The Difference Between a Real Estate Investor and a Real Estate Agent

Seeing Both Sides

It has been a year and a half since I received my real estate license, and there are quite a bit of differences I see and realize, while working as a part time real estate agent and a real estate investor. There are very different strategies in both of the career fields, and they do not particularly coincide with each other through most transactions. Real estate agents work for the commission to pay for their life expenses; real estate investors buy real estate from real estate agents to pay for their life expenses.

Real Estate Agents ROI

Commission from real estate transactions is where real estate agents get their return on investment (ROI). The investments for real estate agents is the time and effort they put into finding a property for their clients, a property that fits within the price range of their clients’ parameters, and the relationships that are built through those transactions. The return on those investments is the commission received after the close of escrow. Since a high percentage of their clients are buying owner occupied properties the agents focus on getting those clients into the properties at a price that is negotiated; however, a real estate agent is not looking to get into an atypical bidding war with the listing agent if that agent has unknown knowledge of how that lower price will effect an investors end calculations.

Agents that do not build a concrete relationship with real estate investors that come to them for help finding a property they want to invest in could potentially lose a great deal of business and money, if they do not learn the background behind the thought process and calculations that go into landing a deal for investing. The knowledge of the calculations that go into picking an investment that works correctly for the investor the agent is working with are crucial for a cohesive relationship between the agent and investor. These numbers that should be known are the ROI, Cash on Cash Return, Capitalization rate, and IRR.

Real Estate Investor ROI

As the investor studies the property they want their ROI to come from, that investor always will increase their ROI with a lower price, or if they can get the lowest price possible since the ROI and other calculations factor in the purchase price to get the final number. The biggest number that can sway an investor on purchasing the property is the purchase price since they can either give them great returns on the investment, or give the investor very little returns on their investment. This could be anything from purchasing a rental property with monthly cash flow to purchasing a home to rehab and flip. Either situation calls for a perfect negotiation on the price to get a great ROI.

How to Collaborate

In all professional careers many people in those fields focus on only their specific skill to try and produce more income and better results. Real estate has many different avenues to travel down; however, the ability to have background and knowledge in more than one avenue brings in more revenue, and also gives these professionals increased production. The main reason to gain knowledge in real estate investing while working as a real estate agent is to increase the sphere of influence on the clients an agent is able to collaborate with.