How a Real Estate Agent Can Help You Buy Your First Investment Property
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
The point of investing in real estate is to make money, so investors want to minimize costs when they can. Real estate agents charge commissions, which can cut into your profits, so many investors forgo working with an investor.
However, an agent can be an invaluable asset for a first-time investor. Their experience can help streamline the investment process. With that in mind, let's talk about some of the ways a real estate agent can help you buy your first investment property.
#1 – Identify a Budget
As a first-time investor, you might not fully understand what kind of costs are associated with investing. Aside from the initial capital for a down payment, buying a property also requires budgeting for interest, property insurance, property taxes, and maintenance/upkeep costs.
An experienced agent understands the relevant costs and can help you create a tentative budget for investing. If you are a beginning investor, having someone to help manage basic budgeting can be invaluable for getting off on the right foot.
#2 – Finding Profitable Investments
The main reason for investors to work with an agent is to find profitable properties to invest in and buy. Beginning investors probably won't know how to vet properties, but an experienced agent can identify which purchase would give you the most bang for your buck.
For example, you might find a relatively cheap property and consider buying it so you can pay it off quickly and keep the majority of the profits. However, your agent might point out that buying a more expensive property provides more rental income over the same time period, which will ultimately generate more revenue than buying the cheaper property.
It can be difficult to make these kinds of projections if you are unfamiliar with investing. An experienced investor-friendly real estate agent knows how to identify properties that have a lot of potential even if it might not be immediately obvious.
#3 – Negotiating Sales Transactions
First-time investors might identify a good property but have the deal fall apart during negotiations. Negotiating real estate transactions is a skill, and real estate agents make their living negotiating deals between parties.
For example, a skilled negotiator might be able to get the seller to make a handful of capital improvements before you buy the building. Alternatively, they might be able to get you a better price by working out some kind of income-sharing agreement. The more experienced your real estate agent is, the better they can negotiate favorable terms.
#4 – Managing Paperwork and Documentation
Between securing a property loan, drawing up a sales contract, and managing taxes, buying a property involves a lot of paperwork and documentation. Your real estate agent can help gather and organize this documentation, making sure you have it ready for legal purposes.
For instance, important documentation might include:
- Seller disclosures;
- Tax returns;
- Utility bills;
- Rent rolls;
- Security deposits;
- Maintenance records; and
- HOA documents.
Managing this kind of information is critical for staying on top of your investments, and an agent can help you keep things organized.
#5 – Ensuring Legal Compliance
Buying and selling real estate is a highly regulated process with multiple reporting and documentation requirements. Running afoul of these regulations can incur large legal and financial penalties.
For instance, your state might have specific regulations and restrictions on rental property use. A real estate agent that specializes in your geographic area will be familiar with these kinds of rules and can help you avoid violating regulations. The last thing you want is to get into a legal battle while you are trying to turn a profit with your investments.
Do Investors Need a Real Estate Agent?
Strictly speaking, no, real estate investors do not need to work with an agent. Many investors prefer to work without an agent because they do not want to worry about paying commissions. Alternatively, investors might opt to get their own real estate license so they can play both roles as investor and agent.
However, working with an agent carries several benefits. Agents can get access to off-market properties and have vast professional networks they can use to find sellers. More generally, agents can handle the minutiae of real estate transactions while you focus on managing other aspects of your portfolio.
If you are new to real estate investing, we would highly recommend at least considering working with an agent.
Tips for Finding an Investor-Friendly Real Estate Agent
Not all real estate investors work specifically with investment properties. If you are a commercial real estate investor, you want an agent who is attuned to your wants and needs as an investor. For instance, an investor-friendly real estate agent would focus more on metrics like operating expenses or cap rates instead of carpet colors and appliance condition.
Below are some tips to help you find an investor-friendly real estate agent.
- Look for certifications and designations from the National Association of Realtors (NAR). Agents can get NAR certifications for real estate investing (REI), short sales and foreclosures resource (SFR), and Certified Commercial Investment Member (CCIM) designation.
- Ask property management companies for referrals. Management companies regularly work with investors, so they can connect you with local agents.
- You can also check out real estate investing clubs or groups. Not only can these groups help you find a competent agent but you can also use them to expand your professional network. For example, the National Real Estate Investors Association (REIA) connects investors and agents.
- When interviewing a potential agent, ask for data on their recent transaction types, amounts, and property metrics. Be sure to ask whether they have access to non-listed offerings as well.
By following these tips, you can maximize your chances of finding an agent that works well with investors. Leveraging these resources can help you maximize your efforts and enhance your portfolio's value.
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