Six Things That Separate Investors From Retail Buyers
Real estate investors are a different type of real estate buyer than most real estate agents are used to dealing with. While agents are taught to deal with retail, home buyers, real estate investors are looking for specific deals and profit margin. Many realtors will often not take the time to learn what goes into being a real estate investor along with the differences involved in representing investors. For those realtors that do take the time to understand investors, it is a very benefitial relationship.
#1 Purchase Price What most realtors immediately struggle with is that most investors will not offer more than 70% of maket value or retail price or less depending on the condition of the property. This is true of short sales, REO (bank foreclosures), and other properties that they have obtain financing for. If the property needs any type of work, the investor will reduce their offering price to reflect that along with holding costs. The basic purchase price formula that the majority of investors live buy is retail price multiplied by 70% (mostly 65% in today’s market), minus repairs and holding costs. Realtors are used to dealing with home owners looking to purchase their primary residence and whom are willing to pay 90-95% of retail. This is just not the case with investors.
#2 Financing What’s most important these days is getting deals closed. Investors make a lot of cash offers that are closed with short term loans from private investors and “hard money” lenders. Investors make cash offers knowing that they have this type of short term and short close funding available to them. While this short term financing can be considered expensive at 8-18%, investors realize that this is short term financing and the fact that they would rather get the deal done and loose a little bit on the short end versus not getting the deal done at all.
#3 Exit Strategies Investors may realize their profit when they purchase the property, but they can’t touch it until their exit strategy has kicked in. Instead of simply listing the property on the MLS for a conventional sale with conventional financing. Successful investors have a multitude of exit strategies to take advantage of where the housing market it. These exit strategies range from a traditional sale, to owner financing, lease optioning, renting, and wholesaling the deal for quick cash. Realtors that are open minded are huge assets to investors, but those that are not are more of a liability than they are worth. Investors are open to realtor learning more about what they are looking to do, and being flexible with multiple exit strategies is a huge key to being successful.
#4 Outside the Box Thinking While we discussed exit strategies that might seem a bit different, it isn’t quite the Ouside of the Box Thinking that most investors are known for. Investors are often able to come up with non-conventional solutions to problems. Unfortunately, most realtors are to set in their mindset to accept a subject to, owner financing, or short sale offer and their client often suffers as they are to stubborn to accept a viable solution to their clients’ problem. Unfortunately, most realtors will assume an idea is illegal when the idea is completely legal, viable, and their clients are protected with legal documents.
#5 Quantity This alone should have realtors scrambling to work with investors on a regular basis. Most realtors are scrambling to attract new buyers that will buy one property on average every five to seven years. Successful investors are buying multiple properties every year if not every month. While investors may ask their realtor to submit twenty plus contracts each week on REO’s or short sales to close on one deal. Unfortunately, realtors would rather spend their time running buyers all over town instead of spending time with a guaranteed buyer who can close and also who is patient. Why chase five buyers for five deals or work with one buyer to buy all five. I think the answer is obvious here.
#6 Multiple Deal Streams Investors will often work with multiple realtors to ensure that there is always a steady flow of deals coming in. Most realtors would prefer that the investors work with just on realtor, but unfortunately, most realtors specialize only in one area of the city, one type of deal, or a specific price range and are not cross trained or knowledgable with every type of transaction that the investor will close up on. Your traditional realtor will often get their feelings hurt when they find out their investor is getting deals from other realtors. What they don’t realize is that if they took the time to learn how to invest, this would almost guarantee that investors would take the time to turn more of their business over to them as their main realtor. Unfortunately, realtors are often comfortable with what they know and have done instead of taking the time to expand their business and learn something new.
The biggest hurdle that most investors face is finding intelligent, open minded, and flexible realtors. Realtors and investors often need a period of mutual training and getting used to working with each other and what is the best for business. Those realtors that take the time to learn what the investor truly needs can be a huge asset and a way to seperate themselves from the competition. This seperation can also lead to the realtor making more money than they are used to by chasing conventional home buyers.