Don’t be fooled by the title.
Let me start out by saying I love working with Realtors in my business; that is certain Realtors. What do I mean by that? I like working with those agents that have also done some investing themselves.
Before you take advice from a Realtor in your investing business, you should know that all Realtors are not created equally. Like folks in any other profession, some are better than others. When it comes to working with seasoned real estate investors, I have found that the great majority of them have no real understanding of what we do and why we make those annoying low offers.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
The 4 Reasons to Use Caution When Taking Advice From a Realtor
Here are 4 reasons to use caution before you take any advice from a Realtor when buying investment property.
1. Most of Them Only Have “One Hat”
In most states, there are strict laws about what Realtors can and cannot do.
They have to attend some type of training then take (and pass) a test. They learn about the law and how they must conduct themselves in the course of doing business.
It’s all laid out for them; their method of doing business. Then along comes a real estate investor and asks them to do things they have never been schooled on. What is likely to happen is that they will “fly by the seat of their pants” and you will pay the price later down the road.
2. You are Likely to Pay Too Much for Your First Few Properties if Your Agent isn’t Also an Investor Themselves.
This is an important point of distinction.
A Realtor that is not also an investor probably has no clue how to put together an offer based on the formulas we need to use. They don’t know what a good deal even looks like (for us). It’s not their fault. They weren’t trained to do this.
I will take this one step further. In most cases that low-ball offer you need to make will be something they really won’t want to do. I have actually had agents tell me they weren’t wasting the listing agent’s time by presenting a lowball offer. I’m pretty sure they are obligated to present every offer. This is a sure sign you don’t have the right agent.
They might have the best of intentions, but they simply lack the knowledge they need to give us good advice in our business. When you are a new real estate investor, you simply assume they have the skills and knowledge to help you which is almost always a mistake.
3. Just Because They Belong to Your Local REIA, Doesn’t Mean They Are Qualified to Advise You!
Don’t assume they know what they are doing just because they are a regular at your local REIA. This was a big “Ah ha moment” for me when I finally figured this out.
When I was just starting out, I became friends with another woman who was a licensed Realtor and a member of my local REIA. I was aware that she was fairly new in the business, but I assumed (incorrectly) that she has certain knowledge and skills that she simply didn’t have. After all, she was at every REIA meeting networking with other investors that were doing deals. She spoke the language of real estate investors.
Our combined inexperience really cost me down the line. I paid too much for my first couple of houses she found for me. Being a complete newbie, I didn’t know what “I didn’t know”. Sure the houses were cheaper than retail, but it was a while before I realized I had made a big mistake the day I signed on the dotted line.
4. Don’t Assume They Are Qualified To Advise You On Good Neighborhoods
Your Realtor isn’t going to have “any skin” in your investing business. It won’t be coming out of their pocket if you make a bad decision and lose money on a deal. In the end, these decisions are all up to you.
However it’s vital that your Realtor be knowledgeable about the demographics of the specific neighborhoods you look at when you are just getting started. After all, that’s why you have them on your team.
They should be able to answer some simple questions about the area such as:
- If I buy in this area, is it likely that my property will continue to grow in value? Has it show a slow and steady growth pattern over time?
- Is this an area that is clearly declining in value?
- Is this near a war zone or something else that would negatively affect the value of this property now or down the road?
If you have the right Realtor, they will be able to tell you that a particular area is mostly rental property or it is mostly homeowners.
They will be quick to point out that an area has a high crime rate or that the schools are just “so-so”. All of these factors will have an effect on your property values, and in some cases the types of tenants you ultimately attract.
Choosing the right team members is a critical piece of the puzzle when you have a business. So there you have it; 4 reasons to carefully choose a Realtor to work with in your business.
Weigh in; do you have anything to add? What has been your experience when working with Realtors?
Be sure to leave your comments below!