Many Realtors will tell you they work with Investors and they really do, but when it comes down to the business of investing and turning a profit sometimes the only person making money on a deal is the Realtor who sells the property in the first place. If you have been an investor a while, chances are you have a good Realtor that you have an established relationship with. But if you are new to investing or new to an area, or worse, like me, new to both, sorting out which Realtor really knows what properties and what price will work in the investing world and what won't are two different stories. It always pays to do your homework and use caution when you are about to purchase an investment property regardless of how much or how convincing a Realtor can be. A good realtor can jumpstart your business just like a bad one could help kill it. Due diligence even when establishing relationships is key!
Recently I signed a Purchase and sales agreement on a REO and the offer was accepted. Like any investor I've made dozens of offers and a lot of times I don't even go see the properties until they are accepted because I would do a whole lot of running around for properties that the banks would never accept my offer on. But in this case the bank did accept my offer on this property and it probably was because it wasn't much lower than the asking price. This offer price and this property were heavily influenced by a realtor that told me how savvy he was and how great this house and this area were. So, I was the proud owner of a new property and according to this Realtor, who, by the way, worked almost exclusively with Investors as buyers, this was a property that I was going to make a ton of money on.....or so he told me. This Realtor, he was so excited, he tells me how I am going to easily make 20k, and if I walk with less than 10k I have done something wrong. Tells me I can sell this baby within 90 days and in 90 days I'm going to kiss him I'll be so happy cashing my check. Perfect, I say, a paycheck in 90 days sounds good, that's exactly what I'm looking for. He says you are going to see how great it is to work with me, I've got you hooked up with a money guy, a title guy and now I'm getting YOU this Steal of a Deal! "Oh my!", I think, "I am one lucky girl."
So, with much excitement and trepidation I went out to this glorious property that my Realtor told me I would kick myself if I did not buy -- to find a house that is almost a DUMP. Ok, ok, I'm in the business of buying dumps and making them pretty and reselling them, right? That is what I am doing as a real estate investor, right? Heck yeah!
Here's the thing. I told this Realtor I need properties right now that I can Turn and Burn. 90 days, done. So, with this one he was telling me all the pros and cons, the fix up and the potential resale value. He sent me comps, the comps he sends back what he was saying and then some! How exciting, man do I ever need a paycheck!!!! But... and, of coarse, there is a but, I start my due diligence, and lo and behold, the house 2 houses down is for sale, has been for 120 days for 183k and recently was reduced to 169k. It's not moving. Explanation from the Realtor: that house is way dated. Ok, maybe, but that area still wasn't boasting house prices of over 185k and to make money I would need to sell for at least that amount.
Ok, take it in stride, let's look at the place. The neighborhood is great!! Houses are pretty, the house 2 doors down-great! Whoa, wait a second, this nice looking house, 2 doors down, with the price dropped down to 169k is pretty, prettier than the house I just bought. I tell myself, well ok, let's take a look in my house and see what we can do... OK, WOW! This house is going to need an overhaul!! This house needs a kitchen update, a new vanity for a double sinks in the bathroom, new tub, new windows, new doors, trim throughout, a new stove, a new master bath update, new exterior paint, some siding replaced, the basement is a wreck with all these itty bitty (8x8) creepy rooms down there, (eww), what else, there is even more-the cost of this rehab is adding up in my head. Not to mention all the stuff, the dumping fees are going to be huge!!! The carpet needs replaced and it just has a real creepy feel to me. Ok, I tell myself, well even with this, let's look at the house 2 doors down to see why I will be able to sell my house at a higher price and then we'll take a look at the rehab and figure out what we can do with and do without.
So, two doors down, it is clean, newly painted, has new kitchen cabinets, new floor in the kitchen, wood floors polished, it looks nice. Only issue I see upstairs is some fuddy-duddy wallpaper on one wall and a green counter top in the bathroom. But that's it, the house has a nice feel to it and is move in ready. So, the basement, on the other hand, has old, ugly carpet and needs paint. So, how does this compare with my prospective house. Well, my Realtor says that this house does not compare because it is so dated, it looks like some blue haired lady lived here with 80 light fixtures and pink flower wall paper. In my house, he tells me that I should take up the carpet and polish the wood floors, don't replace the cabinets in the kitchen---see about painting them, buy a new stove, paint the exterior, paint the pink bathtub, new floor in the kitchen, paint interior, clean it up and call it good. So, tell me how am I going to sell this for more than 169k like the house 2 doors down? I'm doing almost exactly the same thing but wait ---I won't have new kitchen cabinets and my house has these itty-bitty creepy rooms in the basement. So, what should I do-Realtor says he is willing to take risks, that is what you do in this business, so buy it, and then wait, oh yeah, hold it for 6 months and if it doesn't work make it a rental. I don't have 6 months to wait....
The bottom line is, this realtor wanted to sell me this house. The offer that I was told was such a killer deal, wasn't. With hard money costs, closing and selling costs, the only way I could make money is if I could sell around 185k, but that wasn't going to be possible when 2 doors down was not selling at 169k. This Realtor told me I was missing out on a good deal, but I disagree. The deal I got was - learning to not do business with this guy, he'd sell me ocean view property in Arizona if I'd buy it. Realtors are the most important part of a good investment team and a bad Realtor, like this one, could put a quick end to your business as an investor. Getting to know your Realtor, finding out what kind of experience they have with investors, and checking things out before you go all the way through with a deal are critical. Once you have an established relationship with a good realtor your business will grow and it is worth sorting through the crowd to get just one good Realtor that really knows how to work with investors!