It was 2008 when something started to change in my neighborhood. The once familiar family homes were now freckled with For Sale signs. You couldn’t miss them, like many a bank account during that time period, they were completely empty. Front yards with overgrown grass were quickly transformed into brightly painted façades, and with seemingly equal speed flipped back on to the market now listed as “Pride of Ownership” (or investorship). It was happening so quickly. Something was ominous about it and it took a moment to realize these weren’t your traditional homeowners, they were residential real estate investors. As far as I was (subconsciously) concerned, those were mutually exclusive titles.
I thought to myself, “Why do investors and agents in residential real estate seem like strangers in the night? “Typically, investors have a method by which they evaluate deals and have no emotional attachment to any properties that they are attempting to acquire. Although they will write offers on anything that makes sense, they have no hesitation about walking away from a deal that no longer shows their minimum profit threshold at the price a seller is willing to accept,” explains Jeremy Colonna, a mortgage broker with Matchpoint Funding in Greater Los Angeles. In other words, these investors are “not as easily influenced by real estate agents” adds Colonna, “and that can be frustrating for agents.”
Often investment properties and single family homes are considered different property types despite both ultimately being an investment. Just look at the descriptions used for “investment” versus “home” and it does in fact seem like a different language. Residential agents are also taught to focus more on the emotional appeal, school district and other factors while commercial real estate is more about return on investment and cash-flow analysis.
But real estate agents have good reason to want to learn the language of investors as part of their strategy for new business. One reason is the U.S. is still considered one of the top five markets for residential investors. CNN Money online recently wrote Top 5 housing markets for global investors placing the U.S. in the very top of all global residential investor markets. According to NAR’s recent report on home sales, 13% of the all-cash real estate transactions in September 2015 were individual investors. That means knowing what a CAP rate is or the buy and hold vs. flipping strategies would benefit you greatly.
What is the best way to appeal to investors as a residential real estate agent?
- Team Up With a Lender. Colonna recommends teaming up with a lender who can educate you thoroughly on investor financing. “An agent who is informed about the intricacies of hard money financing, commercial lending and multi-family loan products,” says Colonna, “will inspire a great deal more trust in an investor. Partnering with a lender also can give an investor “a clearer picture of the purchase from start to finish, leverage on the buy side and is able to capitalize on attractive terms offered to the future buyer.”
- Understand Investment Strategies like Buy and Hold or Fix and Flip. A great resource for educating yourself on the topic is on Marshall Reddick’s Website. Check out their LEARN section and educate yourself on residential investment topics from the experts who currently teach it across the U.S.
- Find a Reputable Lead Generation Company that brings you exclusive real estate leads through the internet, where investors are no doubt starting their search. Nothing will give you a deeper understanding of working with investor clients than having actual experience working with them!
- Join social networks like Bigger Pockets where investors frequent and hear firsthand what challenges they face and what they are looking for in a real estate agent.
As the market changes and traditional home buying becomes more difficult to define, being able to speak the many languages of residential real estate (ex. investor, traditional, millenial) will open more doors for you and alleviate frustration. We may then see the two working together in a way that benefits both just as the old Sinatra tune ends, “It turned out so right, for those strangers in the night…”
Lauren Agajanian, MBA