When first becoming a real estate agent at age 26, I realized someday I’d probably fix up houses, especially since I had worked in construction all through college and continued to do so for an additional nine years before starting my own painting company. About seven or so years after starting my own painting company, I also became an investor agent instead of being just a regular real estate agent.
It’s funny how most real estate agents never really become real estate investors. We may start out owning our primary residence, maybe a beach home or the typical duplex, but few of us go on to own large portfolios.
So, why is that? Isn’t that almost like a stockbroker who never invests in stocks?
In the beginning, I needed income plain and simple, thus the two jobs. I made ok money on my day job, but I wasn’t going anywhere quick working for the man. This was easily proven years later when I started my own company and doubled my income the first year out.
It was my second job of being a real estate agent that ended up being the real wealth builder. Real estate commissions tend to be larger checks, and I could bank them since my family and I could live off my day job’s income. This worked out okay, but it was really a get rich slow kind of model — until I realized the money wasn’t in selling houses; it was in buying them.
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Trading Commissions for Equity, Tax Breaks & Cash Flow
Looking back, as time went on, it was easy to see that I was a selling agent for several years, then an investor agent and then eventually a buyer of real estate assets.
At first I thought if only I could sell more houses — or sell more expensive ones — then I’d be rich. Studying to be a real estate broker had started to open my eyes to working with investors. But it probably wasn’t until I read Robert Allen’s book Multiple Streams of Income that I started to change my approach. It was then that I started working with investors only, where each buyer would buy multiple deals.
Since I was doing the property management, and I had formed my own titled company, I was getting paid multiple streams of income from the deal (i.e. real estate commissions, a monthly fee for property management, a finder’s fee for getting a lease signed, and quarterly distributions from my title company, etc.).
After working with investors for a while, joining groups where they hung out and networking with them on a regular basis, I began to learn how and what they did to build up their portfolios. Thinking back, it was probably the opposite of what most investor agents do. They become investors first and then become agents later to save money on taxes, save on commissions, and get more deals by having better access through their MLS memberships.
Advanced Strategies: How I Started Getting Creative
It wasn’t until years later, after following some of the Jack Millers and Pete Fortunatos of the world, that I started to get really creative. Real estate investing started to become a fun game.
As I became more focused on finding motivated sellers, I also started to utilize other strategies, such as lease options and even “subject to” deals, where I could control the deal rather than owning it.
Although today I focus primarily on distressed, institutional real estate assets, folks like Jack started to change the way I thought about deals.
For example, in the old days when I got a call to list a house for sale, I went out there looking to earn a commission by listing and selling the property. Jack showed me that the best deal may be to put an option on the property and then to later sell the option. Selling the option can be more lucrative than just a real estate commission, and at the end of the day, you’re still helping the seller sell the property.
Another one of my favorite strategies was the lease option. Wendy Patton was a real estate agent and national speaker who probably mastered the strategy as well as anyone, and I attended several of her live seminars when I started doing lease options.
This is also a more lucrative strategy than simply collecting the commission and monthly management fee. For example, let’s say a property is worth $100k and rents at approximately $1,000 a month. If I was doing the property management and I found a renter for the property, I would charge a rent finder’s fee of $1,000 and an 8% (or $80 a month) management fee.
If I did a sandwich lease option on the property instead, I could get $3,000-$5,000 down as a non-refundable option deposit, and I could rent it out, making a few hundred a month on the spread between what you pay the home-seller and what you charge the rent-to-own buyer. Plus, there’s no maintenance for me to do at all because the home-seller would be responsible for any expensive repairs (over $300) and the rent-to-own buyer would be responsible for any repairs under $300.
As you can see with other advanced strategies like using private money (or hard money), there is almost no limit to how many deals you could do, whether that’s full-blown rehabs or rent-ready deals. If I knew then what I know now, I could have kept all the properties (approximately 75/year) that I sold to other investors because I didn’t really need any money; I just needed OPM (other people’s money).
So if you’re an investor agent, which do you really prefer: buying or selling?