As a broker and a successful real estate investor, I interact with hundreds of agents and investors regularly. It’s a humbling experience to meet people from all spheres of life: from celebrities to fast-food workers. The #1 reason people want to become investors is to gain passive income instead of having to rely on government programs like social security. Becoming a successful investor usually takes years of training. Unlike a standard college program that can teach you how to become a doctor or lawyer, there’s no educational program that teaches people how to be successful investors.
Most of the agents that I meet want to know how to increase their passive income. This is a burning question for agents who are making more than $100,000 a year because they don’t know how long they can continue to make that much money each year selling houses. My answer to them is the same as my answer to a new agent who has never done a transaction before: Start your career as an investor as soon as you can.
Along this journey of becoming an investor, real estate agents have a head-start because they are in a better position to identify the opportunities and make the most of them. Agents can aim to earn passive income like rental properties rather than relying on active income by selling houses to make money. An agents’ specialized knowledge and connections can catalyze the process of creating a substantial passive income.
A common question I get from budding investors is this: How much money should I target to make from each deal – whether it’s a rental or a flip. This is a difficult question to answer because each investor has their risk-reward-effort matrix, but here are some of the most common answers from successful investors:
- Rentals – 10%+ Cash on cash return on a rental property. Some investors target a positive cash flow of at least $150 per unit per month after paying all expenses.
- Flips – 15%+ on the overall project. Some investors target a minimum profit of $20,000 per property.
Getting the Sequence Right
When I began in this field 20 years ago, I remember how overwhelming it was. There was so much to learn, and so much to do, I didn’t know where to begin. My mentor shared a story with me that I wish to share with you today. Let’s say that you have some pebbles, water, small rocks, sand, and big rocks that you need to fill into a large glass jar, what sequence would you follow? The best way is to fill the big rocks first, then the small ones because they find the gaps between the big ones, then the pebbles, then the sand and finally the water. Getting the sequence right is very important because if you start with the sand first, the big rocks will never fit in the jar.
It’s the same thing with real estate investing. The big rock is finding the right deal. If you have a profitable deal on your hands, usually the money will find you!
The 3 central parts of becoming a successful agent + investor are:
- The Right Deals
- The Right Strategies
- Finding (or having) the Money
Finding the Right Deals
This step is more important than every other step in the process. If you were to remember just one thing, then this would be it – Finding the right deals. How will you know that you’ve found the right deal? When the numbers are higher than the investor targets mentioned above, it’s safe to assume that you’ve found a good deal.
#1 Place for finding deals
Where do you think many investors find their deals: Bandit signs, Social media, Foreclosures, Auctions? The answer: None of them! Most investors start their journey by finding deals right on the MLS. As Real estate agents, you have access to the MLS. You can leverage it to discover deals as soon as they hit the market. MLS filters can be used to send you deals with specific keywords like ‘Cash offers only’, ‘Investor special’, ‘Handyman special’, ‘Motivated seller’. You can also target expired listings or properties that have been sitting on the market for an extended length of time.
Connecting with successful wholesalers who have Off-market properties
The downside of buying properties on the MLS is that every investor is on the same platform looking for properties that cause the prices to get bid up. The solution to this problem is to get the properties before they ever hit the market. The best source to find off-market properties are successful wholesalers in your city. The advantage of dealing with wholesalers is that investors are their only customers. Therefore, the deals are usually more profitable, and information is more readily available. Finding good wholesalers can be tricky. The best way to know is to ask questions like how long they have been in business, how many deals they have done, how many repeat customers they have. The metric for choosing your wholesaler is just the way you select your doctor: based on his experience. The greater the experience, the better.
Becoming a wholesaler
If there aren’t many successful wholesalers in your city, consider becoming one yourself. As an agent, you are already driving in several neighborhoods and showing houses. Whenever you spot a distressed property, try finding the owner and asking them if they would be willing to sell their house or listing it. Becoming a wholesaler requires specialized knowledge in various aspects of the deal: negotiation, determining value, use, rehab budgets, etc. The best way to learn is to work with a successful wholesaler so that you don’t have to reinvent the wheel.
Stay tuned for the next article in the series on ‘Finding the right strategies’
ABOUT THE AUTHOR
Jorge Vazquez is a broker and founder of Graystone Investment Group headquartered in Tampa, Florida. He has been in the business for over 20 years and has participated in more than 2000 transactions. Graystone is one of the first companies in Florida that has all divisions under one umbrella: Wholesaling, Brokerage, Private Lending, Rehabbing and Property Management.