A common discussion point on BiggerPockets is the importance of finding an investor-focused real estate agent. The necessity of having such an agent is so commonly accepted that I have even seen new investors use, “I haven’t found an investor-focused agent yet,” as an excuse for not taking action.
I think that is a ridiculous excuse for not investing. Yes, there is some merit to finding an agent who also invests in real estate, but is it a necessity?
I have used several real estate agents. Some have been investors; one owned only her primary residence. Rather than telling you which agents I preferred, I want you to make this determination for yourself based on the pros and cons of my experiences.
Pros of an Investor-Focused Agent
First, let’s talk about some of the main benefits a real estate agent who invests can provide. It is always beneficial to understand why something is being recommended to you!
They understand what you’re looking for.
I hate being flooded by crap deals. It is a waste of time and effort for me to sift through deals that have absolutely no potential. Yet real estate agents who don’t understand specific investor criteria will often do this.
An agent who understands real estate investing will be able to weed out properties that simply will not work as investments. They will save you time by only sending you properties that actually have some potential.
I have heard real estate agents claim that a property is a great investment because it is listed at $120K in a neighborhood where homes normally sell for $140K. Just because a property is listed for less money doesn’t mean it is a solid investment. You want an agent who understands fair market rent prices, after repair values (ARV), rough rehab estimates, etc. This will go a long way in them sending you decent properties instead of cheap (or crappy) houses.
They are okay writing multiple/embarrassing offers.
A lot of agents don’t like making low offers. However, the best deals often involve low—sometimes even embarrassingly low—offers. In order to write offers at 50 percent of the asking price, you need an agent who understands that.
I often write two to three offers on a single home. Your agent needs to be OK with this amount of work, knowing they might get rejected. There are many options for writing multiple offers. Maybe I’ll write an offer for 50 percent of the asking price in cash or 70 percent of the asking price if they seller-finance it to me.
In some markets, your agent might be able to get away with calling and making verbal offers. After a verbal agreement is made, the agent will then put it in writing. This is a useful compromise to save your agent time without changing your offer strategy. (This won’t work in hot markets though.)
They work fast.
In order for an agent to work well with investors, they need to be fast. This is especially true if they are investors themselves. They need to be quite efficient to work with you as an agent while running their real estate investing business on the side.
They will most likely be experienced and have solid systems in place. All of this is good for you. The more efficient your agent is, the more likely you are to get an offer submitted before the competition.
This also means they can write more offers, show more houses, and send you more potential deals than a slower real estate agent might. Efficiency is a great advantage in the real estate investing game!
They may have a solid team for referrals.
An agent who invests locally is almost guaranteed to have a solid team in place. They obviously want the best lender(s), property manager(s), certified public accountant(s), and so on to work with them. As such, they can be great resources to help you find rockstars for your team.
Having the right team in place can make your life as an investor much easier. Having the right team in place and knowing they work well together is game-changing!
Side note: You still need to vet prospects to ensure you find the best team members for you and your business!
Cons of an Investor-Focused Agent
As with everything in life, there is a yin and yang, upside and downside, pros and cons, etc. Here are some of the most common negative aspects of working with an investor-focused real estate agent.
They might buy the best deals.
The most stated fear I hear people mention is, “What if my agent keeps the best deals for themself?”
This is a possibility. However, most agents will not buy every good deal that comes across their desk. If they were buying this much real estate, they probably wouldn’t be putting in 40- to 80-hour work weeks as full-time real estate agents.
Also, I have never experienced this happening or even heard of it legitimately happening to someone else, so I think it is more fear than reality.
Side note: In order to be a successful real estate investor, you need to be able to find deals on your own anyway! Get out there and find them—then think of anything your agent brings to you as a nice bonus.
They might understate repairs needed.
A lot of real estate agents are not very savvy at estimating repair costs. Just because an agent is an investor doesn’t mean they have done a lot of renovations. They could be a traditional buy and hold investor, who doesn’t spend much time buying fixer-uppers. For this reason, they may give inaccurate renovation estimates, whether intentionally or due to lack of experience. This is why you must always do your own repair estimates, regardless of how solid your agent is.
Ultimately, it will always be you footing the bill when repairs cost more than anticipated. You must take extreme ownership of this and always double-check any repair estimates you receive.
Side note: Real estate agents who don’t work with investors are just as likely to do this!
Related: How to Find an Investor-Friendly Real Estate Agent
They might fluff after repair value estimates.
This is fairly common. It is easy to be overly-optimistic about what a property will appraise for after repairs have been made.
I believe it is human nature to anticipate an optimistic appraisal after all the hard work you put into a property. For this reason, I am always careful to get at least one (usually two) other opinions about the possible ARV for a property before I purchase it. I’ve been known to knock 5 to 10 percent off my ARV when running the numbers just to be conservative.
If the numbers work with a very conservative ARV, you may have a pleasant surprise when you sell the property. However, if you purchase a property based on an overly optimistic ARV, you may be in for a rude awakening. ALWAYS double- or triple-check your real estate agent’s after repair value, at least until you are confident they know what they’re doing.
The Bottom Line
Personally, I prefer working with a real estate agent who invests in real estate themselves. I think the pros far outweigh the cons, especially since the cons can easily be mitigated as follows:
- Find a real estate agent who invests in a different asset class than you. For example, a real estate agent I have worked with invests primarily in self-storage. I like self-storage but am not actively looking to purchase any. I know he isn’t scalping the best deals for himself, because we invest in different strategies.
- Do your own repair estimates or have your contractor do it for you.
- Do your own ARV guesstimates or double-check your agent’s estimate with another agent/investor in the area.
At the end of the day, you’re responsible for the success of your business. An investor-focused real estate agent can certainly help, but it isn’t a necessity to have one.
You will find the majority of your solid deals through direct mail, networking, SEO marketing, and talking to homeowners. You don’t need a real estate agent at all for this—it is just a “nice to have.”
Don’t let something petty like waiting to find the perfect agent get in the way of achieving financial independence through real estate investing!