If you’ve ever had a conversation with friends about their experiences with real estate agents, you’ve likely heard some horror stories about uninformed, unmotivated, and unprofessional agents. When you delve into the specifics, the key failing is often a lack of specific knowledge that would have helped make the process go better for the client.
When it comes to real estate investment, the situation is similar, and is arguably even more pronounced. Take a look at some of the key results of a survey of real estate investors by the Real Estate Council of Ontario.
- 21 per cent of investors 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.
- 43 per cent of investors said there were sections of the real estate contract that they did not fully understand.
As we read the list above, one thing became abundantly clear – most investors are poorly served by their real estate agents. Let’s reframe the points above from the perspective of how agents failed their clients.
- About 1 in 5 agents pressured their investor clients to buy a property early in the process rather than showing them more investment options.
- More than a quarter of agents couldn’t adequately explain the process of buying an income property.
- Almost 1 in 3 agents working with first-time investors didn’t prepare or educate those clients.
- Almost half of the agents involved in helping investors buy income properties had clients who didn’t fully understand the contract they signed.
The simple fact of the matter is that while all licensed real estate agents can help investors buy an income property, a lot of them shouldn’t be doing it.
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. Add in changes to government rules and regulations, financing qualifications and shifting markets and you have a challenging situation to handle properly.
The good news is that picking a real estate agent for your income property purchase isn’t rocket science. It’s all about making sure that the person you’re trusting to help you navigate you through the process actually understands the process. Without further adieu, here’s our three rules for picking an agent to buying an income property.
Rule #1 – The agent has to be an investor as well.
If the agent is not a real estate investor as well, 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 haven’t owned and managed 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 in the past to figure out how to do it properly, because they’ve actually put their own money on the line.
Within the Refined team, we have years and years of experience owning investment properties. We’ve 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 we work with investors? Absolutely.
Rule # 2 – 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.
Within the Refined team, we have agents who have taken courses in statistics, financial statement analysis, macro economics, accounting, Canadian taxation, international taxation and intergalactic taxation. Well, the last one we made up, but the rest is true. We’re very comfortable with numbers and analyzing them and we have used that knowledge to create spreadsheets to analyze real estate investments quickly and thoroughly.
Rule #3 – 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.
Within the Refined team, we have access to detailed demographics and economic data for the various neighbourhoods, communities, and regions within the GTA. When we combine that information with specific market conditions, rental rates, vacancy rates and purchase prices, we give our investor clients confidence in their decision to buy or pass on a given investment.
As the survey we discussed shows, there are a lot of investors out there who, in a weak moment, choose a weak agent. By following the above rules, you can make sure that doesn’t happen to you. If you like the sound of that, then get in touch with us. We’d love to make sure your next income property is a star in your portfolio!