I know it’s a Friday and the weekend in all its non-Arctic glory lies in front of us. I know that I should be happy for a number of reasons, not the least of which is that the snow on my driveway I have avoided shovelling for the last three weeks is finally melting on its own.
Despite the imminent arrival of Spring, I’m super annoyed right now.
I just read a report from the Real Estate Council of Ontario (RECO) about a survey of real estate investors. Here are the results of the survey.
- 14 per cent of real estate investors wished they had a better understanding of the contracts involved in the home buying process.
- 21 per cent wished they had looked at more properties.
- 26 per cent of investors wished they had a better grasp of the buying process.
- 32 per cent of first-time investors said they were not prepared or knowledgeable about the home buying process.
- 36 per cent mistakenly think that after a real estate contract is signed, a buyer or seller has a trial period during which they can cancel it, and an additional 33 per cent said they do not know.
- 43 per cent said there were sections of the real estate contract when they bought or sold a home that they did not fully understand.
- 55 per cent incorrectly believe that if you place a conditional offer on a home and the deal doesn’t proceed, you automatically get your deposit back.
Reading that made me mad.
As someone who has been involved in real estate investing for a long time, I sometimes forget what it was like to buy an investment property for the first time.
The process, the terms, the calculations to determine which option is the best investment – these are all aspects of buying an investment property that can be confusing and intimidating when you first consider investing in real estate.
When I see survey results like this, I get mad because it is clear that there are a number of Realtors out there who are acting as buying agents for real estate investors who are doing a damn poor job. Acting as agents might be the right term because they certainly don’t seem to actually be doing the job of an agent.
3 Rules for Picking an Agent for Investment Properties
- The agent has to be an investor as well.
If the agent is not currently an active real estate investor, don’t hire them to be your agent. They don’t need to own a slew of properties, but if they haven’t bought and sold investment properties of their own, and if they aren’t currently owning and managing an investment property, don’t hire them. An agent who is also an investor is able to bring that knowledge and perspective to the search for your investment property. They’ve spent the time to figure out how to do it properly, because they’ve actually put their own money on the line.
My family has owned investment properties for years. I have bought and sold our own investment properties, renovated to increase rents, found and on a few occasions evicted tenants and overseen property managers, contractors and tradespeople. Does that help when I work with investors? Absolutely.
- The agent has to be able to do the math.
If the agent can’t calculate cap rates, fill in all the pieces of the ROI formula and generally provide you with the information you need to compare properties and decide, then they aren’t doing their full job. If you are the one struggling to gather this information and assess what it means, you will miss out on fast moving opportunities and won’t have the time to see as many options. You don’t need your agent to be a tax accountant but they have to be very comfortable with the math. It’s an investment of your funds and needs to be treated as such.
As part of my two year MBA at U of T, I took classes in statistics, financial statement analysis, macro economics, accounting, Canadian taxation, international taxation and intergalactic taxation. Well, the last one I made up, but I did take the others. The result of these studies is that I am very comfortable with numbers and analyzing them. I’ve used that knowledge to create spreadsheets to analyze real estate investments quickly and thoroughly. When my investment clients consider a property, they do it with detailed reports that show everything from upfront and monthly carrying costs to percentage of principal paid off over the 5 year term of their mortgage.
As added value to my clients, in 2011 I took the courses to become a mortgage agent and I remain a certified mortgage agent with an active mortgage brokerage in Toronto. I have focused on lenders that offer mortgages to investors and I am able to use that knowledge to help my clients structure their purchases and obtain the best mortgage rates possible.
- The agent has to see the big picture.
In any real estate purchase, an understanding of the overall market as well as specific neighbourhoods or streets is crucial. For investment properties, the agent needs to be able to also consider macro economics of the region. The strength or weakness of the area’s economy impacts rental rates and vacancy rates, which in turn impacts housing appreciation or depreciation. When the provincial or federal government announces funding for a major project that creates thousands of jobs, those new jobholders need places to live and rental properties in that area are in demand. When a major employer in a town closes down or lays off hundreds of people, those jobseekers move elsewhere and rental properties that used to rely on them are now vacant. The agent you hire needs to be able to place the different real estate investment options in a bigger context than just the land and building.
My undergraduate degree in Sociology (social behaviour on a broad scale) and courses on micro and macro economics and real estate development in my MBA have given me a broad perspective on real estate. As an investor myself, I have seen first hand the impact that changes in a community can have on rental rates and vacancy rates. Due to this, part of my process involves places the investment property in a macro economic context. It is an additional perspective that confirms the real estate investment makes sense.
Now that I have vented my anger and passed on my three rules for choosing an agent for investors, I hope you have a fantastic weekend!
If you or someone you know is a real estate investor or wants to become one, please get in touch with me. As that survey shows, there are a lot of investors out there who in a weak moment, chose a weak agent. I don’t want that to be the case for you or your friends or colleagues. I would love to be responsible for what comes next.
Regards,
Jeff