Spending on Cars or Investing in Real Estate
About 10 years ago I was seated across the settlement table from the listing agent and she mentioned that she was on her way from closing to buy a new car with her commission.
I mentioned that I was going to invest in real estate with mine.
That’s when she wistfully told me that she wished she would have invested in real estate but she just never really understood how investing worked. All she had to show for her 20-plus years as a real estate agent was the house she lived in. And then she left the table and bought a brand new BMW.
That agent was in her 60’s and still chasing deals. She had no plan in place for an exit strategy.
She was trapped.
I ran into her recently and she told me that she has since left the business. She had to sell her house and now lives in a rental.
It could have ended differently.
You can make a great living selling real estate but the way to become wealthy is to invest in it.
Investing in real estate takes money and knowledge. As a real estate agent, you have the keys to both right in your pocket.
Investors are People Too.
Q: Are you nervous about working with investors? They have a bad rap- like they are tire kickers or just want to lowball offers.
A: Investors are great though because they are repeat clients and can branch off into other businesses.
Q: Are you afraid to talk to them because you think they speak a foreign language?
A: It’s easy to learn the language they speak and understand how they think.
Q: All of the investors already have real estate agents. How can I possibly compete?
A: Everyone is a potential real estate investor. There is a limitless supply of clients for you.
There are so many reasons why you should work with real estate investors. You just have to get over the fear and learn how to work with them.
Here are a few simple truths about people who invest in real estate.
They Are Buying More than the Bricks
They don’t care about the gleaming wood floors leading out to the secret garden oasis. An investor is buying an asset, not a home.
They have an investment goal and your job is to figure out what it is.
Don’t Be Scared of Real Estate Investors.
Lots of people think they want to become real estate investors so there is a deep pool full of potential clients.
When you meet someone and start discussing real estate investing, they will often become enticed and want to do it, but may remain silent because they don’t know how to invest in real estate.
Just like the mouse in the corner, they are more scared of us than we are of them.
Some real estate investors will come to you saying they want to buy property and when you ask them what they are looking for, they say, a deal.
That is your sign to get out your blackboard and start educating them.
They don’t know what they don’t know.
Ask them About their Goal.
What is their objective? If they don’t have the answer right away, it probably means they simply don’t know, so pose this simple question.
Are you looking for cash flow, or a cash injection?
Cash Flow=Rent and Hold
This is the real estate investing for creating wealth through passive income. This is a long term strategy for an income producing property. The investor purchases a property and the tenants pay rent which covers the mortgage and expenses.
There are tax benefits to owning investment property.
Tenants are buying this asset for them.
Build equity that they can leverage to purchase more property.
They have to be a landlord.
Maintenance and repairs to property.
Must find tenants.
Have to learn and comply with local laws and licensing regarding rentals.
Cash Injection- Renovate and Flip
The strategy here is to find a property and add value to it and then sell it for more. The difference (minus any costs) is the investor’s profit.
This is used for cash injection. It is not a get rich quick scheme.
It is a day’s work.
A project with a profit.
Bring a house back to life.
Express your creative side.
Addend bonus for agent: Get a listing at the end!
Have to be a project manager (or hire one)
Carrying costs add up quickly.
High overhead and start up costs.
Taxed on gains.
Once you understand how to categorize investors by strategy, you can then begin to help them focus on a goal. They will be more focused and they will know that you know what you are talking about.
Be able to work with both kinds of real estate investing strategies since neither is better or worse- just different.
Market conditions will often have an effect on investment strategy, so working with both will shield you from market fluctuations.
Once you educate them on their two choices, if they don’t pick one or can’t seem to get clarity, they may either not yet be ready for real estate investing or simply not serious about it. It is ok to weed out the people you know will run you around and waste your time.
Time is your most valuable asset, so choose wisely.
How to Find Real Estate Investor Clients
Guess what? Clients are everywhere! Remember that everyone is a potential real estate investor.
Understand the types of strategies so you end up talking about it naturally.
Just like other parts of your business where you sell to occupants, create hyper awareness by going out and looking at property. By getting familiar with what is on the market, spending time viewing properties and walking through neighborhoods, real estate investing will be on top of mind so it comes up naturally in your day when you talk to people.
In order to make this magic happen, you need to fake it till you make it, open your mouth and talk to people, and learn how investing in real estate works.
The Shop the Deal
If you have an investment property listing, you will naturally attract real estate investors, but if you don’t, then just go out and find some.
I used to have a small list of investors and I would search properties on the MLS and then take each one of them out to see all of the properties.
It was exhausting and time consuming, and we had to see so many properties before we came upon a good one, they got impatient with me and thought I was wasting their time.
That’s when I started to do things differently.
I set up a hotsheet on my MLS and checked it every morning. Then I put on jeans and boots and went by myself to every possible deal and scouted it out.
It was much quicker and easier to go by myself. I made sure to bring a laser with me, take great notes, photos and photos in each property.
Then I picked the best ones and promoted them on social media. I showed photos and a short description, but what I focused on were the numbers. Each post presented whether this was a Rent and Hold or a Renovate and Flip. I included comps, renovation estimates and analysis of rental income and cash flow.
I spoke the language of real estate investors and they noticed.
I began building a list of real estate investors looking for deals. I made sure to organize and segment my list so I email relevant deals to members of my list.
I showed property to the interested investors, closed deals and created a business.
My business is now consistent and steady because the pool of investors never dries up.
And they are repeat buyers so I have built relationships with clients who transact with me over and over through the years. They talk about their success with their friends and refer them to me so they can become investors too.
You Can Do This Too! Here’s How to Get Started.
- Go find an investment deal on the MLS.
- Preview it and run some numbers. This is usually easier to do on rent and hold because the listing agent can supply the numbers for you.
- Calculate the CAP rate using IRV and post on social media. See if you can generate interest.
- Make sure to capture the contact information of everyone who inquired about it. You can do it manually in the beginning, but as you grow you will want to automate the process.
- Add the names to your CRM and be sure to segment them by category. Split into Rent and Hold vs Renovate and Flip, and then do sub categories from there based on geography or price point.
- Once you have a list, make sure to shop deals on the regular so you always have fresh deals to offer your list, and the list continues to grow.
- Investors will start to rely on you as the go-to for deals, so they will come to you to help them find something even if the deals you present aren’t exactly what they are looking for.
- Once your list has grown and you are comfortable presenting deals consistently, you can consider adding another segment such as renovate and flip. These are more challenging because you will need a rough idea of the construction cost in order to run the numbers. When you first start out, see if you can partner with a contractor. In exchange for him coming with you and giving you a rough estimate of repairs, you will recommend him in all your marketing as well as to any potential real estate investors.
Become a Real Estate Investor by Working with Real Estate Investors
By following these simple steps you can get started working with investors. As you progress and gain experience, your knowledge base will get deeper. You will start closing deals and becoming an expert.
You will be paid to learn.
Take that money you earn and put it aside. Open a separate bank account if you have to in order to make sure it is earmarked for your future. This is your seed money so you can become a real estate investor yourself.
Another added benefit to doing the work with investors is that you will get to learn the market. You will get a feel for the wave and where the next hot area is. You will spot a good deal intuitively from miles away.
Have an exit strategy so you don’t have to sell houses forever. You can quit when you want and live off of your passive income if you choose to.