![]()
Part I
Making the Investor-Agent Connection
![]()
Chapter 1
Why You Need an Investor-Savvy Agent
If you've bought and sold a principal residence or investment property, you know how important it is to have a realtor act on your behalf during the process. He or she can help you find a property, prepare your home for sale, write offers to purchase, negotiate the purchase price, make referrals for other services, and generally guide you through the numerous steps. You could never do that with someone you didn't trust and value, right?
Now imagine that on your journey to becoming a more sophisticated investor, with more deals, properties, and dollars at stake, you're able to work with an agent who specializes in working with investors like yourself. Someone who, yes, can handle all the technical details of buying and selling property, but who also understands the investment side of the businessâbecause he or she is also an investor. Someone like that can help you find an excellent buy, instead of a good one, and can help you choose a solid investment, rather than a lucky one.
How much would that be worth to you?
In any profession, be it law, medicine, or in this case, real estate, specialists provide an expertise that their more generalist colleagues do not possess. For real estate investors, investor-savvy agents are a huge asset because they intimately know all the important steps you're going to take and the information you need to make solid decisionsâafter all, they have acquired income-producing real estate themselves. Such experience could be the difference between an excellent and profitable buy, and one you come to regret.
The Value Proposition of an Investor-Savvy Agent
The job of an investor-savvy realtor is to understand you, the client, as an investor, not just a homebuyer. Many realtors are interested in individual transactionsâsimply buying and selling homes and gaining commissions. Investor-savvy agents, on the other hand, understand your goals and objectives because they are investors themselves, and they have the knowledge and expertise to help you find cash-flowing properties that meet your strategy, vis-Ă -vis where you are in life and in your real estate investing career.
For example, I recently met with a couple that were thinking of becoming real estate investors. As soon as I began talking to them, I learned they'd bought only one house, their own home, and had been living there for 25 years. They were ready to buy investment property, and wanted to understand the different strategies they could choose from. It would have been a huge mistake for me to put them in something that didn't suit them, something fast-paced such as a fix and flip. For this couple, and for many typical first-time investors, the ideal fit would be something stableâin a stable area with stable returnsâthat they could buy and hold with little work. With one long-term primary residence, stability was the story of their lives, so a slow-moving, easy-to-manage property would be perfect for them.
For another client, a contractor who is very comfortable as a handyman, a suitable property might be one that required a little workânot necessarily to fix and flip, but a home that would benefit from a little sweat equity in painting and other cosmetic improvements, which he could provide himself, to improve cash flow and increase value.
It really depends on individual clients: their goals and strategies, financial resources, limitations, and knowledge and experience. And, of course, the essential question of why: Why do they want to invest in real estate?
âThe Big Whyâ
Let's talk about your âwhy.â Why do you want to invest in real estate? Is it to build your retirement nest egg, to pay for your kids' education, to generate extra income to pay expenses, or to replace your income entirely by becoming a full-time investor? Few people actually love bricks and mortar, but who wouldn't love financial freedom?
Whatever your âwhy,â investor-focused agents can help you achieve your goals, because they understand investment real estateâthe local market and other important factorsâmore than realtors who deal purely in selling primary residences. Agents selling homes only to first-time or move-up buyers simply match up potential properties to buyers' parameters for location, price, proximity to work, and other key criteria.
Searching for investment properties, on the other hand, involves a different process and another set of rules. When working with investors, realtors need to be more knowledgeable about the local market fundamentals, developments in the economy, goings-on with the municipal government, what makes one potential neighbourhood or street more desirable than another, the vacancy and rental rates for the area, and the tenant profile for the neighbourhood.
The importance of the above points cannot be overstated, and we will discuss all of them in greater detail later.
First-time or would-be investors sometimes try to make purchasing decisions based on advice from friends or relatives, what they hear or read in the media, or other information that doesn't always make for the best choices. Selecting neighbourhoods and properties to invest in requires looking for very specific trends and developments. A tip from your Uncle Fred or the friendly community butcher isn't going to (pardon the pun) cut it for you in terms of unearthing real investment opportunities. It may help, but it's an opinion, and quite likely not an informed opinion. When dealing with your or your family's financial future, you need expert advice.
Among the most valuable tools that licensed agents provide are reports called CMAsâcomparative market analysesâalso known as âcomparables.â This is critical information that should be closely considered when buying a property, since it details recent buying and selling activity in the neighbourhood, how long each property has been on the market, the asking and final selling prices, and other data.
Local Market Expertise
Investor-savvy agents provide critical information that you, as an investor and landlord, will want and need to know, including:
- How much could this property rent for?
- What are the average rents in this neighbourhood?
- What are the vacancy rates in this area for this type of property?
- How have rents in the area been trending over the last one to three years?
- What kind of tenant will this property attract?
- Are renters attracted to the neighbourhood?
- Is the property saleable, since one day you will likely want to sell it?
- What is the recent price appreciation for similar properties in the area?
- Are there any new developments in the area, such as highway or transit construction or a major new employer, that make this an appealing home for prospective tenants and that could eventually increase the value of the property?
- Is there a new tax assessment for the area, which could increase property taxes?
Here's a short anecdote. At one brand-new townhouse complex in Kitchener, I called the listing realtor to ask a few questions: How much would the townhomes rent for? What was the vacancy rate in the area? Did she know of any new employers coming into the area or of any other developments that would make the area better to live or invest in? She could not provide the answers, since she did not work with investors or people looking to buy properties to rent out. Her focus was purely on selling the units to buyers of primary homes, and she could talk only about upgrades and other features in the homes. Luckily for my client, he did not have to worry, as I knew the area well, and could help him look at the bigger picture.
It's an investor-savvy agent's job to gather this kind of information to help you, as an investor, make informed decisions on areas and properties to invest in, and to teach you what to look for on your own. They should know what's happening in the area over, say, the next five years. For example, are there any new construction, economic, or development projects planned or underway, such as upgrades to major highways or new transportation infrastructure? They should understand the demographics of the tenants the area attracts and have suggestions at hand to improve potential properties to make them more desirable than other competing rental properties. And they should offer ideas for your exit strategyâpresumably resale in due course.
How to Get Good Comparables
As mentioned earlier, comparative market analyses (CMAs) or comparables are one of the most valuable services licensed agents can provide their clients. These reports include details on recent buying and selling activity in the neighbourhood, size and style of the property, how long each house was on the market, the asking and selling prices, and other critical information, which, as an investor, you can then use to guide your buying and selling decisions.
Getting accurate comparables can be challenging if you do not know your search criteria or the neighbourhood in question. It's quite common, for example, for two or three realtors to look at the same property and have different opinions on its value. That's why it's critical for you to see the CMA yourself, to see what the realtors base their opinions on and how they arrive at their estimated value.
Have you ever sold your home and asked three realtors for their opinion? It's the same house, but the three agents may come up with three completely different prices, and even more price range differentiation if the property needs work. The After Repair Value (ARV), what a property would be worth after improvements are made, is harder to estimate. To get the best ARV possible, you need to use both sold and listed comparables. You want to know how much the comparables listed and sold for because you need to know what people are willing to pay for the property based on the sold comparables (market value), and you need to know what your competition is doing when you put your property on the market to sell.
When looking for sold comparables, your search criteria should consist of the following:
- similar properties on the same street, or
- similar properties in the same area, or
- similar properties in the same town, if none of the above comparables is found (for more unique properties, you might need to search the whole town)
- a time frame of six months back, or three months in a hot market
- the same number of bedrooms and bathrooms as the subject property (if you are unable to find comparables with the same number of bedrooms and bathrooms, you can have a variance of one less bedroom and/or one less bathroom)
You can also search the history of the subject property, when it was last sold and how many times it has turned over.
Relying on your agent's years of experience and knowledge of the local housing market to interpret the data and make recommendations, you will compare the CMA information to the property you are considering purchasing. You must get a CMA for every property you are considering buying or selling, as this is the key way to determine the appropriate price.
Tahani's Tip
Never rely only on a realtor's opinion of a property. Always ask for their opinion, but also look at the comparables yourself.
Differences Between Regular and Investor-Savvy Agents
Consider some of the key ways investor-savvy realtors differ from their more generalist colleagues:
- General-Purpose Realtor: Thinks short-term about individual deals
- Investor-Savvy Realtor: Considers the long-term objectives of the investor and is focused on the long-term relationship, not one deal
- General-Purpose Realtor: Is focused on buying and selling houses
- Investor-Savvy Realtor: Pays constant attention to local developmen...
