Really any agent can represent a real estate investor there is no special certification to working with investors. But what is the difference between a regular real estate agent and an investor friendly agent?
The Invest Themselves:
If you are a real estate investor it is important to work with someone who invest themself. When I bought my first property I had no idea what I was doing.
Where do I find a lease?
How do I screen people?
What is legal what isn't?
What is a good property management company?
Do I need a commercial license and a rental license where do I get them?
What kind of book keeping software should I use?
How do I find tenants?
Should I shoot for top of market rent or go $50 below market and just get it rented?
Bonus question - What if you have a tenant with a tenant with a Pitbull certified as a helping dog. Technically you cannot deny someone due to having a service dog but your home insurance has restrictions against Pitbulls. So what do you do?
Luckily my agent that I used at the time was an investor and pointed me to all the right resources. Which is what I do for my clients now. You do not learn everything all at once but over the years I have read tons of books, listened to thousands of hours of podcasts/audio books, and been to many networking events. When I help a client get an investment property I can lease it out for them or if they want to do it on their own I teach them what the steps are.
Their Network Becomes Your Network:
As an Agent who invests I spend most of my free time reading books, or working on my properties. It's really my hobby and I want to perfect my craft! My networking groups some are large Philadelphia wide groups that have a lot of people and some are small where we have 6 or 7 people at someones house. Of course over the years I have had my series of repairs so I have built out an extensive list of contractors from plumbers to electricians. Any agent can probably provide you a list of contractors but can they provide you with contacts for hard money lenders, private money lenders, wholesalers, tax sale properties, great investors to seek advice from, real estate lawyers if you need one, business consultant/accountants? What if you go to buy an investment property and the lender says you need 6 months of reserves for all your properties and your primary residence that can be a lot of money. Is that the end of the road then, or does your agent know someone who can do 90 day reserves for only the investment properties? I know these people because I have made the dozens of calls myself to lenders and found the all of them operate differently. These are very nuanced issues but matter when you are going to buy that next investment property.
Philadelphia and the surrounding areas have been extremely hot the past couple years and it seems to just keeping getting hotter. It is important you have someone who is responsive and can get you in to see a house the day of if you need to. Now this does not mean finding a new house everyday that you may think could work but really are just throwing darts at the wall. Real estate agents are people too so just respect their time like you would anyone else. There are a lot of so called investors who will unfortunately have you show 100 houses and never buy anything. When agents spot one of these they usually choose not to work with them again so respect each others time. But if you find that right property you need someone who can get you in and right an offer day of. Being prepared to spot a deal is your job but get the deal closed is mine and being the first one their is key!
Leveling Up to 5+ Multi-Family
Eventually most investors want to go from single family to multi-family we learned this in monopoly...4 green houses for 1 apartment building. In real estate anything over 4 units (5+ units) is considered commercial multi-family. These deals are hard to find. Sure you can go on LoopNet ... there are some great deals that sit on there but not many. So how do you find good multi-family deals? The key is working with an agent who has networked the multi-family market. No I do not have any 5+ unit buildings myself but I do know how to find them. Most multi-family deals are off market or I have cold called owners for them. Underwriting is also a key part of seeking multi-family deals, there are certain assumptions for vacancies and expense that we know in this market. A lot of deals we get initially are presented with a 10% expense ratio which is far off from realistic. Does your agent know what a good vacancy and cap rate are in the area?
Finding The Investor Friendly Agent
Luckily if you're here you have already found me (shameless plug). But if you are in another market where do you go? I would suggest going to local real estate meetups there will be a lot of agents there. Go and talk to a few and you may find the right one there. Bigger Pockets is also a great place to ask for an investor friendly agent in your area. Or if you know someone who invests in your area ask who their agent is and why they use them. Seek someone who invests, has experience, is honest, kind, and responsive for when the right deal comes.
Disclaimer: The following is based off of my personal experience. I am not a lawyer, CPA, or financial advisor. Consider consulting with financial, legal, and tax professionals before making financial or business decisions.
I always had a passion for real estate and began to think seriously about investing years ago. Whenever you take an interest in something you begin to do the normal things read, learn, and talk about the subject. I read everything and listened to every podcast I could on the subject even networking with real estate investors when I had time. Then I began talking about it with family and friends and got mostly negative feed back: rentals are risky, the markets too high right now, why would you want the hassle, why would you want to evict people, invest in mutual funds, and a million more... When your best friends, family, and co-workers are questioning your decisions you must be wrong there's something you don't know right? Wrong! I now answer these objections with two of my favorite quotes "Free advice is the worst advice" and "Instead of thinking about the cost of doing something ask yourself what is the cost of not doing it".
IS RENTAL PROPERTY INVESTING FOR YOU?
The quick answer is I cannot answer that question you have to ask yourself what your goals are. For me I wanted an investment vehicle that would make more than traditional mutual/index funds. This leaves me with a few options the main two stock picking and rental property investing. I had always been interested in real estate and worked on houses growing up so I chose the latter. I realized that rental property investing wasn't going to be as easy as throwing money in a mutual fund and having it spit out a return year after year. The truth is rental property is a mix of an investment and a job you have to realize this before going into it. Initially it can be very hard because you probably don't know much about houses, leases, insurance etc.. If you work hard building your systems, team, and knowledge upfront everything becomes much more easier year after year!
THE BENEFITS OF RENTAL PROPERTY INVESTING
Live Rent Free: This is how I started investing in real estate. Save enough money for a down payment buy a house and rent out the other units/rooms. You then pay the mortgage, insurance, and taxes with the rents. I then put that saved rent towards my next house and the cycle keeps going!
Cash Flow: - The profit left over after the bills on the property are paid. IE: Your properties mortgage, taxes, and insurance are $500.00 and rents for $1000.00 your cash flow would be $500.00 per month. Many who invest would actually save 50% of that 500, $250.00 for expenses and vacancy which is good practice.
Equity: Your equity is the paid off principal on the property. In your mortgage you pay principal and interest every month. Without realizing it you are building your net worth just buy paying the mortgage every month. Say you bought a house for $200,000 and put it on a 30 year note when you were 25. When you are 55 that house will be paid off and that $200,000 in equity is yours. In 30 years however the value probably has gone up which brings us to our next benefit...appreciation!
Appreciation: Appreciation is the increase in value of your property over time. A Zillow article reports that national annual home appreciation hovers between 3-5% per year and this may change depending on the city. Appreciation is the icing on the cake and many suggest never investing with the sole purpose of appreciation.
Let's say I bought a house at $100,000.00 today and wonder what it will be worth in 30 years when the mortgage is paid. Using a simple online calculator I calculated this.
Starting value: $100,000
Average Appreciation 4% Over 30 Years
Ending Value: $324,339.75
That is $224,339.75 in profit besides cash flow and tax savings just for having your tenant pay your mortgage and you maintaining the property for 30 years!!!
Depriciation: "Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value." (Investopedia). Basically depreciation is reduction in value of the structure itself not the land over a certain period of time. This can be a huge tax write off each year and an overlooked benefit of real estate. I have my accountant do this for me and would suggest always consulting with a tax advisor.
Write offs: There are a number of tax write offs associated with real estate. Personally I am able to write off my interest, insurance, maintenance, repairs, and many more that can reduce my tax liability from a W-2 job. Again consult with a tax advisor on the amazing tax benefits you get from rental real estate!
THE BAD AND THE UGLY
Repairs: After I bought my first rental property I had little to no money. I thought nothing would go wrong because I didn't have any money for something to go wrong. Well stuff went wrong. My house was owned previously by a landlord and did the bare minimum and it became and Easter egg hunt of repairs.
Mitigating repairs: Upfront you should have a great property inspector do your due-diligence and find a good one. Go to the inspection with your inspector and hear what he or she has to say. I get all the inspections that I can. In my mind inspections are best thing to spend money on. I've walked away from deals due to bad inspections which was painful but I believe I'd still be fixing up that first bad house if I had bought it.
Expecting repairs: If your inspector points out that you may need a new furnace in a few years budget for that repair. I don't expect any cash flow my first year owning a property because most likely that money will be spent on repairs.
If you own a rental property eventually you will get a bad tenant it is part of the business. We cannot avoid this issue completely but we can put some preventions in place.
Screening: Screening your tenants is critical to the welfare of your business and your sanity. I use Cozy. I provide the client with a link then they fill it out and pay and I get a credit check, work history, and criminal history etc... This service is $40.00 per applicant there are other services out there but this one has been easiest for me.
Knowing the rules: If you are operating any business you should know the laws and regulations better than anyone. If the time comes in which you have to evict a tenant you should know how to execute that process. A great tip I also got at one of my real estate meetings is to go me your district judges and ask them about the process. One this will give you face to face and they will appreciate you trying to be proactive by learning the rules.
Leases: Have a great lease and try to predict situations that may arise and build that into your lease. If you know a Realtor cough cough me shameless plug. I can get you general Pennsylvania leases and other landlord forms.
Along with having a great inspector to mitigate the upfront risk of buying a money pit property having proper insurance will help manage your risk. In my basement I have steel pipes that are 80 years old and are likely to break at some point. This can be a $15,000 repair if they need to be replaced. Guess what, there is insurance for that! What if you have a no dog policy but your tenant has a service dog that is a German Shepard and this will violate your insurance policy? In most places you cannot deny a tenant based on having a service dog but you need insurance. Do you know what company does not have a breed exclusion? State Farm, I don't actually use them but if I ever come across the situation I know who I'm going to! It is important to mitigate these potential issues before they arise.
Rental Property Investing is Too Much Work:
Rental property investing is work which is why you can get higher returns. This work can be replaced by systems over time! My book keeping is done through QuickBooks which when I swipe my debit card automatically sends to my QuickBooks. I then submit this along with my other info to my accountant at the end of the year. My rent is collected through a paypal like service (Venmo) which goes right to my phone all I do is hit transfer to bank. Leases are electronically signed and stored on Google Drive so I can access them from my phone. Repairs and maintenance I still do myself but when I grow more this will be outsourced to property management.
WOULD I INVEST AGAIN? Absolutely! Rental property investing has been the greatest vehicle I have put my money into. It is hard work and at times it can be extremely stressful. You have to ask yourself if you are willing work hard for awhile and deal with some stress to gain the amazing yields real estate has to offer. This work and stress can always be outsourced too! Now that I have a great handyman the management is really easy. I have stopped trying to fix stuff myself which has made my life 10x easier. No other investment gives you the ability to scale as quickly and powerfully. Everyday I learn more, build more systems, and make my life easier. New problems arise but I realize that's one less problem I'll deal with down the road because I have learned the solution today. At first jumping in is scary but once you do the fear quickly wears off and the profits will come.
Matt Tallent is a Realtor with The How Group. His passions include rental property investing and helping others achieve their real estate goals.
Real Estate Investing
Buy and Hold