, if they are also looking to buy those places then you don't want to work with them as they will put their interest ahead of yours (the client).

Drew Sygit · Answer

@Connor Hailey only you can decide the tradeoff between:

An agent that doesn't own rentals and thus is limited on how much they can truly assist you.

vs.

An agent that owns rentals and can probably save you a lot of money, but may be competing slightly with you.

Marcus Auerbach · Answer

When you say agency, are you talking about a brokerage or a property manager? In most states wholesaling operates on the fringe of legality because you should really be licensed in order to broker deals. And if you are licensed your fiduciary responsibilities are with the seller, so you can't negotiate them down in price, which is what wholesalers do.

So that smells fishy..

The vast majority of real estate agents do not own a rental property and have very little knowledge in that field. If you find one who has rental properties and has first hand experience that can be VERY helpful.

The conflict of interest is a common question, but really a non-issue if you consider the size of the market and how many properties an agent can buy.

My team and I work with a lot of investors and yes I personally buy a handful of properties every year, but there are about 30,000 transactions every year in Milwaukee. Odds are we are not looking for the same deal.

Greg Scott · Answer

Are you sure they own them or are just acting as property manager?  Many agencies will both sell properties and act as property managers for rental real estate.  Seeing their logo on a rental listing does not mean they own it.

To know if they truly own the property, you would need to look up the tax rolls.  Frankly, I would be surprised if a real estate agency would want to hold rent properties in the same entity as their brokerage business.

Crystal Smith · Answer

The answer to the question- should I care?  If you have the right systems and people in place to facilitate due diligence on a property independent of the seller/owner or broker representing the seller,  then no, you should not care if an agency that owns & purchases rentals is also selling properties.  The part of the agency that purchases properties may have investment criteria that certain properties do not support, so they sell them because they may meet another investor's criteria.   The properties may meet your criteria. I'd focus on making sure you have the right people in place for legal and property condition due diligence.

Drew Sygit · Answer

@Bradley Buxton sounds like you may be operating with a scarcity mentality:(

We find too many deals for us to purchase!

We try to have an "abundance mentality" - where no one can really corner a market.

Bradley Buxton · Answer

@Connor Hailey

Any agent that also actively buys properties will always have their interests ahead of yours. If they find a good enough deal they will take it. They might be a good property manager and a resource for advice.

Nathan Gesner · Answer

I am a property manager and sales broker, but I also invest in the same cities as my clients. I only see it as a point of conflict if I were to hide my actions. It sounds like your brokerage has already told you what they invest in, so you can decide if you want to use them or if you find that to be a conflict.

If I am working with three buyers, each one of them knows that I represent others. If an investment property comes on the market, Buyer A may jump on it before Buyer B. I can't find something for everyone. In the same way, my buyers know that I am also a client and that I may find a property before they do. That's part of reality.

Theresa Harris · Answer

Interesting and to me a bit dodgy-why not proper sales where they represent the seller and try to get them the most money they can?

Agencies that also invest in rental properties - should I care?

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