Real estate agent investors

[Mike Rosback]

Last fall I ended a long career in IT and decided to push ahead with full-time real estate sales and investing.  I have been a licensed agent since 2009 but much of that time was as a referral agent and I've had little time to do any real estate as I was working full-time in IT. That chapter has now closed.

Looking forward to 2020 being a new chapter as a full-time agent and investor.

Looking for advice on how real estate agents are handling the job of being both an agent and an investor.   On one hand you may simply be acting as an agent for a client. On the other hand you may be involved directly or indirectly in a deal.  How do you handle those deals as an agent with partners and also with your brokerage?   

One question is - Do you still take your commission since if your brokerage is involved they will want their portion.  Lots more possible questions on this subject.  Looking for all possible pitfalls and successes.  I like win-win situations.

[Russell Holmes]

@Mike Rosback check with your brokerage on 'personal deals'. They'll often waive brokerage fees on a couple of deals a year if you're the buyer or seller (being a member of the LLC buying or selling works too). My brokerage is a 20% broker split up to an annual $16k cap (plus $40 e/o and $25 broker review, both of those hitting caps as well) and they allow three personal deals a year with no split. I can set my own commission at whatever I want, but if my gross commission is below $2500 on a non-personal deal or 4th personal and beyond, there's a minimum $500 broker split. They waive that if the property is really cheap and a 3% commission wouldn't get to $2500. If I were to sell 4 personal deals in a year, I could list the Fourth with a $500 listing commission (plus e/o and broker review if I hadn't capped) and they'd be perfectly content with that. Every brokerage is different, but I'd imagine most have minimum fees and exclusions for personal deals.

I find that I learn things working with investors that help me dealing with 'regular sales' and I learn things from those regular sales that help me on the investor deals.  It's good to have a broad perspective of transactions since oftentimes the end result of an investment is either a retail sale or a market-rent priced rental to a buyer or tenant who isn't an investor.  Since those 'end users' aren't investors, working with some regular buyers and sellers helps to see what they find important and apply it to what should and shouldn't be done on rehabs.

Whether or not the brokerage will waive their cut, you can do a couple of things with your net share.  You can get it paid to you like a normal commission, or concede it back into the deal for a better price if it's written in the offer that way.  On the sale side of a flip, you can simply list it with whatever minimum your brokerage requires and then offer the buyers agent their commission, or list it with a normal commission to you paid out at closing, splitting the proceeds among partners after.  On the buyer side it depends primarily on if you want a better deal or want the income at the time since the commission is set by the seller before you come into the picture.  I think it depends on the deal and your equity share in the project on which works better.  Realtors I know who do deals themselves often make offers which include 'buyer's agent commission will be credited to closing costs' effectively putting less cash into the property and then they list finished flips with 0% to them and 2.5-3% to the buyer's agent.

I'm a newer agent (2yrs) still building my momentum and income to support a family which is from commission sales primarily for now, so I don't have much capital myself to do solo deals. In building my transaction volume and working with investors, I've struck up a JV partnership with a client who bought a flip with me as his agent. On the front end, I was just playing the helpful agent role, so I made my commission and he bought the deal. Diving into the rehab, he realized he was short on time and skill to be as involved as needed and brought me in as a 'handshake partner' since I brought time and skill that he didn't have. I'm not a legal owner and it's our first deal together, so I'll make my commission on the sale while it will be deducted from my profit share check he writes later. My broker won't cut me a break on broker cut since I'm not a legal owner. It's a 'learning experience' flip without a huge profit that took far longer than it should have, but my partner valued my assistance and wanted to be sure I made commission even if it ends up breaking even or with little profit. The lessons learned for the next are priceless.

Before the next one, we're going to establish an LLC that we are each members of which is the beneficiary of a trust funded by his SDIRA. I'll then be 'legal owner' guided by a JV agreement we have outside of the legal title to the property and will have the option of selling as a 'personal deal' without broker splits.

In asking around, I've found many Realtor/Investors operate on JV agreements on each property rather than putting together partnership agreements that survive beyond one property. Even if you do several deals with the same partner, it's best to approach each one taking into account what works on that deal. The next one you may decide to shift obligations, equity splits, how you use commission, etc. You'll also, at times, find investors that don't need a partner but need an experienced Realtor so you'll obviously just stick with commissions on those.