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Posted over 2 years ago

Two Types of Real Estate Investing Paths

I sometimes feel like there are two types of real estate investors. First, there’s the traditional professionals who went the route of securing a degree, whether in business, accounting, finance, real estate, or another related field, and began working for an established company, whether as a sales agent, analyst, lender, or otherwise. Secondly, there’s the non-traditional route where someone may have watched a reality show, infomercial, or heard about someone else finding success in real estate. This sparks an interest in the industry and they begin searching for ways to gain some experience.

Obviously, this is a gross generalization. Still, I think it’s something that’s not discussed as often as I would’ve expected.

The Traditional Path

Those taking the traditional path often start by working for an established company, though some will eventually work for themselves. When we think of traditional real estate professionals, many people instinctively think of Realtors or sales agents. But this also includes financial analysts, market researchers, accountants, lawyers, public officials, appraisers, lenders, and property managers.

One of the defining characteristics is that they have an education and perhaps credentials, certification, or a license specific to their job. This is not to suggest that those who follow a non-traditional path don’t have an education, but simply that those taking the traditional path tend to have a more formal education that more directly relates to their career or present job.

The Non-Traditional Path

Those who pursue a more non-traditional path include a wide range and diversity of backgrounds. Some see real estate from a part-time lens and some belong to families with decades of real estate experience; though many are brand new.

Those who are new may have enjoyed watching reality shows on television or bought a product from an informercial. Others have a family member or a friend, or simply know someone involved in real estate. Regardless of how their interest is initially sparked, they realize that they need to find a way to gain some knowledge and experience.

This often results in their reading books, participating in online forums and chats, and attending local networking events. They tend to have a more entrepreneurial leaning. Again, this does not mean that those taking a traditional path cannot be entrepreneurial. Often, these newcomers are employed elsewhere and want to gradually build a real estate career. They may have heard that birddogging or wholesaling is a low-cost and easy way to make connections and learn the industry. While it may work for some people, only those who treat it like any other job and make a real commitment tend to be truly successful. There are no shortcuts.

Parallel Paths

What’s interesting is that while real estate professionals as a whole tend to be rather friendly, there still appears to some degree to be these two parallel, non-intersecting, paths.

Some who have taken the traditional path may not appreciate those taking a non-traditional path, feeling that they’re playing the system or skipping in line. For example, sales agents who work for a realty company need to be licensed by their state. This serves to assure the public that they’re qualified, knowledgeable, and have sworn to uphold certain ethical principles. They then go out and help to bring together buyers and sellers. For their services they earn a commission.

Wholesalers are also compensated for bringing buyers and sellers together, though wholesalers don’t work for realty companies and are not licensed. It’s understandable that some sales agents and Realtors would not have the most favorable opinion of wholesalers.

Wholesalers also earn a greater percentage of the charged commission, not having to share it with their employer or partnering agent. A typical sales agent who charges a 6% commission, likely sees closer to 1.5% of the sales price because there are typically two agents (one representing the buyer and one representing the seller) along with each agent’s respective broker (the company they work for). All four parties will split the commission. But a wholesaler works independently and as a result retains the majority if not the entirety of the commission, or finder’s fee, as it’s more likely to be structured.

I’m not suggesting that sales agents and wholesalers are at war, but simply using them as an example to make the point of how it often feels like there are these two parallel paths with those taking the traditional track on one side and those taking a non-traditional track on the other.

Real Estate is About Relationships

Perhaps because real estate is an inherently local business, and perhaps because people like doing business with people that they like to be around, real estate is known to be very relationship-oriented. It’s extremely difficult, if not impossible, to be successful in this industry if you’re operating alone. The stakes are just too high and nobody has the time or mental capacity to be an expert at everything. We need each other. So why then does it seem like there are these two parallel paths?

There will also be some people who are looking for a shortcut, some people who think they can successfully implement a get rich quick scheme. And while there may be the exceptions to the rule, the vast majority of us need to fully commit to our careers in order to find success, however we define it.

Unfortunately, those taking a non-traditional path are often lumped in or assumed to be after a get rich quick opportunity. But in reality, most of these people are simply potential career changers exploring real estate, dipping their toes in the water, and trying to figure out if real estate is something that they would be interested in.

Changing careers is difficult and risky. It feels safer if you can start a new career before leaving your current one. This is what leads people to do things such as try wholesaling or renting out a house and playing landlord for the first time. The rationale is that if they can prove the concept and they enjoy what they’re doing, that it will then be easier and more comfortable to make the jump into a full-time real estate career.

Those who have taken a more traditional path should be mindful that their non-traditional path pursuing counterparts may be their future colleagues. By helping and guiding them they’re less likely to compete on a parallel path and more likely to follow suit.

Often those exploring real estate for the first time are unaware of more formal paths and so when they ask what book to read, how to find a mentor, or how to get started, they’re not looking for a step-by-step plan to bypass what someone else spent half their career building, as much as asking for some guidance in getting started.

Whenever I meet someone new who expresses an interest in real estate and tells me that they’re “just trying to learn”, I encourage them to explore the various niches within the industry. There will always be someone trying to sell them a package, a plan, or a program. My goal, and this may be the former career counselor in me, is to help them align their interests and existing skill sets to a suitable real estate career.

We often forget just how many different career paths there are in real estate, and those who are new to the industry can benefit from doing a little research. Not everyone interested in real estate investing should be a flipper. There are lenders, brokers, financial analysts, market researchers, syndicators, lawyers, accountants, consultants, entitlement specialists, developers, public officials, property managers, asset managers, contractors, engineers of various types, planners, designers, architects, marketers, and much more.