Monday, 19 November 2018
Agent Resource Center
This Old House - Do-it-Yourself

Real Estate Investment: The Smart Way to Diversify Income

Written by Posted On Thursday, 23 August 2018 11:46

Diversification.

 

When most people hear (or read) that word they immediately think of stocks, bonds, and mutual funds.

The Investopedia Dictionary defines diversification as “a risk management technique that mixes a wide variety of investments within a portfolio.” It also goes on to say that a diversified portfolio will “yield higher returns and pose a lower risk than any individual investment found within the portfolio.” Makes sense, right?

It does. And it makes just as much sense in real estate. In fact, some financial advisors encourage it. That's exciting news for any real estate agent looking to diversify their own client niche.

Let's look at the how and why agents can take advantage of this growing trend.

The Diversification Nation

Over the last five or six decades, smart investors began using real estate or property as an asset for diversification.

There are many reasons for the growing momentum, but three that make real estate investing possible for the everyday client. First, real estate investing is much less complicated than it once was. Secondly, people can start investing in properties without needing the money to back it up. And finally, it's become much more lucrative.

Real estate agents around the globe face a growing number of clients purchasing houses, duplexes, and apartments for investments, rather than as a home to live in. That's why it's so important for a realtor to have a decent understanding of real estate investment fundamentals.

For the purposes of this discussion let's focus on the rookie investor. Having the knowledge and expertise to coach a client through the investment process sets you up as their go-to Realtor for the next deal.

Let's look at the ways real estate agents can help clients solve the most important piece of the investment puzzle - - finding the right property.

Investment Type #1: The Fix and Flip

The ultimate in DIY, house flipping is not for the faint of heart (please, not black mold!) or the hands-off type investor. Of course, not every person who flips a house has to get down and dirty, but they need to be (and stay) involved every step of the way.

Realtors become invaluable mentors when they have a firm understanding on how to find properties perfect for flipping. Here are some key things to know:

  • Know the latest trends in various housing markets
  • Stay up-to-date on local zoning and building codes
  • Have a Rolodex of quality contractors
  • Offer the use of your negotiation skills
  • Have some financing connections

In the rehab then resell arena speed is the key. The faster a client can turn around the listing the better financially. As an agent, having resources and referrals already vetted is a great way to build confidence among your clients.

Investment Type #2: The Rental

When it comes to investing some people don't mind the hands-on aspect. But there’s another group who seek more long-term opportunities. The high-energy, fast-paced experience of house-flipping does not appeal to them.

The real estate investment that fits the bill: rental property.

This particular investing niche can turn into a lucrative partnership for the agent willing to offer some solid real estate investment strategies for clients new to the investing game. Here are some things to be informed about so you can guide clients like an expert:

  • Up-to-date rental comp data to help clients calculate projected income
  • Vacancy rates
  • Educate new investors on the hidden costs that must be included when they're determining cap cost including property taxes, HOA fees, average cost of standard repairs, insurance rates, and property management fees
  • Connections and solid relationships with quality property management companies
  • Know the economic outlook for your area including unemployment rate, plans for rezoning or building moratoriums, employer outlook, relocation pull
  • Financing options available. Every Realtor who’s been in the business for some time has a list of mortgage companies to recommend. It’s also important to find some non-traditional lenders who offer alternatives like hard money loans, 203K loans, or private funding.

 

One of the best ways to learn the ins and outs of this market is to partner with people “in the know.” Look for local real estate investing groups to join in your area or partner with an established turnkey company. Both make for excellent sources of knowledge and insight.

Investment Type #3: The Airbnb Property

Interest in vacation rental properties -- thanks to the growing popularity of the share-economy -- has experienced a serious uptick on the investment front. Typically, the goal of the first-time vacation rental investor is to have the best of both worlds. They want to own a second home they can stay in for the occasional getaway. And they want that house to generate passive income while they aren't using it themselves.

Remember: Even if the investor has multiple vacation properties they aren't usually looking in their own backyard. To earn these clients, agents need to market themselves as the go-to for their area. And the best way to connect with long-distance investors is through your website.

Let’s say your market is best known for sun, surf, and sand. Create a top-notch, comprehensive guide that not only details luxury beach properties but highlights everything an investor needs to know about the surrounding areas. This is an excellent way to create the ultimate in good first impressions.

(Plus, having that type of thorough content helps your site rank higher in search results.)

Once a prospective client makes contact you can establish yourself as an investor’s best friend by being prepared with all the information discussed in the first two sections. And to set yourself apart from the competition, even more, there’s one more important bit of information to have in your arsenal. Research local laws and HOA regulations regarding short-term rentals.

 

Perhaps you feel this is not a good fit for your business because your market is not a hot spot for property investing. Know the markets that are hot. Whether you broker the long-distance deal yourself or provide the referral to an agent in your network, this is a fantastic way to expand your reach. An excellent way to diversify.

You don’t need to become a real estate investment guru to take advantage of this burgeoning market. If you’ve been looking for new avenues to help grow your business, consider learning the fundamentals of investing discussed in this post. A little knowledge will go a long way toward becoming the go-to, investor-friendly Realtor.

To quote Barry Ritholtz “The beauty of diversification is it's about as close as you can get to a free lunch in investing.”

Have you ventured into real estate investing by partnering with clients? Share your tips and advice in the comments section below.

Rate this item
(0 votes)

Agent Resource

How to capture your next prospect - click here

Realty Times TV

View More

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.