This story is part of our contributor series. Daniela Andreevska is Marketing Director at Mashvisor, a real estate analytics tool that helps real estate investors and agents quickly find traditional and Airbnb investment properties. A research process that’s usually 3 months now can take 15 minutes. They also connect investors ready to buy with top performing agents in the local housing market.
Are you wondering what the best clients to work with are to advance your real estate career? There are many different career opportunities in real estate. While some real estate agents and brokers prefer to work with homebuyers, others decide to specialize in working with property investors. Both niches have their advantages and disadvantages, but here’s why some people prefer working with investors.
Pros of working with real estate investors
Working with real estate investors is different than real estate agents, here’s how.
1. Real estate investors could be easier to work with
One of the worst nightmares of any real estate agent – whether beginner or experienced – is dealing with difficult clients. If you opt to work with investors, you will avoid this issue in most of your deals. Homebuyers and sellers tend to get emotional and picky. They are either in search of the perfect home or find it hard to separate from their old home, which means that a deal can take months. Real estate investors, on the other hand, look for one thing only: a high return on investment. As long as you can find them a property that matches their budget and expected return, they are ready to buy. In many cases, they might not even want to see the property for sale if the inspection shows no major problems and the investment analysis points towards a good cap rate and cash on cash return.
2. Deals can be expedited
When you work with home buyers or sellers, deals tend to take longer to close. In addition to having to show them more properties, regular people looking to buy a home often have problems securing a mortgage and rarely pay in cash. The situation is very different with property investors. Once they find a profitable investment property, they are ready to move forward with the purchase. The reason is that financing a rental property is more straightforward than financing a home. First of all, real estate investors find it easy to get a mortgage because they have their rental income as an additional guarantee, so lenders see them as lower risk borrowers. Second, investors have access to various types of creative financing options such as hard money lenders, private money lenders, syndication, crowdfunding, and partnerships, which is not something that homebuyers can usually go for. So, if you want to close your deals fast, you are better off working with property investors.
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3. Earn higher commissions with investors
While homebuyers usually have a tight budget, investors face fewer restrictions in this regard. Not only do they have more financing options as discussed above, but they also have more of their own capital. This means that investors are interested in buying properties in a wider price range, including such which homebuyers will hardly ever been able to afford. In turn, a more expensive property translates into a higher commission for you, as an agent. After all, why should you be paid a commission on a $200,000 home when you can be paid a commission on a $1,000,000 rental property?
4. Access a large client pool
If you are licensed in a hot real estate market such as San Francisco, Miami, New York, or Boston, you might face challenges finding homebuyers. Property prices in such markets are too high for regular people. Moreover, the high price to rent ratio means that renting a property makes more sense from a financial point than buying your own home, even if you can afford the high real estate prices.
On the other hand, these hot markets are the exact locations where real estate investors will want to buy properties to benefit from the high demand for both short-term and long-term rentals. Moreover, markets with high demand, rental rates, and return on investment will attract investors from out of state and even from outside the US. This is a much larger client pool than the segment of the location population which might be interested in purchasing a home. So, if you decide to specialize in working with investors, you will be able to attract many more qualified leads and to sell even in a strong seller’s market where homebuyers cannot compete.
5. Investors are more active than homebuyers
According to a recent report from the National Association of Realtors Research Department, homebuyers expect to live in the same property for a median of 15 years, while 18% of all homebuyers plan to never move. What does this mean for real estate agents? Once you sell a home to someone, you can expect to have them as a client again in 15 years (if they are among the 82% who expect to change a home), if, of course, they are satisfied with the service which you provided to them. This statistic means that you can sell a maximum of two homes to the same person in your career as an agent or a broker.
Meanwhile, a successful real estate investor aims to buy a new investment property every two to three years. Others manage to add a few new properties to their investment portfolio every year. Consequently, as long as you make your investor buyers happy and are able to locate profitable rental properties, you can earn commission from the same lead every couple of months.
6. Investment property analysis tools make it easy to find profitable rentals
While it is hard to create an algorithm for the perfect home for buyers, using AI to come up with the ideal investment property formula is feasible. Indeed, agents can use available rental property analysis software to find properties for sale that match their clients’ expectations and requirements in terms of location, property type, budget, rental income, cap rate, cash on cash return, and rental strategy (traditional rentals vs. vacation rentals). This means that you can locate the best investment property for your investor leads from the comfort of your office or even your home and provide your clients with readily available analysis reports. Once property investors see a rental for sale which will bring them 10% in cap rate, they will be ready to move forward with the purchase.
Find your niche
The key to success in any business, including the real estate one, is to always look for the best options and the most profitable niches. Whether you are just starting your career as an agent or already have a few years of experience, consider the opportunity of specializing in working with investors rather than home buyers. In this way, you will be able to close bigger deals faster and more frequently, with fewer headaches.