Why don't Real Estate Investors like working with Realtors?

Question

Everytime I speak with Real estate investors they talk about how they want to find great properties that will give them nice profit, but once they find that it is listed with a realtor, they tend to back out. Why is that? What is the big deal?

Answer 1

In my opinion, if a Realtor does not save a client money, time and risk, what is their value? I am a Realtor in Las Vegas and I work with investors and individuals and they keep coming back to me. Why? Because I save them money, save them time, and reduce their risk. How do I do this? First, I work closely with my client to develop a financial model that meets their specific situation BEFORE I start looking for property. This includes not only a plan for buying properties but a longer range plan to change investments once the tax advantages are not as great (1031 exchanges are key here). Then, I spend hours, sometimes days, before I have even three or four properties that are good buys. Can (or will) any Realtor do this? No. Almost all lack the motivation or the expertise necessary to find properties that make sense. I've personally owned between 40 and 50 rental properties in the past so I know what makes a good deal.

The following are just a few of the elements that must be considered. Most of this information is not available to anyone other than a licensed agent and even then, I had to write software to analyze the data.

Acquisition costs – Purchase price + cost of acquisition. I feel that in this market, if a Realtor can’t get you instant equity (buying below market price), you need a different Realtor.

Vacancy rates – These rates are not commonly available and are critical. You have to know what the vacancy rates are for the immediate area surrounding the subject property.

Rental rate – What amount can the property be reasonably rented for? In Las Vegas, you can spend $350,000 for a home and rent it for $1,200 a month. Or, you can spend $250,00 for a home and get the same rental rate.

Cost to put the property into service – In many cases, the properties will need maintenance before they can be rented. I sometimes have service people provide estimates on the repairs and include these estimates in the financial model. These costs can be minimized. For example, if you need to have a refrigerator in the unit, you can get a used one in excellent condition for a modest price. Controlling costs is a critical element in investment properties.

Other costs – Will the property need a new roof in 3 years? Is there a large crack in the sidewalk that must be repaired? Is the property subject to higher rates of damage than normal wear and tear?

Potential appreciation rate – The best information publically available is typically zip code level appreciation. This is irrelevant for a single property. I’ve developed software for determining historical appreciation rates for a single subdivision.

Area trends – What is going on in the immediate area can sometimes turn a great looking deal into a disaster.

Negotiating – I can almost always buy property well below what an individual can because I know how to negotiate. This is a big factor and has saved my clients large amounts of money on new and resale properties.

I am not greedy – I share my commission with repeat buyers.

In summary, if an agent (Realtor or not) does not save you money, time and risk, what value are they providing? It's true that most agents have no understanding of investments and financial models. Finding one that does takes time and effort but is critical for the serious investor.

Eric Fernwood
[e-mail]
www.ISellLVHomes.com

Answer 2

That's not the case with all investors, we have about 6 investors that buy and sell their homes through our real estate company. Those investors who don't want properties that have Realtors listing them want to be able to go in and offer a property owner cash hoping they'll take it knowing it's probably less than what the property's worth and Realtor would tell their seller if the investor was low balling the offer on their home.

Answer 3

Realtors can be very helpful to an investor. A realtor can know exactly what kinds of properties the investor is looking for, and alert the investor as soon as they are listed. I have gotten listings from my realtor from her office before they were even listed.

That kind of expertise and information is well worth 6% to some people.

Answer 4

Jen M has it in a nut shell . Realtors have to be licensed & tested as well as follow a bunch of regulations . A real estate investor could be a business person with little to none education as long as they felt they could do good business & Make money. Most real estate investors purchase properties from distress situations paying as little as possible to maximize profit margin . If you plan on investing you may want to use the realtor only for cross Reference , but not to catch the smoking deals .

Answer 5

Some real estate investors would rather go it alone, they know the business, they know what they want to pay and they want to deal with property owners who don't have someone representing the owner's interests.

6% is alot of money to investor looking to make a tidy profit. An investor looking to take advantage of a naive property owner doesn't want a realtor involved.

Answer 6

Investors tend to know what things are worth (and how much less they can get it for.) They dont want to cut their profits by 6% because of a realtor--- or MORE because the seller is usually getting some decent advice (aka, "Your house is worth MUCH more than he's offering").

Answer 7

The 6% commission that they have to pay for starters. It artificially jacks up the price of the home cutting into the profit margin.

Answer 8

in my dealings with realtors, they don't like people who are informed consumers and ask a lot of questions...realtors like dealing with people who just accept whatever they are told.

Answer 9

They don't want to deal with those nappy headed idiots.