When first starting out, real estate investors often make the mistake of working without a real estate agent in order to save on commissions. Going agent-less is bad for two big reasons:
Increases exposure to risk. An experienced and knowledgeable real estate agent protects your interests both when you buy and when you sell.
Decreases profit potential. On average, a real estate agent can sell a house in half the time it takes an owner selling it himself, and in flipping, time is money.
In the following sections, we describe seven additional benefits that agents can assist you as an investor that go far beyond simply buying and selling a property.
Show you the money
As an investor, you probably need some investment capital to get started. A good agent is well connected and knows mortgage brokers in the area who can assist you in selecting the best financing options available.
Generate leads
The next best thing to money for an investor is a lead on a potentially profitable property. Great agents don’t focus solely on MLS listings. They can steer you in the direction of foreclosure properties, REO (Real Estate Owned, bank-owned) properties, HUD (Housing and Urban Development) homes, and other fix-it-upper opportunities.
Set realistic expectations
If you’re guilty of irrational exuberance, you may think that shack you’re about to purchase is a gold mine, when it’s really a money pit. Without squashing your dreams of success, a qualified agent can rein in your expectations by providing accurate estimates on the future sales price of the home and the cost of renovations. With a great agent working for you, you’re more likely to be pleasantly surprised when your profit is greater than expected and less likely to be sorely disappointed by shattered expectations.
Highlight the holding costs
Holding costs (utility bills, property tax payments, and insurance premiums) can quickly chip away at your profits. An experienced house flipper may be able to buy, fix, and sell a property in a few weeks or a couple months, but most investors require three to six months to execute a flip. If you figure holding costs at about $100 a day, that’s a total of $9,000 to $18,000 in holding costs over the course of the flip. An agent who’s watching your back won’t let you overlook those expenses.
Steer you clear of trouble
Investors, particularly over-eager beginners, tend to get in over their heads. An agent who’s experienced working with investors is more likely to encourage you to take a slow, steady approach. The agent is genuinely concerned about your long-term success, understanding that the more successful you are, the more successful she is.
Caution: Watch out for agents who try to sell you as many properties they can in order to rake in huge commissions. Such agents are not looking for a quick buck, not a long-term relationship.
Suggest a plan B
Sudden, unexpected shifts in the housing market can quickly derail a less experienced investor. In addition to providing you with an early warning, your agent can recommend strategies to survive in a slow market, such as the following:
- Drop the asking price on a property that’s not selling.
- Lease the property until market conditions improve.
- Sell your primary residence and move into the investment property.
- Offer repair and renovation advice.
An experienced real estate agent can offer valuable advice to guide you in making savvy repair and renovation decisions. Specifically, your agent can assist you in the following ways:
- Discourage you from making the common mistake of over-improving the property.
- Focus your resources on the rooms that sell houses—kitchens and baths.
- Look for value-add renovations, such as converting unused space into living space.
- Recommend affordable, efficient, and reliable contractors.
Long-term agent-client relationships are pure gold for both the agent and the investor. Look for an agent who specializes in working with investors and is committed to building long-term, mutually beneficial relationships.
Tip: I strongly recommend that you choose a licensed Realtor® rather than just any old agent, because Realtors® have considerably more training and are required to adhere to a very strict code of ethics. For more good reasons why you should hire a Realtor®, go to Realtor.com. And don’t forget to check out our new website www.GetFlipping.com.
