Should I fire my Real Estate Agent based on suspect advice?

33 Replies

Should I find a new real estate agent?

Small Multi family deals are hard to find in Atlanta, not seeing many deals that are even close to the 1% rule.

I ran a property I was looking at through my spreadsheet that accounted for rental income, debt services, expenses (insurance, property management, maintence expenses, vacancy rate ), calculated NOI, cash flow, cash ROI, Cap rate.

In this case it was listed for $150,000 and the only way I could see making it work was offering $100,00 to account for all the built in expenses. 

My agent said that in this market (Atlanta) there is not going to be a perfect property and that I will never get a property running it through those formulas. Accounting for vacancy, property management ect.. would never allow me to get a property b/c I'm talking myself out of it before I begin.

 He said that now investors are “buying income/cash flow” as in putting down large amounts of cash to make a deal work. So they are finding a property that is made of good material (brick) in a good neighborhood and then putting down large amounts of cash to make it cash flow, even if the rent to value ratio is well below 1%, b/c they are buying good cash flow. 

Is that a good mindset to "buy cash flow"? Should I find a new real estate agent? He does a good job and is very responsive and a “go getter” but one part of me doesn’t trust him as he has the motivation to just get me to buy something so he can get a commission. I want a partner who will help analyze deals and set me up for success in buying my first property. 

My real estate agent tells me I should be flexible/change my formula when accounting for expenses in order to find a deal, is this smart? #askBPpodcast 

Should I "buy income" and put large amounts of cash down on a deal?#askBPpodcast 

We probably need some more information. He could be trying to get you to buy something so he makes money. He also might be ineffectivly trying to communicate the current market conditions. It's hard to cash flow in certain markets and easier in others. 

Yep Atlanta has small multi's  being traded at stupid money levels. I think your agent is just telling you what the market is doing.

You might find you need to exploit another type of product in this market if that one is too frothy.

I work on millions to multi-millions in commercial deals but I do look at what 2 to 4 units trade at in good areas. The prices are nuts frankly buying on the future that rents will keep increasing at an above average historical pace. These properties there is almost no cash flow but they are either holding for retirement, living in one unit and renting three going FHA, or trying to buy high end quality areas hoping for rent growth and appreciation to eventually catch up to a decent return.

Too me that is gambling and not investing yet the herds do it to their hearts content. Unless you get a property which is not listed and do some rehab to increase value it will be tough for the numbers to work.

Get your brokers/agent to call the banks listed on the FDIC website in your area to see if they have any properties in foreclosure or troubled loans where you could do a short sale with an owner the bank wants help with. Need to find something off the grid to extract value that other buyers do not know about.

Atlanta is pretty crazy now in the SFR, small multi space. Like @Joel Owens said, there is a herd mentality and it is out there in full force right now. I have turned down so many deals that sometimes I wonder if I will ever buy anything right now but then I find that deal that makes sense and the numbers still work. Don't believe that there are no deals that don't fit what you need. They are just not as obvious as before and you may have to dig deeper to find them. I am buying two deals right now that I was told I 'wouldn't find' so stick with it and dig harder. Cash flow is nice but meeting that 1% rule is pretty safe.

And definitely network with more agents.  We leverage several and are reaching out to more to find the most saavy to help in this area.

Market is in Lawrenceville GA, a suburb 25 min north of Atlanta .

Dupex, list price $129,00 , 2 bed 2 bath, foreclosure, Zillow estimated rent to be $879 total or $440 per unit, Zillow now Zestimates rent to be $918 total. Taxes $718 in 2014. Zillow also estimates it will sell for $102,864. 

I got the listing that night when it first came out, I emailed him and said I want to see it. He was telling me we need to see it ASAP the next morning/day. He was going to contact the listing agent to see when they were going to set the lock box out, and was going to call me to let me know when the lock box was out. The next morning I didn't hear from him so I called him around lunch. I also asked him what he thought about the spread sheet with the deal analysis I sent him. He was less than pleased when I asked him about the spread sheet the next day, his tone of voice had completely changed. 

The property was listed on June 18, its still on the market. He was telling me we gotta put an offer on this property ASAP to lock it up, it won't last long!!

He also advised me sometimes you have to "buy a property take a chance see if you can increase rents and make it work."

Okay, wow thanks @Joel Owens yes I think you hit it on the head, and thats what I was thinking. I am like man these prices are so high and the numbers just don't work I gotta throw in like 30% to make it a safe conservative investment. I didn't know if it was just me being new to this game or if in fact it truly is a frothy market. Yeah I think a lot of people are buying with the hopes of appreciation and rents to continue to go up. Atlanta has a lot of cool live, work, play developments among other cool developments going up around the city. I think those structures are driving up prices as well. I'm just looking to by a good conservative 1st investment property, one where I won't get hurt. I feel like its  a little bit dangerous out here at times.  Thanks @Frank Iglesias for the encoragment and confirmation. So I should be patient, stick to my guns and let prices come back down? Like I'm thinking in a few years if people are overpaying for these properties then they should go back on the market at a more reasonable price b/c people bought bad deals.

I agree with Joel Owens. What gurus and software don't account for or know is the local market. 

I'm an agent and investor in the Tampa Bay market that buys property and then sells them to rehabbers.

I have watched rehabber after rehabber turn down great opportunities simply because they don't understand our market, and insist on some irrelevant formula they learned in a course or used maybe even used successfully years ago. 

Times and markets change.

There are even markets within a market - different neighborhood and property types may be hotter than others - even if they're across the street from each other. 

We need to learn the markets we work in, and listen to the professionals who work them.

To your success,

Jeff

@Jeff Morelock thanks, I agree there are most definitely markets w/in markets especially here in Atlanta. thanks @Joel Owens I'll start looking at foreclosure's, trouble loans banks need help with owners. Ha although my agent actually said that today when I was talking with him that people are "selling equity" anymore, I guess what he was saying is that there aren't many foreclosures on the market. I'll have the conversation with him and have him call the banks on the FDIC website as well. I think I will open the search to single family homes as well maybe I can find a deal easier as there is more of that inventory on the market. @Frank Iglesias , What did you mean by work with several agents and looking for "most saavy to help in this area" don't all agents have access to the same resource, the MLS? Or are you saying reach out to listing agents to see if they know what properties are going to be listed before they hit the market? Or some agents hear things before they hit the market?

@Brett Hoover

 There are still good deals to be had here in Atlanta, just more work and creative approaches needed to get them.  Keep networking with agents, wholesalers, and look into direct seller marketing and you will have more than you know what to do with before you know it!

You never know what the future holds, prices will go up...prices will go down.  Do what you have to do to find deals that work TODAY!   The opportunity costs of sitting on the sidelines is IMMENSE!!  

A lot of good information shared here. I agree with @Jeff Morelock. One must know the local market. Some markets are no bigger than the neighborhood the property is in. Ultimately any formulas that exist are guidelines albeit they are time tested so there is value there. You have to decide what is your threshold for risk and adjust accordingly. I like to flip SFR and I want to be in up to 70% ARV. People keep saying these deals are gone. Nonsense. I just bought one and am picking up two more in the next couple of weeks. They don't come easy but they are out there. I share that to say, get to know other investors that are active. Find the wholesalers who are credible and active. For agents, yes they all use the MLS but not all brokers leverage both MLS's here in Atlanta. Furthermore, there are many ways to come up with more specific searches for your criteria. Savvier agents know how to really work the system to find deals. We reach out to the top agents in many areas as much as we can. There are some very sharp and savvy ones out there who know how to dig. Pocket listings (unlisted deals) tend to be stronger deals if you can get those as well. It's a lot of talking and networking but it pays off over time. Hope this helps.

Originally posted by :

, What did you mean by work with several agents and looking for "most saavy to help in this area" don't all agents have access to the same resource, the MLS? Or are you saying reach out to listing agents to see if they know what properties are going to be listed before they hit the market? Or some agents hear things before they hit the market?

The BEST deals NEVER hit the market! This game is ALL about WHO you know! 

@Brett Hoover , it may very well be that the Atlanta market does not support the returns you are looking for. I live in Manhattan, NY and the 1% rule hasn't been in effect here for a long time. What I did was go one hour outside of the city to find my first deal. I refused to buy a property that didn't cash flow just because of historical appreciation. Keep at it!

There are plenty of deals that come to market, you just have to be positioned to take them when they come.  You can't force it either.  It is like @Joel Owens says in finding other solutions like short sales, REOs, buying from a foreclosure investor, or just plain being ready and watching.  When it hits, strike quickly with all you got and pray! 

In Rochester your lucky if you can get 5% on a 4 unit in a nice area.  Pretty salty.  And that is when the market is calm.  

The market is ANYTHING but calm right now.  

We'll get a breath of fresh air as the fireworks go off and then everyone who was thinking about doing a transaction this summer will slap themselves in the face as they realize the peak is over and they will flood the market with the last push of volume before the season slows into fall.

Limited Multi's in good areas make those prices high and higher.

Open up your search or pay the price.

Fun times!

Originally posted by @Brett Hoover :

Okay, wow thanks @Joel Owens yes I think you hit it on the head, and thats what I was thinking. I am like man these prices are so high and the numbers just don't work I gotta throw in like 30% to make it a safe conservative investment. I didn't know if it was just me being new to this game or if in fact it truly is a frothy market. Yeah I think a lot of people are buying with the hopes of appreciation and rents to continue to go up. Atlanta has a lot of cool live, work, play developments among other cool developments going up around the city. I think those structures are driving up prices as well. I'm just looking to by a good conservative 1st investment property, one where I won't get hurt. I feel like its  a little bit dangerous out here at times.  Thanks @Frank Iglesias for the encoragment and confirmation. So I should be patient, stick to my guns and let prices come back down? Like I'm thinking in a few years if people are overpaying for these properties then they should go back on the market at a more reasonable price b/c people bought bad deals.

 Brett,

"So I should be patient, stick to my guns and let prices come back down?" No!

What you may want to do instead is learn as much as you can about how to buy 'deals' that do make sense in any market, and of course how to find them. There are many places where you can look and find deals. You will notice is said "you" can look and find deals. As an investor who wants to take control of their financial future you can't solely rely on others to bring you deals. You need to figure out how to find these deals in your market. This will take time and energy, some patience, and a whole lot of looking, but its very well worth the effort.

Two other answer in this thread gave you great advise. Look to access pre foreclosures and or look at other asset types. MF is outrageously priced almost anywhere around the country at this stage in the cycle. However, there are opportunities still to be found in commercial deals. You just need to open your mind to these alternatives and if you don't know anything about the alternatives then find a way to learn about them.

I really like the story i read about Elon Musk founder of both Tesla and Space X. After he left PayPal, where he was a co-founder, he was determined to spend time learning something new. He decided he wanted to learn how rockets where made and launched, although he knew nothing about them at all. He asked an engineering friend who had a Phd in aeronautical engineering if he could borrow all of his textbooks on aeronautical engineering. Starting from introductory books he taught himself aerospace engineering and then went on to start Space X which has already launched spaceships into orbit. Obviously he applied this same precept to electricity and electric cars.

If this man can create societal changing companies by sitting down and reading books, and yes he too received much help from those that knew more (like those that do here in BP concerning real estate) I find it hard to believe a new investor should be able to figure out how to find, analyze, and fund a real estate deal.

All the best! 

Hi @Brett Hoover

Plenty of good advice being offered to you here! 

Sounds to me that you have a regular agent giving an honest opinion on a frothy market. I certainly wouldn´t fire him and I wouldn´t wait for the market to present good deals on a plate either. 

You probably need to start getting creative about sourcing deals. Talk to more agents, talk to wholesalers, talk to property managers, talk to contractors, learn about the property auction system, consider direct marketing/yellow letter campaigns, invite some old hands for a coffee, get to some REIA events etc.

The low hanging fruit in Atlanta (and most other places) is long gone. Sourcing great deals requires a huge effort nowadays.

Best of luck and please keep us posted on your progress!

Zillow estimated rent to be $879 total or $440 per unit, Zillow now Zestimates rent to be $918 total.

The zillow estimate of rents seem low even for Lawerenceville - you may know but it wasn't in this thread find out what the actual rents are for the units and also research the rents in the area further. I have seen some outrageous prices out there as well, and speaking to a realtor that doesn't have a clue about cap rates doesn't help when you are trying to make an educated decision especially on your first property. Be patient when you see it you will know. 

Best 

Louise

I agree that short sales could be a good opportunity.  Most buyers aren't willing to wait for them - especially with the risk of not getting the property.

Another option might be to make purchase offers on rentals that have been on the market a long time.  Most of these owners will hold out for an unrealistic selling price, but one or two may be willing to sell for a good price because it looks better than an even longer vacancy.

Brett, 

As a newer investor, I understand where you are coming from. I went through quite a few real estate agents in the beginning because they just didn't get it. It is a totally different ballgame to buy investment properties (based on dollars) vs a home (based more on emotion and what the bank will lend you). There are many great realtors out there who can help you buy a home (and even some not so great at that), but most are not great at investment buying. 

You have to find a realtor who is willing to learn and work with you, or else find a realtor who has lots of investments themselves. EVEN THEN, run all the numbers yourself. Don't trust the realtor, but figure out for yourself if the numbers will work. And don't trust Zillow with rents. Go on Craigslist or use rentometer.com to see exactly what you can get. I personally buy properties that cash flow NOW with as little down as I can get away with. I do not trust or wait for anything else (appreciation, etc), and it sounds like you do not want to either.  

Don't be afraid to try a new realtor and see what they have to offer. Once you are more experienced and confident, then you will be amazed at how quickly you can tell which realtors know their stuff and which don't. But also, don't be afraid to work by yourself if you want a deal and your realtor isn't available or returning your calls when a hot property comes up (which has also happened to me). Here in NY, I have plenty of very successful investor friends who don't use realtors at all. They either work with the seller's agent (giving them the commission, which can often times work in your favor) or the home owner directly. You can find everything you need MLS-wise on homesteadnet.com.

Good luck!

Is your current realtor an investor?  If you think they are in general a good agent, but not meeting your needs maybe give them an opportunity to refer you to a more specialized agent.

@Brett,

Don't limit yourself to one single Realtor. You are free to talk to several and I would not make it a secret. You need to find a good match for your personality and needs. As a newer investor, I find that I require a whole lot of work because I don't even want to see a property before I have a CMA and crime rate report, which my now favorite agent knows to prepare as soon as we discuss an address. However, it takes time to start speaking the same language and I found several agents who wanted me to just trust their judgement that what they were bringing me was a good deal and got irritated when I required them to prove it to me.

Best wishes!

I am an agent and the area of Chicago I work in is pretty hot.  I make sure to have an upfront conversation with clients about the market and what types of numbers they will see.  That way their expectations are realistic

Originally posted by @Brett Hoover :

Should I find a new real estate agent?

Small Multi family deals are hard to find in Atlanta, not seeing many deals that are even close to the 1% rule.

I ran a property I was looking at through my spreadsheet that accounted for rental income, debt services, expenses (insurance, property management, maintence expenses, vacancy rate ), calculated NOI, cash flow, cash ROI, Cap rate.

In this case it was listed for $150,000 and the only way I could see making it work was offering $100,00 to account for all the built in expenses. 

My agent said that in this market (Atlanta) there is not going to be a perfect property and that I will never get a property running it through those formulas. Accounting for vacancy, property management ect.. would never allow me to get a property b/c I'm talking myself out of it before I begin.

 He said that now investors are “buying income/cash flow” as in putting down large amounts of cash to make a deal work. So they are finding a property that is made of good material (brick) in a good neighborhood and then putting down large amounts of cash to make it cash flow, even if the rent to value ratio is well below 1%, b/c they are buying good cash flow. 

Is that a good mindset to "buy cash flow"? Should I find a new real estate agent? He does a good job and is very responsive and a “go getter” but one part of me doesn’t trust him as he has the motivation to just get me to buy something so he can get a commission. I want a partner who will help analyze deals and set me up for success in buying my first property. 

My real estate agent tells me I should be flexible/change my formula when accounting for expenses in order to find a deal, is this smart? #askBPpodcast 

Should I "buy income" and put large amounts of cash down on a deal?#askBPpodcast 

 Hey Brett,

Whenever you have any doubt about anything, it is always good to search for some expert opinions. You have come to the right place. Good luck!