Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors

Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors

Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors: Navigating the real estate market can be a complex process, especially for investors. Realtors can provide valuable assistance, but it’s essential to understand the pros and cons of working with them. This article will delve into the benefits and potential drawbacks of partnering with a realtor as a real estate investor.

Mastering Real Estate Investments: The Advantages and Drawbacks of Collaborating with Realtors 2

☛ Navigating the World of Real Estate Investing

Navigating the world of real estate investing can be a complex journey, whether you’re a newcomer or a seasoned professional. This blog post is designed to serve as a guide for those considering the new role of a realtor candidate as part of their team in their investment strategy. Drawing from our extensive experience of 36 years in the real estate business, we’ve been involved in the buying, holding, and selling of single-family, multifamily, and commercial properties across multiple markets nationwide. As a seasoned private lenders for a wide range of real estate transactions in 47 states, we’ve gained a comprehensive understanding of the investor-realtor relationship. This blog post encapsulates our insights and experiences as investors, offering them as a supplemental resource to your own research. We hope that the additional information provided here as well as your own research will help you make informed decisions about your real estate investment journey.

☛ Access to Market Knowledge

Working with an “experienced” realtor can provide investors with invaluable access to market knowledge. Realtors are typically well-versed in local market trends, property values, and potential investment opportunities. They can provide insights into the best areas for investment, potential risks, and expected returns. This can save investors significant time and effort in conducting their own market research. However, it’s important to note that not all realtors have the same level of expertise or knowledge. Some may specialize in residential properties while others may have more experience with commercial properties. Therefore, it’s crucial for investors to ensure that the realtor you choose has the relevant knowledge and experience for their specific investment needs. Additionally, while realtors can provide valuable market insights, investors should also conduct their own independent research to validate this information and make informed decisions. Here are few additional pros and con about “Access to Market Knowledge.”

Pro: Access to Market Knowledge
If they have experience, Realtors can have a deep understanding of the real estate market, including trends, pricing, and desirable locations. This knowledge can be invaluable for investors, helping them make informed decisions and identify profitable opportunities.

Con: Access to Market Knowledge – Realtor Fees
Working with a realtor often involves paying commission fees, which can eat into your investment profits. Especially when you are starting out. It’s essential to factor these costs into your budget and investment strategy.

Pro Tip: as you gain more experience with investing in your market, it is imperative to your investment career that you eventually become an expert in your market. Too many investors rely on others to help them make critical decisions, this can be a crutch and can harm your momentum. It is good to have advisors, but ultimately it should be your call.

☛ Negotiation Skills

Experienced realtors bring to the table strong negotiation skills that can be a significant advantage when purchasing or selling properties. They are trained to negotiate deals, understand the tactics that work best, and are adept at handling difficult situations in a way that can lead to favorable outcomes. They can help investors secure properties at the best possible prices and terms. On the other hand, while realtors can be a great asset in negotiations, it’s important to remember that they may not always fully align with the investor’s interests. Here are few additional pros and con about “Negotiation Skills.”

Pro: Negotiation Skills
If they have experience working with seasoned investors and understand your investment property type (single family, multifamily and commercial), Realtors can be skilled negotiators, which can be particularly beneficial when it comes to securing a favorable purchase price or terms. Their expertise can help investors save money and avoid potential pitfalls.

Con: Negotiation Skills Potential for Misaligned Interests
While many realtors are committed to serving their clients’ best interests, there can sometimes be a misalignment between the goals of the investor and the realtor. For instance, a realtor might be motivated to close a deal quickly to earn their commission, while the investor might benefit from a more patient approach.

Another factor is that I prefer to negotiate my own deals directly with the seller or buyer. In most cases, because of control issues, a realtor will not allow this to happen. The reality is that too much time is wasted going back and forth with a realtor. I find it much more effective sitting down having a cup of coffee with the seller or buyer and hatching out the needs and wants. We close more deals that way.

☛ Time and Convenience

Working with a realtor can offer significant time savings and convenience for real estate investors. However, this convenience can come at a cost. Realtors typically charge commission fees for their services, which can impact the overall profitability of an investment. Additionally, while working with a realtor can save time in the short term, it’s important for investors to be actively involved in the process to ensure they are making informed decisions. Relying solely on a realtor without understanding the market or the specifics of a property can lead to less than optimal investment decisions. Here are few additional pros and con about “Time and Convenience.”

Pro: Time and Convenience
Working with a realtor can save investors significant time and effort. Especially if you are a newbie. Realtors can handle many aspects of the investment process, including property searches, paperwork, and liaising with sellers, allowing investors to focus on their overall strategy. This is great at the beginning especially if your new to investing, but it should not be a long term part of your investment strategy. Remember, you need to become the expert in your market.

Con: Time and Convenience – Limited Control
When you work with a realtor, you may have less control over the investment process. Some investors prefer to have a hands-on approach and might find this lack of control frustrating. I can easily use a title company or an attorney to negotiate and close deals in multiple states.

Pro Tip: It is a good idea if you intend to invest over state lines to employ attorneys and title companies that are in a particular region or national. These professionals become aligned with your mission and help close more deals swiftly.

☛ Professional Network

Experienced realtors often have extensive professional networks that can be invaluable to real estate investors. This can streamline the investment process and potentially lead to cost savings. On the downside, while a realtor’s network can be a valuable resource, it’s important for investors to do their own due diligence. Not all professionals in a realtor’s network may be the best fit for an investor’s specific needs or investment strategy. Additionally, relying solely on a realtor’s network may limit an investor’s options. Building and maintaining one’s own professional network is a crucial aspect of successful real estate investing. Here are few additional pros and con about “Professional Network.”

Pro: Professional Network
Realtors often have an extensive network of professionals, including contractors, inspectors, and lawyers. This network can be invaluable for investors, providing access to trusted professionals who can assist with various aspects of the investment process.

Con: Professional Network – Limited to Listed Properties
Realtors typically have access to properties listed on the Multiple Listing Service (MLS). While this includes a wide range of properties, it may not encompass all potential investment opportunities in a particular market. Some properties, such as off-market deals or for-sale-by-owner homes, might not be listed on the MLS. These off-market deals can sometimes be opportunities in the making.

Pro Tip: This can also be a double edged sword. We were working in Virginia and we utilized the realtors network and it turned out to be a costly endeavor. They were controlling the market and working together to churn more money out of our deals. It was not a good situation.

☛ Legal Knowledge and Protection

Experienced realtors are well-versed in the legal aspects of real estate transactions, which can be a significant advantage for investors. This can provide a level of protection and peace of mind for investors. However, while realtors have a solid understanding of real estate law, they are not lawyers. Complex legal issues may still require the services of a real estate attorney, especially in the case of an inexperienced realtor. Additionally, while a realtor’s fiduciary duty is a significant benefit, it’s important for investors to remember that realtors are also motivated by commissions and may not all be honest. This could potentially lead to conflicts of interest, particularly if an investor feels pressured into making a decision that they are not comfortable with.  Here are few additional pros and con about “Legal Knowledge and Protection.”

Pro: Legal Knowledge and Protection
Experienced Realtors are knowledgeable about real estate laws and regulations, which can help protect investors from potential legal issues. They can ensure that all transactions are conducted legally and ethically, providing peace of mind for investors.

Con: Legal Knowledge and Protection – Potential for Communication Issues
While many realtors are excellent communicators, there can sometimes be communication issues. For instance, a realtor might not fully understand the investor’s goals or strategy, leading to potential misunderstandings or missed opportunities and delays. Additionally, if you already employ an attorney you really don’t need a realtor. Especially if your working on an off-market property.  Plus, if they are not experienced, how much legal protection can they offer an experienced investor?  With an experienced investor friendly realtor you may have the legal knowledge and protection you need to build your portfolio, but it depends on the realtors expertise. 

☛ Market Exposure

“Working with an experienced realtor can provide investors with significant market exposure. Realtors have access to multiple listing services (MLS), which can provide investors with a wide range of potential investment properties. However, while this increased market exposure can be a significant advantage, it can also be a double-edged sword. The vast number of potential properties can be overwhelming for investors, making it difficult to effectively analyze and choose the best opportunities. Furthermore, while realtors can provide access to off-market deals, these deals are not exclusive to investors working with realtors. Savvy investors can often find these deals on their own through direct marketing or networking. Here are few additional pros and con about “Market Exposure.”

Pro: Market Exposure
When it comes to selling an investment property, realtors can provide significant market exposure. They can list the property on the MLS, conduct open houses, and leverage their network to find potential buyers.

Con: Market Exposure – Less Involvement in the Process
While some investors appreciate the convenience of working with a realtor, others prefer to be more involved in the process. Working with a realtor can mean less involvement in certain aspects of the investment process, which might not be ideal for all investors. Also, if you are working a particular market and you want to get familiar with local investors, utilize tools like Propstream to find out who is buying and selling properties in your market. Let’s say you are using a Fix & Flip strategy. Propstream provides a tool to gather names, contact information and property types of investors in any market in the USA. You can easily contact them and find out what type of properties they are investing in and find properties that fit their criteria. Using similar techniques will help you get the exposure you need with other investors to make an impact on your investment strategy.

☛ Decoding the Realtor Code: The 10 Commandments for Choosing the Perfect Investor-Friendly Realtor!

  1. Realtor needs to have a solid understanding of the local market: They should be knowledgeable about the neighborhoods, market trends, and potential growth areas in your target location. They should also be aware of the local regulations and laws that could impact your investment.
  2. Realtor needs to have a strong network: A realtor with a strong network can provide you with access to new to market deals, reliable contractors, property managers, and other professionals you may need during your investment journey. This can save you time and potentially help you find better deals.
  3. Realtor needs to be responsive and communicative: Real estate investing often requires quick decisions and actions. You need a realtor who will respond to your calls or emails promptly and keep you updated on any developments. They should also be able to communicate effectively with other parties involved in the transaction, such as sellers, lenders, and inspectors.
  4. Realtor needs to have a proven track record: Look for a realtor who has a history of successful transactions with real estate investors. Ask for references or case studies to verify their track record. This can give you confidence that they have the skills and experience to help you achieve your investment goals. Normally we look for realtors that have 5+ years experience. 
  5. Strategy Understanding: Your realtor should have a deep understanding of your chosen investment strategy, whether it’s Fix & Flip, Fix & Hold, or something else. They should be able to bring you deals that align with your strategy, demonstrating their grasp of your investment goals.

  6. Investment Type Experience: It’s crucial that your realtor has experience with your specific type of investment, be it single-family, multifamily, or commercial properties. For instance, trusting a realtor with a five-million-dollar commercial deal when they’ve only handled residential properties could lead to complications.

  7. Respect for Investors: A good realtor respects their investor clients and actively listens to their plans. If they consistently bring deals that don’t align with your strategy, it’s a clear sign they’re not paying attention to your needs.

  8. Investor Advocacy: Your realtor should be your advocate, always looking out for your best interests and helping you navigate the complexities of the real estate market. They should be able to provide advice and guidance that aligns with your investment goals.

  9. Value Addition: A great realtor provides value at every step of the investment process. They should be able to offer insights into the market, provide accurate property valuations, and help you negotiate the best deals.

  10. Personal Investment Experience: If your realtor is also a property investor, it’s a good sign. This means they have confidence in the market and understand your journey as an investor. Their personal experience can provide valuable insights and help you avoid potential pitfalls.

☛ Top 10 Questions to Ask a Potential Realtor

Here are ten questions an investors should ask a potential realtor:

☛ Final Thoughts

Working with a realtor can offer many benefits for real estate investors, including access to market knowledge, negotiation skills, and time savings. However, it’s also important to consider the potential drawbacks, such as realtor fees, potential for misaligned interests, and limited control. By weighing these pros and cons, investors can make an informed decision about whether working with a realtor is the right choice for their investment journey. Happy Investing.

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