For every agent, there is usually someone pining to buy residential real estate who will follow their guidance precisely and unconditionally, knowing they are the industry expert, thus making a purchase with complete and utter confidence.
That someone is themself. Investments lead to profit or loss, but it’s why you as an agent are way ahead of almost all others when it comes to buying real estate. This is your profession, understanding the present and future value of what is bought and sold in your area. It’s not easy, and you need to be properly capitalized, but owning investment properties is how a great many people achieve financial security, if not generational wealth.
For agents so inclined to do some speculating, there are several buying options, depending where they live. Cities include mostly condos, co-ops and apartment buildings. Houses are everywhere, of course. Many people know someone who owns and rents out a residential property. It’s not a complicated endeavor, and for the most part, becoming a landlord is fairly safe and lucrative.
A REALTOR® buying carefully chosen property is no different than a stockbroker following the advice he gives to clients. Both spend their workdays doing due diligence on properties or stocks, then share their expert opinions with those looking to buy. Why not take your own advice if the perceived value is a no-brainer and you have or can raise the funds? Property and stocks must be judged on their future value, and nothing’s guaranteed, but trends usually favor experts in their field.
“I believe every agent should own an investment property, at least one,” says longtime broker associate Jeffrey Decatur, with RE/MAX Capital, in Latham, New York. “Agents owning investment properties is fairly common. I know numerous agents who do, and I did. Owning investment properties is a great way to create another stream of income while keeping you focused on the real estate industry.
“Typically, they appreciate, you get write-offs and depreciation on your taxes, and they are tangible, unlike other types of investments. Everyone needs a place to live. Owning investment properties will give you a real estate education you didn’t know you were lacking. Having that background makes you a better agent for investors or any client. You learn things you don’t necessarily learn in typical single-family home sales, like how to handle cash flow, rates of return, how the eviction process works, tenant laws, flipping versus holding, commercial leasing, and who is the best plumber to call on a holiday weekend because a water heater went bad. It is a whole other world, and we as agents should want to educate ourselves in that world.
“Once an agent owns their own investment property, or sells one, they will gain a whole different level of experience and knowledge, and be able to speak from it, instead of from theory. That is invaluable, and gives you a different kind of confidence. You can learn something in theory and understand it, or you can do it, experience it and speak from that experience and first-hand knowledge.”
Secondary income stream
In these days with inventory extremely tight, new listings hard to find and fewer closings than the last few years, having another income stream can be a lifesaver.
“Some of my advice comes from age and experience,” says Pam Rosser Thistle, a REALTOR® with Berkshire Hathaway HomeServices Fox & Roach, REALTORS® in Philadelphia. “I myself have bought and sold over 10 times in my decades of homeownership (primary and investment properties). I have paid over value sometimes. I don’t recall ever getting a deal. The property always worked for that time in my life or situation. And luckily, I have always made money. This is because I am patient. I usually hold for about 10 years. So I impart to buyers a big-picture perspective.”
Thistle’s strategies are not altogether different whether she is buying a place to inhabit or to use as income. The right property will deliver a solid profit over time. Here is her list of why to buy, which is not based on a specific goal for the house or apartment:
- Comfortable setting to live your life by your design
- Over time, to experience appreciation
- There are options like tapping your equity through a HELOC for life needs, such as paying for a child’s college, or home improvements
- Investment – a steady check every month
- Break even or better when you could be paying rent. Parents sometimes buy a place for their kids to live while attending college and end up making money.
- Specific features. I admit I once bought a place just for the valet parking. But the monthly fee was the same that I would’ve paid for a spot in a garage. So I had an apartment, a pool and a front desk. Get creative!
“Since real estate has funded my life and paid for my kids’ schooling, I am an advocate for owning as much of it as you can handle,” she asserts. “Ideally, that would be a primary home and one or two investment properties. Then keep rolling profits into more real estate. It takes time, decades. But start by buying a primary home. That is always your first investment property. It appreciates as you live in it.”
Dangers of being overleveraged
The bigger the investment, the bigger potential profit, but also the bigger danger of major loss. Investors bid up the price of multifamily buildings for years because of the rents that almost always rise. But once saddled with bank debt, there was always a possibility of losing money fast because of interest rates rising, costly repairs needed or tenants ceasing to pay rent for whatever reason.
Indeed, apartment-building values fell 14% over the past year after having risen 25% the previous year, according to data company CoStar. Much smaller investments, such as single-family homes, are likely the better bet for agents.
Sisters and REALTORS® Lisa and Kristine Milkovich lead The Milkovich Team at John L. Scott Real Estate, in Seattle, Washington. Both have been buyer agents for real estate investors and both have been investors themselves. Not surprisingly, they prefer the latter.
Kristine Milkovich owns a few investment properties, one a downtown loft that is a full-time rental, and a recreational, waterfront beach house that serves as an Airbnb 80% of the time.
“Neither of my rental/investments were found by way of looking at them first for a client,” she notes, proving that her expertise and connections as an agent have paid dividends.
Lisa Milkovich relates that while nothing is guaranteed, agents who want to build wealth buy multiple homes, if possible.
“The agents that are savvy and know that wealth is created with home purchases, not home sales, buy investment properties,” she says. “I am purchasing an investment home right now that came to us through our broker network. Someone we have worked with many times gets distressed homes that are taken back by the city and sold. Most of them have had marijuana illegally grown in them. We are purchasing one that we will do some work to, then relist it for a profit.
“I would say about 20% of active brokers purchase properties for investing. We definitely help investor clients, and they are typically looking for something under market value that may need work. Some do want turnkey (no repairs required), and will pay market value.”
Selling to investors
There is a different way agents should approach being a buyer’s agent for someone seeking a home to live in as opposed to those purchasing property as an investment. It’s a much more clinical approach for the investors, who are looking to make a profit immediately.
“Investors generally only look at the rental-cap numbers and the amount of money the property will need to get it market-ready to rent or flip, and tend to keep offer-planning non-emotional,” says Kristine Milkovich. “We know their goals from the get-go as we help coach, guide and strategize the property finds, the market research on them and the needed items for their offer-planning outlines.”
Decatur stresses that it is vital for the buyer to spell out precisely what they want, so there are no mixed signals.
“Over the course of my career, I have sold properties to local and out-of-state investors that are owner-occupied, non-owner occupied and commercial investments,” he says. “Each has its own set of pros and cons, and each has their own criteria and motivation. They generally tell you exactly what their intentions are, and it makes a big difference.
“Typically, a buyer/investor will tell you right up front that they are looking for a commercial building or multi-unit building with an X% rate of return, in this general location and condition. This type of investor is typically only interested in the upside or potential for appreciation. Smaller investors or owner-occupant investors will typically want a solid rate of return, too, but will be more interested in schools, location, condition and such, more like a traditional single-family homebuyer, because they are going to live there. The latter is more emotionally connected to the process than the former.
“It is also important to know the different financing options. A two-family owner-occupant is going to be financed differently than a non-owner-occupied property. A four-unit building will be financed differently than a five-unit. The four-unit is considered residential, and the five-unit is considered commercial.
“Buying investment property is a way to diversify and plan for retirement. It also gives agents additional income if they have sporadic sales.”