Let’s face it—the majority of real estate investors are not able to handle every aspect of the investing process. Whether an investor lacks time, knowledge or a combination of both, it is likely that the use real estate professionals will be needed throughout the process. Even for investors who are determined to “go at it alone” it is more than likely that outside counsel will be needed. If you know that you lack a certain skill set or can’t spare the amount of time necessary to complete the job, it’s a good idea to hire someone to handle the tricky stuff for you. Unfortunately, oftentimes the people hired to help investors perform poorly and ultimately cost the investor a substantial amount of money in the process. Before hiring a real estate agent, property management company, general contractor or one of the many other trades there to assist real estate investors it’s always best to do some research and make sure that the team hired to assist you are professionals.
Over the next couple weeks, I’m going to write three articles on how to screen and hire professional real estate agents, licensed contractors, and property managers to ensure your investment goals are met and best interests are looked after.
The Real Estate Agent Professional
Whether you're a brand-new investor or you're consistently closing 5 deals a month, a professional agent can save you time, increase your ROI (return on investment), and provide insight on possible exit strategies. They'll be able to identify properties that fit your requirements as soon as they're available. You won't have to spend endless hours searching Zillow, the public MLS, or other listing services. By understanding what works in your market, the agent can also give insight on what will reduce your investment risk. Also, a professional agent should be able to plan for multiple exit strategies in case the original plan doesn't work out. This can help save you a ton of money, and can also aid in making you money in multiple parts of the investment (e.g. renting and then selling). Additionally, sellers tend to pay the closing costs in a transaction so there is no cost to the buyer. If you do not use an agent, the listing agent is paid the full commission rather than the investor saving money on the deal. The ability to negotiate and knowledge supports the agent's brand as a professional.
I want to give you an example of how our professional agents approach deals with our investment clients. We had a new investor who wanted to purchase property near the University of Arizona. Like many in our area, this investor wanted to rent out units to students. This client had around $175,000 cash available on a property. We found him a 3bd/1bth for $175,000 (a 35k down payment) right next to campus. Originally, the investor thought that we would just rent out the 3 bedrooms. With our knowledge of the local market, we understood that if we used our client’s remaining budget to add on additional bedrooms and bathrooms, it would not only hold more tenants, but the renovations would also make the property a potential flip. This left the owner with multiple exit strategies. A real estate professional should be able to identify different investing approaches.
The investor loved what we proposed and our construction team began the remodel. We completed the project with $130,000 and converted it into a 5bd/3bth. The property is currently renting for $3,500/month ($700 a room). With all expenses, the property is bringing in a 10.76% cash on cash return and cash flowing over $18,000 a year! Also, comparable homes around the property will allow it to sell anywhere from $450,000-$500,000. With the investor’s all-in budget of $170,000 (down payment, closing costs, and remodel), he would be able to sell the property immediately for at least a $145,000 profit. As a result, we continually are doing deals with this client. This example shows how much value a professional agent with investing knowledge can add to the client’s investment outcome.
While there are many real estate professionals, there are also agents who have very little knowledge of the ins and outs of real estate investing, so be extremely cautious when you’re choosing an agent. How do you find a quality real estate professional? In my opinion, it’s all about the experience that the agent brings to the table. Perhaps the agent has done some investing on his/her own behalf. If not, then the agent needs to have previously worked with investors, delivered great service, and provided motivation to the client to keep investing. Sadly, some agents only care about the commission from the first property. A real estate professional desires to provide his/her clients with quality investment properties, both immediately and in the future. Professionals are concerned with developing great business relationships with their clients.
I personally believe that hiring a real estate professional is a win-win for an investor. The investor can focus more time on things other than real estate, rather than having to do all of the work themselves on the investments. Real estate is the proven best investment, but its pursuit and maintenance can occasionally become stressful. The agent is there to take the stress away while also delivering results for the investor. It’s wise to get help, but if you do, hire a professional.
