Understanding the Mindset of Real Estate Investors

Understanding the Mindset of Real Estate Investors

Have you ever been tempted to work with real estate investors who claim to have unlimited cash to purchase homes in any conditions?

Before you dedicate your time to an investor, please read this article to better understand how they operate and which ones to avoid.

How do I know?

I’ve been a real estate investor for 15 years. I attended boot-camps and investor meetings. I flipped houses and still own rental properties.

So, let me give you an insight into the minds and types of RE investors: the wholesaler, the house flipper, and the landlord.

The Wholesaler

Mindset: Get rich quickly without money

Opportunity for Agents: None for finding deals, possibly you can help them sell a property to a rehabber or landlord.

This type of investor is trying to find good deals and immediately “re-sell” them to another investor. Essentially, they put the property in contract and assign the contract to a buyer.

Most investors start as wholesalers, because they don’t need any money and dream of quick cash with little work. 

There are many wannabe’s in this category, people who watched a late-night infomercial or attended a free seminar of how to get rich in real estate. 

Don’t waste your time helping them find deals. Many wholesalers simply practice real estate without a license and could easily get into trouble with the Division.

There are a few good ones, though. Get on their mailing list as they may find great deals that work for your rehabber clients. 

Note: They are FSBO’s, so make sure they pay your commission.

The House Flipper

Mindset: Earn a big profit doing what you love (rehabbing homes)

Opportunity for Agents: repeat business – you earn commissions when they buy, when they list the flip, multiple times a year.

This investor loves to work on houses. They watch HGTV and other home remodeling shows. They are looking for properties that need updating and are ready to put in the work.

House flippers need your help finding “good” deals – distressed properties they can buy cheap and sell for a profit after rehab.

Representing serious rehabbers can be very lucrative for agents. You will not only earn a (small) commission when they buy, but also when you list their flip.

Before you start working with a rehabber, make sure they have access to cash. Connect them with rehab lenders who finance both purchase and renovation.

House flippers want to get top dollar when they sell. Give them solid advice on home sales data, what buyers are looking for, and exact valuations.

Some Realtors even supervise the rehab or operate as the eyes and ears of out-of-town investors. If you find a serious house flipper you create a very profitable, consistent stream of income for yourself.

The Landlord

Mindset: Create passive income to retire in the future

Opportunity for Agents: repeat business helping the landlord accumulate a rental portfolio, and possibly sell it in the future to transition to commercial property.

The goal of the buy-and-hold investor is to generate cash flow from rental income and build long term wealth. They probably read “Rich Dad Poor Dad” and want to create passive income to get out of the rat race.

This type of investor usually has financial resources. Some even pay cash to park their money in real estate.

New landlords look for advice on how much rent to charge, how to pre-qualify tenants, and how to manage their properties.

An experienced investor understands the value you add as a real estate agent. Watch out for newbie investors who just attended a “get rich in real estate boot camp”. They believe they know everything and that you are not worth your commission.

Tip: Don’t waste time with self-proclaimed wholesalers who don’t have cash, don’t know how to find deals, and just dream of making a quick buck.

How to Have an Honest Conversation without Offending your Client

How to Have an Honest Conversation without Offending your Client

Imagine you are invited to a listing presentation. When you get to the house you discover that it’s dirty, cluttered, outdated, you name it.

How can you have an honest conversation with the homeowner without offending them?

Sellers are sensitive when it comes to their home. It’s very personal to them. They may become defensive when you try to recommend improvements. And you may not get the listing.

Tell the Truth! It builds trust and the seller will thank you!

A few days ago, Susanne met with a couple who just fired their agent. Here’s what went wrong …

Sellers Interviewed 3 Experienced Agents

The homeowners interviewed 3 Realtors in May. They didn’t list the house until October, because they wanted to move into a new built home at the end of the year.

The homeowners specifically asked each agent how to improve the house as it was only in average shape. Not a single agent gave them an honest assessment and made recommendations.

The agent who got the listing suggested to price it based the highest sale earlier in the year. That “comparable” sold for $25,000 above list price during the competitive spring selling season. It was completely remodeled and received multiple offers.

Needless to say, the listing was over-priced for its condition and did not attract any buyers. The home owners were wondering what went wrong?

They did not get an answer from their agent who was traveling and could not be reached. So the sellers cancelled the listing.

What Went Wrong?

There are 3 reasons why this agent lost the listing. They all have to do with an honest conversation.

  1. High Price – The agent based the price of this listing on the highest sale ever in the subdivision without analyzing exactly why the other property received with multiple offers.
  2. Average Condition – The agent did not make recommendations on how to improve the appearance of the house even when asked.
  3. Lack of Communication – The agent left town and did not tell the client that she couldn’t be reached.

This Script Will Not Offend Your Seller

Many agents don’t recommend upgrades, because they do not want to offend the seller. They are afraid they won’t get the listing if they speak honestly.

This is a big mistake.

As Realtors we don’t want to criticize the seller or their property. We certainly should not impose our own taste on the listing.

But we have to be honest about the condition of the property and consequently the correct pricing.

Here’s a simple script that works for us in these situations. Tell the seller “let’s look at your home through the eyes of a prospective buyer.”

Sellers who are looking for a new home themselves will understand how a potential buyer feels.

Telling the truth – even if it is uncomfortable – builds trust and that’s ultimately why a homeowner will hire you as their listing agent. Sellers will thank you for your honesty.

Do You Get Honest Feedback on Your Business?

Whom do you talk to when it comes to improving your business?

Can you get a straight answer from your broker or will they just tell you what you want to hear to keep you happy?

A coach will tell you the truth even if you don’t want to hear it. An honest assessment is the only way to improve.

If you want to grow your business but don’t get the honest help you need, it may be time to consider a move.

Call or text me to discuss your future! Have a wonderful week and a Happy Thanksgiving!

How to Defeat Zillow and other Online Threats to Your Business

How to Defeat Zillow and other Online Threats to Your Business

Last Monday we attended the Ohio Realtors Convention. I hope you did, too. If not, you should next time.

Here’s why:

  • As a Realtor you are a member of NAR and OAR. These are the organizations that represent your professional interests.
  • You get a chance to listen to world class speakers and even get CE hours for most classes.
  • You may want to get involved in their committees and advocate on behalf of homeowners in the political action committee.

As the convention was at the Hyatt Regency in downtown Columbus, we paid a visit the statue of our famous countryman.

This year’s keynote speaker was Leigh Brown. She’s a top-producing Realtor from Charlotte, NC, owns a RE/MAX brokerage, and has become a popular national speaker.

Leigh talked about how agents can defend their business against the likes of Zillow, Trulia, Realtor.com and other online services that threaten our business (I will call them the Zillows for simplicity).

How To Defeat External Threats

The key to defeating online services that take your listing information and pictures and sell it back to you for a high fee is to focus on what they don’t have.

Consumers find a lot of information online. They will hire you if you add value they can’t get from Zillow and other online services.

In order to do that you have to first define yourself as a Realtor.

Why do buyers and sellers hire you?

To find out, invite 5 recent clients for a cup of coffee and ask them why they hired you. Did they feel you are trustworthy, did they like your energy and commitment, were they impressed by your style, or did they simply hire you because you discounted commissions?

I hope it’s not the last. If they hired you because you are cheap, they did not see any value in your services.

What the Zillows Are Missing

The Zillows are great at accumulating public information. That information is already available to everyone, they just do a better job presenting it to the user.

Here’s what they don’t have:

Hyper Local/Lot Specific Information

If a house is located on a river that may be a bonus as it offers desirable water frontage or a negative due to the threat of flooding. A house on a slope may offer a great view or be extremely hard to reach in winter.

How does this information affect the price?

Zillow does not know, you do.

Property Condition

Zillow has the pictures, but you know what’s going on inside the house, as well as in similar houses in the neighborhood.

You know that the carpet that looks great in a professional photo is 10 years old and smells like cat.

Upgrades

Zillow won’t know all the upgrades done to the house, especially the ones that didn’t require a permit.

You know the exact value of upgrades and which ones are just a waste of money.

​Exceptional Customer Service

The Zillows publish information, you explain it to the customer. Buyers and sellers need a trusted adviser who works on their side.

There’s NO customer service on any of the real estate portals. They are simply advertising devices for Realtors who are willing to pay their high fees.

Community Insights

If you want to become the local expert, you should attend City Council and School Board Meetings. At these meetings you get invaluable information that’s critical for your clients. If you speak up at the meetings you will establish yourself as the hometown real estate expert.

The Script

Leigh shared a script she uses when someone calls on her listings:

I am so glad you inquired about my listing at 123 Main Street. Let me tell you what you can’t see in the photos ...”

For more expert tips and strategies be sure to check out:

ColumbusRealEstateCoach.com/blog and follow us on Instagram @Agent_Insider

5 Strategies to Beat Discount Agents (part 1)

5 Strategies to Beat Discount Agents (part 1)

As an active real estate agent, you know how competitive this market is. There’s a lot of pressure to reduce your commissions when you list a property. What strategies can you use? How can you defend your listing fees and beat your competition if they discount their commissions?

Here are 2 strategies. More to follow in a couple of weeks.

Commissions are Negotiable

Did you ever wonder why most agents charge 6% in commissions?

I could not find a specific reason. Supposedly, 6% was a guideline proposed by NAR in the 1950’s. And it stuck.

6% is an arbitrary number. It’s completely unrelated to the level of service you provide. This number does not consider your experience as an agent or the amount of work you put into marketing the listing.

Real estate commissions are purely based on the sales price of a house.

Is 6% (or 3% per side) the right fee to charge? Selling a $50,000 home takes just as much effort as listing a $500,000 mansion. But you only earn $1,500 per side vs. $15,000. Many sellers are wondering if that’s fair. And more agents and brokerages have decided to charge less in recent years.

We are in a free market!

​Commissions should be negotiable – up or down.

As a coach I want to help you get the most money for the services you provide. So, here are some strategies to defend your fees.

The Psychology of Large Numbers

You know what’s really good about today’s typical commission arrangement. Paying 3% sounds much less than paying $15,000. It’s the exact reason why many sellers never question your commissions or how much you get paid.

You can use the same approach to defend your commissions.

When a seller asks you for a 1% discount they refer to 1% of the purchase price. 1% sounds like nothing. For you, the listing agent, 1% is really one third (33%) of your income. That’s a lot.

Seller Strategies

Ask your seller these questions and there’s a good chance you will keep your 3% or at least negotiate a smaller discount:

  • If your employer suggests you take a 33% salary cut, would you accept that?
  • When you hire a plumber or electrician, did you ever ask them to cut their quoted price by 33%?
  • Did you ever negotiate fees with your doctor, your lender, your attorney and ask for a 33% discount?

Sellers do not realize how much a 1% commission reduction means for your bottom line. You need to talk about real dollars.

Let’s say you are selling a $300,000 property. The full 3% commission would be $9,000. The seller asks you for a 1% discount. This would mean $3,000 less in commissions for you, but the seller does not realize that.

If you counter with a specific dollar value, like $1,250, you have a good chance of getting the listing.

The seller will be satisfied, because you agreed to a discount, and $1,250 sounds much larger than 1%.

The Experienced Negotiator Approach

When you use this approach, you tell the seller that negotiation is the most critical skill when listing their home. If they hire you for a higher fee instead of a discount broker, the seller will net more money at closing.

How can you convince the seller that you are the most experienced negotiator?

Ask these questions …

  • If the discount agent can’t even negotiate the fee for her services, how comfortable are you with her negotiating the highest sales price for your house?
  • Discount agents compete on price, because they can’t show any value. That’s how they will promote your property. Do you really want to compete as the lowest priced listing?

Don’t give in when the seller asks for a discount!

They may just be testing your negotiation skills. The seller will respect you for standing your ground, and trust that you will fiercely negotiate on their behalf when they get an offer on their listing. I will share 3 more strategies in a couple of weeks. In the meantime, try these tips, and let me know how they work for you.

Could You Sell Your Real Estate Business?

Could You Sell Your Real Estate Business?

Did you ever think about selling your real estate business? According to NAR half of all Realtors are over 54 years old and may think about retiring soon. 87% say they will just walk away from their business and not attempt to sell it.

​Is there a way to sell a real estate business?

Who would buy it, and how much would they pay?

Here are my thoughts …

Why Are Businesses Acquired?

Established companies acquire startups for their proprietary technology or huge membership base. That’s why Facebook bought Instagram for $1 billion in 2012.

More traditional acquisitions are done for market share and cash flow.

​When someone buys a business, they pay for an asset that produces a predictable stream of income. ​

Brokerages are sold frequently. In that case the purchasing company acquires the income created by commission splits and fees paid by its agents.

How about a solo agent business?

Is there a stream of income someone can acquire that’s not 100% dependent on you (the agent)?

What Makes a Sellable Real Estate Business?

Your business has ZERO value to a potential buyer if it totally depends on you.

However, if​ you have a database of clients who refer a predictable number of buyers and sellers every single year you have something you can possibly sell.

There are 3 items you must have to sell your real estate business:

  1. A database of clients that send a predictable number of referrals your way every year.
  2. Then a system to stay in touch with your database on a regular basis.
  3. A history of transactions that’s based on referrals from your database over the past 2 or 3 years.

With these 3 items in place a potential buyer could expect similar results if they purchase your database and systems.

How Much Will Someone Pay for Your Business?

Experts say that a real estate business can be sold for around 1.5 times its annual income – that’s commissions received from your broker less some marketing expenses.

Let’s say you generate $100,000 of income from your database each year. According to this estimate your business should be worth between $100,000 and $150,000.

Don’t expect to get a lump sum payment, though.

In all reality the sale will be more like a transition where they pay you in monthly installments. These installments would be based on a percentage of the income generated from your database.

You’ll also have to stay involved for a year to transition your clients to the new owner.

Who Would Buy Your Business?

There are 2 types of agents who have shown interest in acquiring your business:

  • New agents who want to jump start their career
  • Experienced agents who want to quickly expand their market share

Are You Planning to Retire Soon?

Let me know if you have any first-hand experience with selling a real estate business. I really appreciate your feedback on this story.

For more expert tips and strategies please visit:

ColumbusRealEstateCoach.com and be sure to follow us on IG @Agent_Insider