Viewing Investment Real Estate From Different Perspectives

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I have always wanted to get into photography.  It has always seemed like an interesting hobby to me.  What I have found most fascinating when I look at photography books or see pictures on-line is that a simple change of perspective, direction, lighting or angle can produce two different images of the same subject.  I have become very involved recently with different philanthropic real estate ventures and have been mentoring some real estate entrepreneurs as well.  Through these new ventures my eyes have been opened to the fact that much like photography, subtle little changes in the way we view real estate can completely change the picture.  I am going to offer some of those insights and even a few suggestions along the way.

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Investment Real Estate From A Sellers’ Perspective

No matter how we view it, when buying a piece of real estate for investment, there is always a seller on the other end.  It is human nature to what to squeeze the highest price out of a sale.  As an investor, it is always good to keep this in mind when negotiating a buy.  It is very easy to lose sight of the fact that a seller has a reason for their actions just like we have a reason for our actions as a buyer.  Sometimes there are circumstances that tell a seller to take what they can get and move on down the road of life.

In cases of divorce or a probate sale, you have a seller who may be going through a very difficult decision and yet, they simply want to get rid of a piece of property as soon as possible.  Many properties today are being sold our of an REO status where you have an institution as owner.  They too often want to get rid of a property as they have already booked their loss on a particular home and are ready to move it off of their books.  It will be interesting in the next two years as the market moves away from REO and back to more traditional sales with home owners selling their homes.  This will naturally happen in many markets as foreclosures wind down.  In these cases, many investors are going to have to adjust and either learn or re-learn how to deal with an individual seller.

Sometimes sellers in these scenarios are very easy to work with and other times they are not.  Being able to quickly understand their motivation for selling – seeing the process from their perspective – will be a paramount ability for an investor to make purchases.  No longer will investors be dealing with a quick sale, but instead will have to work with a seller who can be looking to secure a quick close transaction with an investor, but waiting for a full price offer.  This can be very frustrating and I have seen many investors make mistakes in this process because they fail to consider that the seller has their reasoning.  Sometimes they walk away when a deal is very close and other times investors settle for a higher price than they should because they really want the property and afraid of losing the deal.   It is our job as an investor to think about the sale from a different angle and get to the bottom of what the seller wants and needs.  This will help an investor get to the bottom line quicker and either make a deal or move on.

Investment Real Estate From An Agent’s Perspective

This is a really broad perspective because there are so many different ways that an agent can come into play on an investment deal.  Let me first be clear that I am not an agent although I am a partner in ownership of a realty firm in Memphis and will start one in Dallas when the time comes for that step.  That puts me in close proximity to several agents and they serve the investment community in many different ways.

  1. When an agent is listing a property for a bank or other institution they are listing it under a contract with that institution for their services.  As part of that service not only are they listing the property for sale, but they also are providing the bank or owner with an approximate value before listing.  This is called a B.P.O. or brokers price opinion.  Then the property is listed by the seller with the agent at or near their BPO price.  As soon as the property is listed, the clock starts for that agent.  It is quite common for a score card to be kept on each listing agent detailing their success and ability to get properties sold once they have them listed.  That can be very motivating.  Of course, if the property is sold well below the BPO, the agent can be wondering how that makes them look to the bank or owner.  Keep this in mind when you are negotiating.  This can make for a very sticky situation for a listing agent as the dynamics of making a deal – list price, sales price, speed of sale – all collide to create competing forces.
  2. When an agent is making offers for an investor, they will generally want to make all the offers for an investor as a way to compensate for what can be a lot of work with a low percentage of payoff.  I am sure you have heard it said that investors can make hundreds of offers to get one deal.  It is no wonder many agents have no desire to work with real estate investors.  At the same time, an agent wants to represent the investor on each deal as well to make sure they get paid.  What about their own listings?  Agents want to represent the buyer on their own listings as well so they can get both sides of a commission.  Anything wrong with that?  Not at all.  But it does create a scenario again where the investor is in the middle of what can be competing interests from a listing agent and a buyers agent.  Instead, create a scenario where an agent makes offers in your name and you pay them for every deal you buy.  At the same time, have them allow the listing agent to represent you as a buyer and therefore keeping both sides of the transaction.  Now you have a licensed agent making sure all of your offers meet the proper legal guidelines and a listing agent who is happy to accept each of those offers.  If you are buying correctly, you should have the ability to pay the extra 3% commission to your agent who prepares all of your offers.

Investment Real Estate from a Tenants’ Perspective

Not all real estate is purchased as a long-term investment so not all investors have to deal with tenant issues.  However, whether it is a tenant or a retail buyer, there is always one more person in the equation that will help determine if you are making good decisions as an investor.  In some respects, it seems easier to prepare a property for retail sale.  Although there is the fine line of not “over-rehabbing” your property based on its’ location and eventual value, as an investor the general rule of thumb is that you want to make your property really shine among any others that may be for sale.  Upgrades in appliances, finishes, flooring and finishing effects seem to be easy answers for an investor who wants to sell a property fast to an end-user buyer.  But, what about a tenant in a long-term buy & hold?

Too often a tenant is a complete after-thought when it comes to investment rental properties.  Assumptions are made that as long as the property is “rent ready” a tenant can be found or that if it takes a little while to get a property occupied, you can just reduce the rent and that will take care of it.  That is not the case at all with single-family rentals and investors have to take the time to consider their property from the perspective of a tenant.  LIttle adjustments and subtle finishes to your property can not only be the difference between higher and lower monthly rent, they can be the difference in the length of stay and the condition of the property when the tenant moves out.

Long-term buy & hold investors need to consider what their future tenant is going to want in a property.  More and more tenants want small luxuries such as blinds, ceiling fans, glass security doors, electric garage doors, basic cable, 24-hour maintenance hotlines, online payments options and human interaction when they make a request just to name a few.  These are not terribly expensive things for an owner and while most are small selling features, they are features that can give you an advantage over the property down the street that may be listed $100 lower per month that your property.  It is amazing how low tenants place the bar when it comes to feeling like a property management company cares about their needs.  If they feel like their needs are being met, what is even more amazing is the amount of time they are often willing to stay at one location.  Reducing vacancies, the number of times a renter moves out and the costs of renovation between tenants are all benefits of thinking about your investment through the eyes of your future tenant when you are buying.

Much like taking a picture from a different angle or with a different filter can create a different image, considering your investment purchases from a different perspective can have tremendous benefit.  Not only can it help you to improve your negotiation skills, but it can also help you to win more deals and help you to create more demand for you properties.  For an investor it is always about the numbers.  No question about it.  But if you can improve your numbers by taking the time to learn how to view properties from all angles…well, that could be all the tweaking your business needs to lead to monumental changes!

I would love to read how you approach your investments from a creative point of view…

Photo: Franco Folini

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

16 Comments

  1. Are you suggesting the investor pay the buyers agent 3% on every deal they buy to prepare the contract but the listing agent is listed as the agent for the buyer on the contract? Have you used this technique? It seems tricky to make that work since the listing agent is legally responsible for the contract if he is buyers agent and he would most likely want to prepare it himself because if that.

    Banks take into account bpos, but more and more they are getting appraisals as well and 2nd bpos from another agent. They weigh all those together to get a value. Many banks will start out with appraised value and ignore bpo.

    • Chris Clothier

      Hey Mark –

      Thanks for reading and leaving a comment. I am suggesting that you use your agent to do all the prep and ground work for the houses you are going to make offers on, but allow the listing agents to represent you on the buy. You make a good point that some representative agents are only going to want to prepare their offers, but you will still want an agent doing your legwork for you and you have to pay them. It is not tricky to make it work as long as you account for the expense of paying the agent that works for you on each deal you complete out of your profit. Always make sure to properly compensate them through their brokerage and included on the HUD1, but if so, you now have an agent working hard for you and listing agents happy to work with you because they make full commission.

      Thanks again for commenting –

      Chris

        • Chris Clothier

          Hey Mark –

          I am sure as a listing agent, you would be happy to handle both sides of the transaction. We have found that this is a great way to build rapport across the whole city, which is very important for a company of our size. The bigger we get, the more important it is that we are dealing with a diverse group of professionals across the board…listing agents included.

          Chris

  2. Chris-

    I have never understood the reluctance real estate investors have to working with agents. Adding that “line item” in your list of repairs and costs is just that; another cost associated with the property. (They like to get paid just like we do). I always welcomed it when an agent would bring me a buyer. Additionally, agents can be a valuable source of pocket listings for you.

    Agents are your friend!
    Great post.

    Sharon

    • Chris Clothier

      Sharon –

      Thanks for the comments and the read!

      We track everything at our company and it is one of the reasons why we are very successful in hitting our mission. We even track small things like interactions with local real estate agents – especially listing agents. By tracking that, we are able to watch improvement where it matters most – how many houses we buy from how many agents. We know that in 2012 we purchased at least one property from 57 different listing agents in the city. We were able to do that by following the technique I talked about in the article. Allow the agent to represent you on the buy and they have a very strong motivation to work with you. Combined with doing everything else correctly like looking at homes before making an offer, closing on time and never backing out of a contact – and you have a great combination for success.

      In my opinion!

      All the best to you – Chris

    • Chris Clothier

      Thanks for reading and leaving a comment Ali.

      I just thought it would be a good idea to remind everyone that there are always views different than the one we are seeing from our perspective. Remembering that can sometimes help us finish off a deal!

      All the best to you –

      Chris

  3. Brilliant advice – we’re international buyers’ agents (yet one more party involved, >groan< although our perspective is the same as the buyer's) – so we encounter potentially endless chances for frustration rising from all of the above, not to mention a few inter-cultural differences thrown in – this approach you describe leads to a better understanding and reacting to the other parties involved – it's the only sane and efficient way to deal with it all! 😀

    • Chris Clothier

      Ziv –

      You really give a great testimonial for keeping others’ point of view in the front of mind when we are trying to put deals together. Thank you very much for taking the time to read and then to comment on the article.

      All the best –

      Chris

  4. Great article, Chris. I’ve done this too – use the listing agent on the buy side as well. Some think there is potential there for a conflict of interest but I have not perceived it and in fact have gotten the listing agent to knock a point or two off the commission because they were getting both sides of the deal and wanted to help to make it happen.

    Those 57 agents you worked with last year are probably eager to bring you more deals!

    Thanks for sharing!

    • Chris Clothier

      Hey Dev –

      Thanks for the comment and sorry for my late reply!

      That list of 57 agents will probably grow this year because everyone of them are eager to do business as well as each of their other office agents. People want to do business with those whom they like and trust. When you take actions that help others do both of those things, your business will grow.

      Chris

  5. karen rittenhouse

    Hi Chris:

    We never worry about squeezing all that we can out of a deal. We are always aware that the seller needs to feel that they “won” in the deal, as well. We want each deal to represent a win/win. It takes pressure off of us and leads to great relationships and referrals.

    Thanks for your “perspective” with this post!

    • Chris Clothier

      Hey Karen –

      Thanks for writing your response. I’m sure you would agree that there is nothing wrong with making as much profit as you can on every deal. Simply being aware though that you do not have to make as much profit and that there may be reasons NOT to make as much profit puts you way ahead of others in this business. Keeping others in mind when doing deals is the ultimarte business builder.

      Chris

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