Should I trust my new investor/agent in finding the next deal?

Question

So my buyers agent who helped me with my first home purchase in August was my Aunt. I found the deal off market as a for sale by owner, she helped a ton and only charged 1% to help me out. After learning so much from BP and still doing so, I’ve realized that she is not the best fit for me as she does not have the views or knowledge of an investor. I recently met an investor/agent who owns 7 buy and hold properties in my local area, who is very passionate about real estate. I asked him many tough questions which he answered very well, and I have decided to use him as my agent in finding my next deal. My question today is, should I trust him whole heartedly without question? I work a W2 job with a great schedule making 40k/year. My lender said I qualify for a conventional loan of 125,000 at 5% down. She said at 160,000 I would need 15% down. After speaking with the new agent he is telling me I need to find a way to get 200,000 to compete and get a great deal in our area. Should I come out of pocket to cover the large down payment I will have? I only have 40k saved and feel like this may be a bold move for only the second property. I am done with the renovations of this first house and I’m currently living here, I need another home to move into soon so I can rent this one out.

Patricia Steiner · Answer

Why add bench strength if you're not going to let that professional do the job? Would you hire a carpenter and then show up with your own nails, hammer, and tape measure? Do you trust your own judgement? Get out of your own way and raise the expectation on the realtor. Give that person your buying criteria - be specific. Set parameters like he/she needs to email you every couple of days with finds - or advise that there were none that were good fits for your criteria.

And, as far as who to hire: if you're the smartest guy in the room, you know all the answers - LEAVE. Adding bench strength means hiring expertise that you don't have...that makes you the genius.

Best...

And, as far as who to hire:  if you're the smartest guy in the room, you know all the answers - LEAVE.  Adding bench strength means hiring expertise that you don't have...that makes you the genius.

Best...

Amedeo M. · Answer

@Daine Johnson

I don’t know if you can trust your agent or not.

One thing I know for sure. You should never take all your savings and put it in one single investment.

If you have 40K in savings take a part and invest, keep the rest for the bad days, next property.

Also, the market is not going to disappear. There is always a next property. It’s not healthy to go for something you can’t afford.

If you can afford 125/150k properties, this is what you should target. Not 200k and not 180k.

Your agent is not the one paying your bills.

Respect him, follow his tips, but act accordingly to your pocket and your instinct.

Oscar Cardenas · Answer

tough stuff.. sometimes I give my clients the same recommendation but I always wonder in my head if it smells like commission breath lol.

The way that I see it is that at the lower end of the prices there is so much competition from people wanting to invest in real estate but not wanting to lose too much if they mess up. The issue is that the numbers simply don't make sense so the chances are loss are much higher at the lower end. The miniscule cash flow likely wont cover unforeseen expenses on cheaper properties, at least in my area.

In all honesty, I would stop and look at your goals and figure out why a 200k property or a 40k down payment is scary to you. That might be the real question which might have a legit answer as to why to not buy the 200k property. Ultimately, "should I trust my agents recommendation?" is not the real question since he gave you a valid reason that you can look up yourself. The real question is why are you personally hesitating on the larger property? It could be that you think your 40k can be put to better use elsewhere? which is a very valid reason.

Matthew Irish-Jones · Answer

@Daine Johnson you should never trust anyone whole heartedly.  Even if they are 100% honest they can make an honest mistake that costs you money.

You should trust but verify everything.

Amedeo M. · Answer

@Daine Johnson

I think you should invest where you can afford it and keep a relationship with the agent. He seem to be honest and gave you a real picture based on the market and your pocket :)

Eric Sullivan · Answer

@Daine Johnson

I think the right symbiotic relationship with agents are obviously that yes they bring you deals. But as they bring you deals they should be telling you why it’s a good deal. But not just a good deal but why a good one for you. Everyone’s goals are different so making sure they are considering that.

Secondly, most agents who focus on working with investors know how to conduct underwriting of some level. If they don’t provide this they should at least giving you the breakdown of the property expedited, insurance, taxes (don’t forget to calculate the new mil rate), and rent roll (along with market rents if their is a potential for increase.

A real value add which isn’t required but is something I personally put weight on is the volume of off market deals and then the quality of those deals. I.e do they meet the criteria I’m looking for.

No matter what at the end of the day you should never trust anyone blindly. It’s your money and your name on the debt. So always take the time to underwrite the deal yourself.

Adam Martin · Answer

As with anything, trust but verify.  It seems you think the advice is correct or at least on the right bath, have him throw a few deals your way he says will be good, run the numbers and see if you agree.  If you are on the same page great, if not then regroup from there on what you want to do.  Using others peoples money is the name of the game for many and leverage is key.  You say you just renovated the house you are living in that you purchased. This is great, surely you have added value and now is the time to tap into that equity while it is your primary residence either through a heloc or cash out refi.  You are still using other peoples money in your example with the down payment since you are using a mortgage vs paying in cash as well so you have leverage on your side.  I try to reinvest money from rentals into buying more from cash flow and refinancing but in the beginning I feel most of us have had to lay down some of our own cash first until they can scale.  You seem to be on a good track it is up to you though to see what deals and price points are available for the area.  Also if a home or area cost less than others that is because there is less value in the area or for that particular home.  Make sure you are looking at more than the down payment for the home and investing in an area you feel comfortable with.

John Powell · Answer

@Daine Johnson

As a local investor and agent I would mostly agree with your agent. I have had some success buying investments for my self this year at or below $200k in Kennesaw and Acworth. But those deals were purchased with cash then refined out. Even then the cash flow is not great as a traditional rental. I converted one into an Airbnb on Main Street in Kennesaw and see excellent returns from it. I have a retail buyer looking under $150 and we are looking in SW Atlanta to find functional housing sub $150k. It sounds like you are willing to put in sweat equity in the next house so it may be possible to find something under $200k but you will have to be very fast and make very strong offers if you are using traditional financing there are so many cash buyers in the area looking for properties under $250k. In short it sounds like your agent is on point I would trust him unless he gives you reason not to.

Daine Johnson · Answer

@Patricia Steiner Thank you for the great advice, that is something I’ve always struggled with- allowing the expert to perform without skepticism. Perhaps it will take some time in successful hires to be more open to those who truly know more and can perform far better than I could hope. There are so many folks out there who claim they are experts who in reality are amateurs, which makes it all more important to vette people well. In this case, I’ve already asked the tough questions and have been assured of his competence, it’s time for me to move aside and let the expert take the lead.

Forrest Faulconer · Answer

I typically try to work with people who have strong ties to people I know and trust, doesn't always work out, but that is a part of the process of network and team building. When you say to keep your numbers low when investing, that comes from the simple fact that buy and hold investments see a better return in more affordable housing markets. The correlation between house prices vs. rent rates is not linear and you will see that as houses get more expensive, you cannot rent them out for as much, relative to the home value. Which is why you see people from the east and west coast investing in the midwest, the numbers make way more sense. I understand not wanting to tie up all your money, but sometimes that is the best way to get started. Using other's people's money to invest isn't the only way to do it, but it is a way to expedite the process.

Should I trust my new investor/agent in finding the next deal?

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