Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors

Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors

Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors: Navigating the real estate market can be a complex process, especially for investors. Realtors can provide valuable assistance, but it’s essential to understand the pros and cons of working with them. This article will delve into the benefits and potential drawbacks of partnering with a realtor as a real estate investor.

Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors 2

☛ Navigating the World of Real Estate Investing

Navigating the world of real estate investing can be a complex journey, whether you’re a newcomer or a seasoned professional. This blog post is designed to serve as a guide for those considering the new role of a realtor candidate as part of their team in their investment strategy. Drawing from our extensive experience of 36 years in the real estate business, we’ve been involved in the buying, holding, and selling of single-family, multifamily, and commercial properties across multiple markets nationwide. As a seasoned private lenders for a wide range of real estate transactions in 47 states, we’ve gained a comprehensive understanding of the investor-realtor relationship. This blog post encapsulates our insights and experiences as investors, offering them as a supplemental resource to your own research. We hope that the additional information provided here as well as your own research will help you make informed decisions about your real estate investment journey.

☛ Access to Market Knowledge

Working with an “experienced” realtor can provide investors with invaluable access to market knowledge. Realtors are typically well-versed in local market trends, property values, and potential investment opportunities. They can provide insights into the best areas for investment, potential risks, and expected returns. This can save investors significant time and effort in conducting their own market research. However, it’s important to note that not all realtors have the same level of expertise or knowledge. Some may specialize in residential properties while others may have more experience with commercial properties. Therefore, it’s crucial for investors to ensure that the realtor you choose has the relevant knowledge and experience for their specific investment needs. Additionally, while realtors can provide valuable market insights, investors should also conduct their own independent research to validate this information and make informed decisions. Here are few additional pros and con about “Access to Market Knowledge.”

Pro: Access to Market Knowledge
If they have experience, Realtors can have a deep understanding of the real estate market, including trends, pricing, and desirable locations. This knowledge can be invaluable for investors, helping them make informed decisions and identify profitable opportunities.

Con: Access to Market Knowledge – Realtor Fees
Working with a realtor often involves paying commission fees, which can eat into your investment profits. Especially when you are starting out. It’s essential to factor these costs into your budget and investment strategy.

Pro Tip: as you gain more experience with investing in your market, it is imperative to your investment career that you eventually become an expert in your market. Too many investors rely on others to help them make critical decisions, this can be a crutch and can harm your momentum. It is good to have advisors, but ultimately it should be your call.

☛ Negotiation Skills

Experienced realtors bring to the table strong negotiation skills that can be a significant advantage when purchasing or selling properties. They are trained to negotiate deals, understand the tactics that work best, and are adept at handling difficult situations in a way that can lead to favorable outcomes. They can help investors secure properties at the best possible prices and terms. On the other hand, while realtors can be a great asset in negotiations, it’s important to remember that they may not always fully align with the investor’s interests. Here are few additional pros and con about “Negotiation Skills.”

Pro: Negotiation Skills
If they have experience working with seasoned investors and understand your investment property type (single family, multifamily and commercial), Realtors can be skilled negotiators, which can be particularly beneficial when it comes to securing a favorable purchase price or terms. Their expertise can help investors save money and avoid potential pitfalls.

Con: Negotiation Skills Potential for Misaligned Interests
While many realtors are committed to serving their clients’ best interests, there can sometimes be a misalignment between the goals of the investor and the realtor. For instance, a realtor might be motivated to close a deal quickly to earn their commission, while the investor might benefit from a more patient approach.

Another factor is that I prefer to negotiate my own deals directly with the seller or buyer. In most cases, because of control issues, a realtor will not allow this to happen. The reality is that too much time is wasted going back and forth with a realtor. I find it much more effective sitting down having a cup of coffee with the seller or buyer and hatching out the needs and wants. We close more deals that way.

☛ Time and Convenience

Working with a realtor can offer significant time savings and convenience for real estate investors. However, this convenience can come at a cost. Realtors typically charge commission fees for their services, which can impact the overall profitability of an investment. Additionally, while working with a realtor can save time in the short term, it’s important for investors to be actively involved in the process to ensure they are making informed decisions. Relying solely on a realtor without understanding the market or the specifics of a property can lead to less than optimal investment decisions. Here are few additional pros and con about “Time and Convenience.”

Pro: Time and Convenience
Working with a realtor can save investors significant time and effort. Especially if you are a newbie. Realtors can handle many aspects of the investment process, including property searches, paperwork, and liaising with sellers, allowing investors to focus on their overall strategy. This is great at the beginning especially if your new to investing, but it should not be a long term part of your investment strategy. Remember, you need to become the expert in your market.

Con: Time and Convenience – Limited Control
When you work with a realtor, you may have less control over the investment process. Some investors prefer to have a hands-on approach and might find this lack of control frustrating. I can easily use a title company or an attorney to negotiate and close deals in multiple states.

Pro Tip: It is a good idea if you intend to invest over state lines to employ attorneys and title companies that are in a particular region or national. These professionals become aligned with your mission and help close more deals swiftly.

☛ Professional Network

Experienced realtors often have extensive professional networks that can be invaluable to real estate investors. This can streamline the investment process and potentially lead to cost savings. On the downside, while a realtor’s network can be a valuable resource, it’s important for investors to do their own due diligence. Not all professionals in a realtor’s network may be the best fit for an investor’s specific needs or investment strategy. Additionally, relying solely on a realtor’s network may limit an investor’s options. Building and maintaining one’s own professional network is a crucial aspect of successful real estate investing. Here are few additional pros and con about “Professional Network.”

Pro: Professional Network
Realtors often have an extensive network of professionals, including contractors, inspectors, and lawyers. This network can be invaluable for investors, providing access to trusted professionals who can assist with various aspects of the investment process.

Con: Professional Network – Limited to Listed Properties
Realtors typically have access to properties listed on the Multiple Listing Service (MLS). While this includes a wide range of properties, it may not encompass all potential investment opportunities in a particular market. Some properties, such as off-market deals or for-sale-by-owner homes, might not be listed on the MLS. These off-market deals can sometimes be opportunities in the making.

Pro Tip: This can also be a double edged sword. We were working in Virginia and we utilized the realtors network and it turned out to be a costly endeavor. They were controlling the market and working together to churn more money out of our deals. It was not a good situation.

☛ Legal Knowledge and Protection

Experienced realtors are well-versed in the legal aspects of real estate transactions, which can be a significant advantage for investors. This can provide a level of protection and peace of mind for investors. However, while realtors have a solid understanding of real estate law, they are not lawyers. Complex legal issues may still require the services of a real estate attorney, especially in the case of an inexperienced realtor. Additionally, while a realtor’s fiduciary duty is a significant benefit, it’s important for investors to remember that realtors are also motivated by commissions and may not all be honest. This could potentially lead to conflicts of interest, particularly if an investor feels pressured into making a decision that they are not comfortable with.  Here are few additional pros and con about “Legal Knowledge and Protection.”

Pro: Legal Knowledge and Protection
Experienced Realtors are knowledgeable about real estate laws and regulations, which can help protect investors from potential legal issues. They can ensure that all transactions are conducted legally and ethically, providing peace of mind for investors.

Con: Legal Knowledge and Protection – Potential for Communication Issues
While many realtors are excellent communicators, there can sometimes be communication issues. For instance, a realtor might not fully understand the investor’s goals or strategy, leading to potential misunderstandings or missed opportunities and delays. Additionally, if you already employ an attorney you really don’t need a realtor. Especially if your working on an off-market property.  Plus, if they are not experienced, how much legal protection can they offer an experienced investor?  With an experienced investor friendly realtor you may have the legal knowledge and protection you need to build your portfolio, but it depends on the realtors expertise. 

☛ Market Exposure

“Working with an experienced realtor can provide investors with significant market exposure. Realtors have access to multiple listing services (MLS), which can provide investors with a wide range of potential investment properties. However, while this increased market exposure can be a significant advantage, it can also be a double-edged sword. The vast number of potential properties can be overwhelming for investors, making it difficult to effectively analyze and choose the best opportunities. Furthermore, while realtors can provide access to off-market deals, these deals are not exclusive to investors working with realtors. Savvy investors can often find these deals on their own through direct marketing or networking. Here are few additional pros and con about “Market Exposure.”

Pro: Market Exposure
When it comes to selling an investment property, realtors can provide significant market exposure. They can list the property on the MLS, conduct open houses, and leverage their network to find potential buyers.

Con: Market Exposure – Less Involvement in the Process
While some investors appreciate the convenience of working with a realtor, others prefer to be more involved in the process. Working with a realtor can mean less involvement in certain aspects of the investment process, which might not be ideal for all investors. Also, if you are working a particular market and you want to get familiar with local investors, utilize tools like Propstream to find out who is buying and selling properties in your market. Let’s say you are using a Fix & Flip strategy. Propstream provides a tool to gather names, contact information and property types of investors in any market in the USA. You can easily contact them and find out what type of properties they are investing in and find properties that fit their criteria. Using similar techniques will help you get the exposure you need with other investors to make an impact on your investment strategy.

☛ Decoding the Realtor Code: The 10 Commandments for Choosing the Perfect Investor-Friendly Realtor!

  1. Realtor needs to have a solid understanding of the local market: They should be knowledgeable about the neighborhoods, market trends, and potential growth areas in your target location. They should also be aware of the local regulations and laws that could impact your investment.
  2. Realtor needs to have a strong network: A realtor with a strong network can provide you with access to new to market deals, reliable contractors, property managers, and other professionals you may need during your investment journey. This can save you time and potentially help you find better deals.
  3. Realtor needs to be responsive and communicative: Real estate investing often requires quick decisions and actions. You need a realtor who will respond to your calls or emails promptly and keep you updated on any developments. They should also be able to communicate effectively with other parties involved in the transaction, such as sellers, lenders, and inspectors.
  4. Realtor needs to have a proven track record: Look for a realtor who has a history of successful transactions with real estate investors. Ask for references or case studies to verify their track record. This can give you confidence that they have the skills and experience to help you achieve your investment goals. Normally we look for realtors that have 5+ years experience. 
  5. Strategy Understanding: Your realtor should have a deep understanding of your chosen investment strategy, whether it’s Fix & Flip, Fix & Hold, or something else. They should be able to bring you deals that align with your strategy, demonstrating their grasp of your investment goals.

  6. Investment Type Experience: It’s crucial that your realtor has experience with your specific type of investment, be it single-family, multifamily, or commercial properties. For instance, trusting a realtor with a five-million-dollar commercial deal when they’ve only handled residential properties could lead to complications.

  7. Respect for Investors: A good realtor respects their investor clients and actively listens to their plans. If they consistently bring deals that don’t align with your strategy, it’s a clear sign they’re not paying attention to your needs.

  8. Investor Advocacy: Your realtor should be your advocate, always looking out for your best interests and helping you navigate the complexities of the real estate market. They should be able to provide advice and guidance that aligns with your investment goals.

  9. Value Addition: A great realtor provides value at every step of the investment process. They should be able to offer insights into the market, provide accurate property valuations, and help you negotiate the best deals.

  10. Personal Investment Experience: If your realtor is also a property investor, it’s a good sign. This means they have confidence in the market and understand your journey as an investor. Their personal experience can provide valuable insights and help you avoid potential pitfalls.

☛ Top 10 Questions to Ask a Potential Realtor

Here are ten questions an investors should ask a potential realtor:

The answer to this question can vary depending on the realtor’s experience. However, as an investor, you would ideally want to hear that the realtor has been working in real estate for several years (5+), and has spent a significant portion of that time specifically working with investors.

For example, a good response might be: “I have been working in real estate for over 10 years, and for the past 7 years, I have been focusing on working with investors. I have helped numerous investors to find, purchase, and sell investment properties, and I am well-versed in the unique needs and challenges that investors face.”

This answer demonstrates that the realtor has a solid background in real estate and a specific focus on working with investors, which is exactly what you’re looking for.

As an investor, you would want to hear that the realtor has experience with the type of property that aligns with your investment strategy.

For instance, if you’re interested in investing in multifamily properties, a good response might be: “I have extensive experience with multifamily properties. Over the past few years, I have helped numerous investors find, purchase, and sell multifamily properties. I understand the unique aspects of this type of investment, including tenant management, property maintenance, and local regulations.”

If you’re interested in a variety of property types, you would want to hear that the realtor has a broad range of experience. For example: “I have experience with a variety of property types, including single-family, multifamily, and commercial properties. I understand the unique considerations for each type of investment and can provide guidance based on your specific goals and strategy.”

The realtor’s response should demonstrate their expertise in the property type that is relevant to your investment goals.

As an investor, you would want to hear specific examples that demonstrate the realtor’s experience and success in working with investors. The realtor should be able to provide details about the types of properties, the purchase price, the selling price (if applicable), and the overall return on investment.

A good response might be: “Absolutely, I recently worked with an investor on a multifamily property. We purchased it for $500,000, made $100,000 in renovations, and it’s now valued at $750,000. In another instance, I helped an investor buy a commercial property for $1 million. After a tenant was secured for a long-term lease, the property’s value increased to $1.3 million.”

The realtor should be able to provide concrete examples that demonstrate their knowledge of investing, their ability to find good deals, and their understanding of how to calculate return on investment.

As an investor, you would want to hear a response that demonstrates the realtor’s familiarity and experience with your specific investment strategy.

A good response might be: “I have extensive experience working with investors who use both the Fix & Flip and Fix & Hold strategies. For example, I’ve helped several clients successfully identify underpriced properties in need of renovation, guided them through the process of estimating repair costs and potential market value post-renovation, and then helped them sell or rent the property for a profit. I understand the unique challenges and opportunities that these strategies present and can provide the guidance and resources you need to make informed decisions.”

The realtor should be able to provide specific examples of how they’ve helped investors execute these strategies successfully, demonstrating their understanding of the process, the market, and the financial implications.

As an investor, you would want to hear a response that shows the realtor’s proactive approach and diverse methods in sourcing potential investment properties.

A good response might be: “I use a variety of methods to source potential investment properties. These include leveraging my extensive network of contacts in the industry, such as other realtors, brokers, and property managers, to get early information about properties coming onto the market. I also regularly monitor MLS listings, foreclosure and auction listings, and off-market properties. Additionally, I use real estate data and analytics tools to identify undervalued properties or up-and-coming areas that might offer good investment opportunities. My goal is to provide you with a diverse range of options that align with your investment strategy and goals.”

The realtor should be able to demonstrate their resourcefulness and commitment to finding the best possible opportunities for you as an investor.

As an investor, you would want to hear a positive and confident response from the realtor.

A good response might be: “Absolutely, I understand the importance of references in this business. I have worked with several investors over the years and have helped them successfully navigate their real estate investment journeys. I can provide you with their contact information so you can speak with them directly about their experiences working with me. I believe their feedback will give you a clear idea of my work ethic, knowledge, and the level of service I provide.”

This response shows the realtor’s confidence in their work and their transparency, which are both important qualities in a professional relationship. It also demonstrates their commitment to client satisfaction.

As an investor, you would want to hear a detailed and knowledgeable response from the realtor.

A good response might be: “I use a combination of methods to handle property valuations and market analysis. For valuations, I rely on comparative market analysis (CMA), which involves comparing the property to similar properties that have recently sold in the area. I also consider factors like the property’s condition, location, and unique features. For market analysis, I stay updated on local market trends, including price trends, inventory levels, and the average time on market. I also use real estate analytics tools and resources to gather data and make informed predictions about future market conditions. This comprehensive approach ensures that I provide accurate and up-to-date information to my investor clients.”

This response shows that the realtor has a systematic approach to property valuation and market analysis, and that they stay informed about market conditions, which are crucial for making sound investment decisions.

As an investor, you would want to hear a response that demonstrates the realtor’s personal investment experience and understanding of the investor’s perspective.

A good response might be: “Yes, I am personally an investor in the real estate market. I believe it’s important to have firsthand experience with the process and challenges that investors face. This experience helps me understand the needs of my investor clients better, and it also keeps me updated on the current market trends and investment strategies.”

This response shows that the realtor not only has professional experience but also personal experience in real estate investing. It indicates that they understand the challenges and opportunities from an investor’s perspective, which can be beneficial in guiding you through your investment journey.

As an investor, you would want to hear a response that demonstrates the realtor’s negotiation skills and strategies, as well as their commitment to advocating for your best interests.

A good response might be: “I believe that negotiation is a crucial part of the real estate investment process. My approach involves thorough market research and analysis to understand the true value of a property. I use this information to advise my clients on the best offer to make. I also leverage my relationships with other realtors and my knowledge of seller motivations to negotiate the best possible terms for my clients. My goal is always to secure the best deal for my clients, whether that means a lower purchase price, favorable closing terms, or other important considerations.”

This response shows that the realtor understands the importance of negotiation in real estate investing and has a strategy in place to ensure that you get the best possible deal. It also demonstrates their commitment to advocating for your best interests.

As an investor, you would want to hear a response that highlights the realtor’s unique skills, experiences, or strategies that make them particularly effective when working with investors.

A good response might be: “What sets me apart from other realtors is my extensive experience and understanding of the investment market. I have worked with a variety of investors, from beginners to seasoned professionals, and I understand the unique challenges and opportunities that come with real estate investing. I also have a strong network of contacts in the industry, including lenders, contractors, and property managers, which can be invaluable to my investor clients. Additionally, I pride myself on my proactive approach – I am always on the lookout for potential investment opportunities and keep my clients informed about market trends and changes.”

This response shows that the realtor has a deep understanding of the investment market, a strong network of contacts, and a proactive approach, all of which are valuable assets for an investor.

☛ Final Thoughts

Working with a realtor can offer many benefits for real estate investors, including access to market knowledge, negotiation skills, and time savings. However, it’s also important to consider the potential drawbacks, such as realtor fees, potential for misaligned interests, and limited control. By weighing these pros and cons, investors can make an informed decision about whether working with a realtor is the right choice for their investment journey. Happy Investing.

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