It’s important for real estate agents to have a mixed book of business that includes working with qualified buyers, sellers, AND investors. Working with investors obviously has a certain appeal. There’s the possibility of doubling up on the commission by helping with the purchase of a property and then the resell of that property. Then add the possibility of repeat business and the fact that these investors are all about numbers and ROI, so they aren’t as emotional as traditional buyers and sellers. Sounds like an agent’s dream, right? But, it’s not all sunshine and rainbows. Every agent should definitely try to find a few good investors, but…
I discourage agents from attempting to work with investors exclusively for two reasons:
1. It’s very hard to represent an investor as a buyer’s agent and close deals. Most agents that list a distressed property already have investors they have been working with for years. It’s in the listing agent’s best interest to make sure that their investor purchases the property in order to relist the house once renovated. For that reason, the listing agent is most likely going to tip their investor off on what he or she needs to pay to get the deal done. This puts buyers’ agents at a disadvantage and limits the possibility of getting an accepted offer for their investor.
2. Investors are a much smaller part of the market than retail buyers and sellers. By only working with investors, you’re ignoring two massive segments of the market that you could be servicing.
Also, before you “invest” time in an investor, you should qualify them with three methods to ensure you are working with professionals who won’t waste your time.
1. Investment Criteria
Any good investor should have concrete investment criteria. This should be clearly laid out in a one-page document with bullet points that list the types of properties they purchase, desired asset classes, price range, condition, business model, previous projects, contact information, website, social media handles, company name, and more. The more detailed the criteria, the better.
2. Proof of Funds
You wouldn’t take a retail buyer out to look at a house without a mortgage pre-approval, would you? Working with an investor shouldn’t be any different. Ask to see a bank statement with sufficient funds to cover the purchase. Pre-approvals from certain private money lenders can be acceptable as well. I definitely suggest speaking to the lender to verify if the funds are available, what loan-to-value they will lend, and if the loan has any stipulations. If the investor is responsible for 20% of the purchase price, make sure they have the liquid funds available. If they are a true professional investor they definitely should not take offense to your request. Don’t be shy.
3. Investors Must Provide Feedback
Once you present the investor with the opportunity make sure they get back to you within a reasonable amount of time with feedback. Nothing is more disrespectful than the silent treatment after you just put in a ton of work. Professional investors appreciate you bringing them a potential deal and understand you also have other options. So, they should let you know if they like or dislike the deal right away and be prepared to make an offer if it meets their criteria. Good deals don’t last long when you find them so time is of the essence. The only way for an agent to truly understand what an investor is looking for is to receive detailed feedback on what they like/dislike about the property and why.
Working with a few quality investors can be an excellent source of business for real estate agents. The key is to make sure each investor you work with has a concrete business model, is ready to go when you bring them a deal, and provides quality feedback that helps grow your relationship. If you have any questions related to qualifying an investor, text me at 516-871-3511.
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