REI vs Realtor

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REI vs Realtor

Aaron Fox

Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes

What is the biggest drawback/limitation to being a realtor compared to being a real estate investor?

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

10y

OK. Let's talk numbers. For every deal that closes, the REA makes a small commission, and the REI (if they have even the slightest clue) makes more than the REA.

Example: $80,000 closing
REA = $4,800 (6% shared by all REA involved)=>>5/month=>>$288k/yr (1.5% Splitoff = $72k/year
REI = $12,000 Profit (based on a 15% profit)=>>1 flip/mo =>$144k/year

If that property is a hold, the REA makes a one time commission, but the REI makes cash flow every month on that property for as long as they hold it.

Example: Same property
REA: $4,800 (same as above)
REI: $500/month CF = $6,000/yr....every year=>>add 1/month for 1 year=>>$72k/yr1; $144k/yr2; etc...

There's a reason many agents become investors.

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
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Realtors have no passive income that they are in control of.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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I am both. Like Chris said, being an agent is work. It is not passive income. Though as someone who self manages I will attest that isn't exactly passive either :)
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Aaron Fox
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Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
So there is potential for bigger profits if you are an investor rather than a realtor because they only make commission through the broker firm? I'm interested in both! But at first since I will be working 40 hours a week at my, it will be tough to get my realtor license while also flipping houses. I want to be an investor first and down the road look at becoming a realtor as well.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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Most of the top agents I know make considerably more than the top investors I know. However it is incredibly hard to be a top agent. I make a very good living as an agent, and work quite hard at it and still probably only make about 15% of the amount as some of the top agents in my office. However there are many agents who can't even make 15% of what I make. There is something like a 90% drop out rate for the profession.
Now being a buy and hold investor....it might be hard to build it up enough to make a lot of money per year.....however it is also pretty hard to screw up. You hold onto that property and keep it rented....eventually it is going to be paid off, and ideally inflation will happen and it will go up in value.
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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
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@Aaron Fox,
As an investor you could profit some 10 times or more the commission made by an agent / broker on a completed transaction.
Do that twice a year and you're making a good buck.
As an agent / broker and twice a year? Not so much.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
OK. Let's talk numbers. For every deal that closes, the REA makes a small commission, and the REI (if they have even the slightest clue) makes more than the REA.
Example: $80,000 closing
REA = $4,800 (6% shared by all REA involved)=>>5/month=>>$288k/yr (1.5% Splitoff = $72k/year
REI = $12,000 Profit (based on a 15% profit)=>>1 flip/mo =>$144k/year
If that property is a hold, the REA makes a one time commission, but the REI makes cash flow every month on that property for as long as they hold it.
Example: Same property
REA: $4,800 (same as above)
REI: $500/month CF = $6,000/yr....every year=>>add 1/month for 1 year=>>$72k/yr1; $144k/yr2; etc...
There's a reason many agents become investors.
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Aaron Fox
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Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Russell Brazil
I didn't realize that the dropout rate is 90%, that's insane. Not saying I couldn't do it because I think I can. But I think it would be a lot harder, especially just starting out. The other thing is we have a realtor on our team already, so were set for now until we expand.
As a buy and hold it will definitely take some time but that is why I intend to flip houses first.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@David Dachtera
Investor is sounding like the route I will take.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Joe Villeneuve
Yeah I see it too! What is the splitoff you are talking about in the first example?
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Originally posted by @Aaron Fox:
@Joe Villeneuve
Yeah I see it too! What is the splitoff you are talking about in the first example?
The split off is all the REA involved splitting that 6%, the 1.5% represents what the agent typically will make after both agents, and their brokers take their cuts.
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Jacob Pereira
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
10y
Keep in mind that the REI holds on to a lot more risk and needs more resources than the REA. An REA could easily put $100k of their own money into a project, and pick up the liability of a loan, whereas the REA has to put in time, gas, marketing, and possibly staging, cleaning, and landscaping costs, depending on the property. Both can be very lucrative, but they are quite different jobs. I think @Russell Brazil hit the nail on the head when he said that the highest tier agents make more than almost all investors, but those guys are also superstars.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Joe Villeneuve
Oh okay, thank you for the clarification. That seems to be a small piece of the pie in retrospect to what you can make as an investor.
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Aaron Fox
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Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Jacob Pereira
In the second sentence you said REA twice. Which one should be REI?
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Originally posted by @Jacob Pereira:

Keep in mind that the REI holds on to a lot more risk and needs more resources than the REA. An REA could easily put $100k of their own money into a project, and pick up the liability of a loan, whereas the REA has to put in time, gas, marketing, and possibly staging, cleaning, and landscaping costs, depending on the property. Both can be very lucrative, but they are quite different jobs. I think @Russell Brazil hit the nail on the head when he said that the highest tier agents make more than almost all investors, but those guys are also superstars.
This is true, but the REA is depending on more than the REI for their income. The REI has a lot more control over their future than the REA does.
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Jacob Pereira
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
10y
@Aaron Fox, good catch. I meant to say that an investor could easily put in 100k of their own money, and an agent only puts in time and smaller expenses.
@Joe Villeneuve, good point, although that assumption does require that the REI is already financially established.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Joe Villeneuve
That's a good point because I feel a realtor is more confined to the brokerage firm they are working with and working only on commission, not profit and passive income.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Jacob Pereira
Makes sense now, thank you! But that's one good thing I have starting out, financial support. My mentor will be funding the business and helping me learn, while I go out and take action. He is too busy with his other work, so he wants me to help build the business and find properties for our contractor to fix and our realtor to sell, or put properties we want to buy and hold in our portfolio.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Originally posted by @Jacob Pereira:

@Aaron Fox, good catch. I meant to say that an investor could easily put in 100k of their own money, and an agent only puts in time and smaller expenses.
@Joe Villeneuve, good point, although that assumption does require that the REI is already financially established.
Actually, it doesn't require the REI be financially secure at all...just "knowledge of financing" secure.
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Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
10y
Being regulated
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Jake Thomas
Residential Real Estate Agent · Grand Rapids, MI · Member since 2013 · 803 posts · 689 votes
10y
Passive income vs a job.
I am a realtor now to fund my rental purchases to one day only focus on rentals.
You need a job to buy rentals in the beginning.
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Matt Geerts
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Originally posted by @Russell Brazil:

Most of the top agents I know make considerably more than the top investors I know. However it is incredibly hard to be a top agent. I make a very good living as an agent, and work quite hard at it and still probably only make about 15% of the amount as some of the top agents in my office. However there are many agents who can't even make 15% of what I make. There is something like a 90% drop out rate for the profession.
Now being a buy and hold investor....it might be hard to build it up enough to make a lot of money per year.....however it is also pretty hard to screw up. You hold onto that property and keep it rented....eventually it is going to be paid off, and ideally inflation will happen and it will go up in value.
Russell, come on... the top tier agents are not in the same stratosphere as the top tier real estate investors. I realize that you said "investors I know", but that just means that you don't know the big real estate investors. Top tier investors talk about billions of dollars over breakfast.
The big differences in the various facets of RE is in my opinion:
Agent, wholesaler - jobs.
Flipper, L/O wrapper - small business owner
Buy and hold, notes - investor.
Have a quick google for Kiyosaki's "cashflow quadrants". You want to be on the right side of that graph or else you're just working for a living.
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Paul Ewing
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
10y
I am going with both. There are advantages to being a licensed REA when investing such as easy access to listed properties and being able to submit your own offers. Also it can be a good source of cash for future purchases. Also I think being regulated by the rules helps you steer clear of some of the less than ethical tactics that are commonly put out there to aquire properties.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Jake Thomas
Okay, thank you. I'm not saying I don't ever want to be a realtor, just right now with starting out at a different job, I want to focus on the investor side since we already have a realtor on the team and since I don't have much time to get the license. Once my business has grown enough and I can leave my job, I will go for the license, since I want to start owning rentals in the next year.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Matt Geerts
I love Kiyosaki! Definitely will be on the right side of that quadrant! But I agree that the top REI make more than the top REA.
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Aaron Fox
OP
Real Estate Professional · Rochester Hills, MI · Member since 2015 · 80 posts · 12 votes
10y
@Paul Ewing
Yes, that's very true. With the situation I'm in right now with a realtor on the team, we have access to the properties. But eventually when I can get out of my job I would like to get my license and learn even more through the studies involved with acquiring it.
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