In this week's blog, we answered a YouTube subscriber question (subscribe here)! Our friend asked if we should deal with real estate investors as an agent, how to work with real estate investors, and in general what investors are looking for in a property. Well, in short, it varies widely, but we wanted to give you a longer overview explanation.
Firstly - as an agent, you ALWAYS want to deal with investors. They are: (1) great clients, (2) less emotional (they're not looking for a home to permanently live in), and (3) usually have a better idea of how they will finance and pay for the house. However, investors tend to be demanding, and thus are in need of an agent who is experienced and knowledgeable
To gain experience and knowledge in the field, first you have to understand why the real estate investor is investing, and what they are looking for. It’s called ROI - Return on Investment. Though all investors want to make money, there are usually two main types: those looking for a short-term ROI (immediate cash back), and those who are looking for a long-term ROI and greater stability.
In today’s hot-hot-hot market, most investors are “flippers," or people who want to buy and sell houses quickly without ever living in them. This gives them quick cash (if the deal is executed properly) and a quick return on investment.
To flip a property, first the investor has to find a run-down property, or one in need of some love and care. This is often the shabbiest home on the block, or otherwise deficient for the neighborhood (this is key; they don’t want to over-improve). Then, they will put time and money into the property by constructing, remodeling, repainting, and otherwise improving the property. The trick to this is to bring the house up to, or above, the standard of the neighborhood.
Time is of the essence when doing these house flips. The longer the investor has their money tied up in the house, the less room and ability they have to make other investments - like buying other houses. Therefore, they want a house that can be improved quickly, and a good construction crew for any major work.
A few years ago, Robert Rico himself was listing an undesirable property here in Inglewood, Los Angeles, California. He knew that no typical family would buy this house, or be interested in it as-is. However, one day, someone with a vision approached Rico - an investor!
Rico sold the house to the investor, representing both the old seller, and the new buyer in the deal - double-ending the transaction for double the commission! Though it sounds insanely low now, the buyer was able to secure the dilapidated house for only $240,000. As his vision was executed, he put $30,000 in improvements into the house - a total of $270,000 spent.
Only a short while later, the investor put the house back on the market - and this time, it got $420,000! Rico represented him again, earning another commission (3 total) in the process. The investor also made $150,000 (minus commissions) - not a bad deal at all!!
However, with a hot market like today, most houses have been flipped recently and the quick improvements have been made, so it’s more about the long term investment. This would be someone buying a house, putting it up for rent, and (hopefully) having the renters cover the mortgage. The downside to this, besides maybe not having the house rented, is that the money is tied up in the house - it cannot be accessed immediately.
The silver lining to this is that, although it’s cyclical, real estate has always been a good long-term investment and almost always goes up in value. Therefore, buying real estate NOW, and waiting, is a better strategy than waiting now, and buying real estate later.
The key to being successful in the investor market is being diligent, competent, and efficient. Do your research, find the diamonds in the rough, and market them heavily to anyone you think might be interested in real estate investments. This is a great way to earn two commissions and repeat business.
