This is the first of a two-part series that lays out how to profitably work with real estate investors. Part 2 will be available next week.
As a real estate agent, you’re accustomed to working with retail buyers of real estate – folks who want and expect the properties they buy to be immaculate, in move-in ready condition. If a property doesn’t conform exactly to their expectations, the would-be buyer mentally checks out and moves on to the next property on their list.
If you don’t have another property for them to look at, you either continue your search or your prospect finds another real estate agent to work with.
There’s a different world of real estate clients out there you probably aren’t familiar with, players with money who are regularly in the market to buy or sell properties. Even better, the most qualified of these special clients have either already obtained financing (or know how to get it quickly for the right property) or are able/willing to close quickly in all-cash transactions.
I am referring to real estate investors. As a real estate agent, you can benefit by working with a few solid, professional real estate investors. You owe it to yourself and your future success to learn how to thread the success needle by profitably working with the ideal balance of real estate investors to fill in the gaps in your business and take you to the next level.
Very quickly, there are a few types of real estate investors you’ll likely encounter. The first two hold some promise, but the third category can make a profound improvement in your net worth and your professional development.
Recreational investor– This category of investor is someone who will buy one or two properties, make some repairs, then hold it for income or will try to quickly sell for a quick profit before repeating the process. While you can absolutely close a few transactions with this kind of investor, these folks will never give you enough volume to make a huge difference in your business.
High Net Worth, hands off investor– You may encounter high net worth individuals from time to time in your real estate practice. These business owners, professionals (physicians, attorneys, accountants, etc) retirees or professional athletes have neither the time nor the inclination to deal with day-to-day ownership details. After writing the initial check for their purchase, most want to let someone else deal with the details and mail them a check each month. If you’re well connected, this type of investor holds incredible promise to you. I’ll devote an entire article to working with high net worth investors in the near future.
Professional Real Estate Investor– The focus of this article is the professional real estate investor, individuals who are in the market for single family homes or smaller multifamily properties. Your ideal prospects will be well-capitalized, work as full-time investors, and are in the business of buying properties to hold as income properties or as fix and flip opportunities.
In this special two-part series, here’s what you’ll learn:
- Why working with real estate investors makes good business sense
- The best way to work with real estate investors
- The kinds of properties investors are looking for (and the ones they absolutely do not want)
- Key attributes of the real estate agents you need to work with
- The categories of real estate investors to choose from
- How to market yourself to real estate agents
- Ways you can work with real estate investors (services)
- The kinds of real estate investors you should seek
- Real estate investors you should avoid
- Closing the deal: making sure you get paid
- Strength in small numbers: building a legacy with a few great investor clients
As you can see, this is a comprehensive list of best practices for working with real estate investors. If you’d like to set yourself up to maximize the opportunities available by working with real estate investors, you’re in the right place.
Why working with real estate investors makes good business sense
There isn’t a single reason working with real estate investors makes good business sense – there are many. Real estate investors:
- Are always looking for good investment properties
- Have access to a ready pool of investment capital (cash, traditional financing and/or pools of investment capital, etc)
- Are in the market to buy and/or sell regardless of market conditions
- Have a willingness and ability close many more transactions that retail buyers/sellers
- Will buy imperfect properties, sometimes sight unseen
Key attributes of the real estate investors you need to work with
Your most qualified real estate investing clients will be full-time investors. The reason is one of practicality: full-time investors are infinitely better equipped to close multiple transactions and to do so regularly. This type of investor will typically also have something else going for them: they’re making money. Investors who are making money have figured out how to secure financing, get properties purchased, financed, fixed, and profitably occupied. In short, these investors are able to replicate their success and are able to clearly articulate the kinds of properties they are seeking.
Most successful real estate investors know exactly what kind of properties they need
Most successful real estate investors know exactly what kind of properties they need (investors tend to purchase similar kinds of properties and don’t like to have too many unknowns enter the mix), have a process that works for them, and – this is key – can articulate it to you in way that sets you up for success.
Real estate investors you should avoid
Because of the popularity of real estate investing books, programs, and seminars – and because some real estate investing teachers sometimes hook prospective investing students with a promise of big money in real estate using little or none of their own money – you may encounter some of these investors.
While this is a generalization, many of these investors are broke, have little if any credit (or have bad credit, sketchy financials, or are otherwise not ready to buy anything. Obviously, investors in this category are not good prospects for you. The good news is, investors who are in what I would call the “wannabe” category are usually pretty easy to pick out. If not, they will reveal themselves as you talk with them. Investors who aren’t a good fit aren’t bad people – they’re simply trying to make their way based on what they’ve been taught. If you determine that one of these prospects isn’t a good fit to work with you, you can gently send them on their way by telling them now isn’t a good time for you to work together.
The kinds of properties investors are looking for (and the kinds they absolutely don’t want)
The best real estate investing clients will be able to clearly articulate the kinds of properties they’re looking for. You’ll need to listen pretty closely to your prospects, much like you do your residential real estate prospects. The key difference is that buying decisions are predicated on profit potential.
Every market and investor is different but here are some generalizations. Most real estate investors are looking for properties that:
- Can be purchased at a discount (they need to purchase at a low enough price that repairs can be made and still leave room for profit, which often means purchasing at less than market value factoring for needed repairs)
- Have imperfections or are in need of substantial rehabilitation
- Have distressed ownership (owners who have died, are divorcing, are in foreclosure, etc)
- Are or could be family and pet friendly
When working with real estate investors, it is absolutely vital that you understand that real estate investors aren’t usually interested in non-conforming properties (weird utility setups like shared meters or heating/cooling systems between units), properties with significant zoning challenges, properties that are offered at full market value or can’t be rented for a decent profit after all expenses (including mortgage, taxes and insurance).
Depending on the investor, you may find that they are interested primarily in investment properties with a certain number of bedrooms, square footage, layouts, etc. You’ll increase your chances of success by finding out what your investor wants – and then working to find it for them.
There’s much more coming in part 2, including how to structure your relationship in a way that guarantees you make money and get paid whether your investor client buys anything or not, strategies you can use to market yourself to the right prospects, and how to triple your business by working with fewer clients.
Ken Speegle is Realty ToolKit’s resident real estate industry expert. Every week he writes insightful, in-depth articles about topics related to real estate marketing, each designed to help make you a better, more profitable real estate professional. Ken is the founder of therealestatewriter.com and has been a real estate copywriter since 1994.
