Having a real estate agent that is also an investor, yay or nay?

Question

On the one hand, it's awesome to have an investor agent looking for properties for you: they know the parts of town that are heating up in investor activity, they know how to run cap rate numbers, etc. Here's my dilemma in using brokers/agents that are also real estate investors though: Why would they be showing me a property that is a great deal (I only buy great deals, not good or decent deals)? Why would they not try to acquire the property themselves. Whenever they show me a property I always have a 'So what's wrong with it?' question in the back of my mind. Also, they usually get frustrated if you don't move on a property because your cap rate goal is higher than theirs. Phrases like, 'That's an amazing deal for Chicago', start popping up, even though they know your goal is 10% and they are showing you an 8% cap rate property, for example.

Has anyone else had this come up?

Crystal Smith · Answer

I can't speak for all agents that investment for themselves but here it goes.

Why would they be showing me a property that is a great deal (I only buy great deals, not good or decent deals)? -

• Nothing is a great deal until it closes at your price.  There's a difference between list price (Advertised) cap rate & the closed price CAP Rate.  If you're looking for a double digit CAP rates & passing on properties that listed in the high 8 & 9s you're missing out on the best part of real estate, besides cash flow.  The best part being the "Art of the Deal"  Unless I have information that shows an offer will be totally rejected I say "Make An Offer"

Why would they not try to acquire the property themselves 'So what's wrong with it?' question in the back of my mind.

• The investor agent may have a different business strategy than yours
• Some agents, w/ multiple streams of income, may have firewalls set up between the different parts of their businesses to ensure there's no conflict between a client's interest & their own;  or even between the multiple clients pursuing the same property
• Regarding "what's wrong w/ it" You should have that question in your mind on every property whether it's an investor agent showing you the property or not.  That's what due diligence is about- Finding out what's wrong w/ it.

Bottom line- If you have your processes, systems & people in place to properly evaluate the financials of a deal, run the due diligence once under contract & ensure you can close then your concerns about an investor agent will go away.  The good investor agent will provide you w/ access resources to supplement whatever resources you may have.

Russell Brazil · Answer

I am an agent who is also an investor.  I also work with investors...and I have been asked this very same question. I buy one to two deals a year for myself. There is no way possible I could buy every property in the market place that is worth investing in. It is just impossible. The same holds true for the investors I work with...very few of them are buying more than a couple deals a year. There are plenty of properties to go around for everyone.

Brie Schmidt · Answer

Be clear on your goals, it is a waste of everyone's time for you to be seeing properties that are not close to what ROI you want.

When speaking with the agent, ask them what they are currently doing in the business.  Some investor agents only invest in a specific area, some only do flips, some are not currently buying.  Make sure what their focused on is not what you are focused on.

If you are looking for a 10 cap, you will be limited to C/D areas - on the North side you will be pretty lucky to get a 8 cap.

Victor Olowu · Answer

@Crystal Smith

Kyle M.

Just figured out how to tag people on my mobile device. =)

Victor Olowu · Answer

Thanks for the insight @Crystal Smith. I like your point about investor agents having firewalls in their business to prevent conflicts of interest with their investor clients. To @Kyle McCorkel's point, I think you need to find an agent buying similar but not the same asset classes as you. Or maybe an agent in a different phase in their strategy.

@Crystal Smith I should have clarified about the cap rates, I definitely don't take listed cap rates seriously. I base it on what I think it will be for that type of property in that neighborhood after all rehab work is complete and rents adjusted etc.

Victor Olowu · Answer

@Joey Owens Good point.  Agents should definitely factor in their patience level to find desired properties once they know the investor's goals.

@Brie Schmidt I think that's why I liked working with you.  Unlike some agents, you actually ran the numbers and had spreadsheets to screen for what we were looking for!

Joel Owens · Answer

What is a deal is in the eye of the beholder.

On the commercial real estate side I have clients that are happy with an 8 cap when we are looking at multi-million properties.

Occasionally someone might want a 10 cap or 11 cap when that was the market 3 to 4 years ago. They want the safety of the market today in the recovery but want the returns that came with the risk of the past (unrealistic).

Those properties might be one in a 1,000 in the current market.

As a broker and investor I want to maximum my time and return on investment. I don't mind find working on finding deals for my clients but looking for the impossible takes up too much time.

If you want that one in 1,000 grand slam all to yourself then you need to put in the time and money marketing to sellers directly. If a broker spend their own money they should get the cherries first. A broker can't buy all the cherries so if their network is deep there is more than enough to go around.

Some brokers try to work with people and see what sticks. I just flat out can tell people they are being unrealistic or that I choose not to engage for business when I know the markets. I look at hundreds of OM's  for commercial properties a week. I know what is going to fly and what isn't. The people that want something from 4 years ago will still not have bought something 3 years from now. You have to look at opportunities today and see how to capitalize. If the return isn't what you want then change the area etc.

Having a real estate agent that is also an investor, yay or nay?

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