While real estate professionals are familiar with running their own business, helping buyers and sellers, what about being on the other side of the game as an investor?
Buying real estate as an investment strategy can be a way to build intergenerational wealth and cash flow, and a real estate professional’s knowledge and network can come in handy when going about leveraging this strategy.
“I think that being a real estate agent, and licensed, and actually in sales is a huge bonus,” says David Frost, broker/owner of the Frost Real Estate Team with The Real Brokerage. “Because you live the life, you understand real estate, you understand the market trends, you understand the market, you understand how to sell, list properties (and) the documents.”
Tunde Oduyingbo, an agent with HomeSmart Professionals, further explains how being onsite and plugged into the layout of certain properties can also be a hefty advantage when looking to invest in real estate.
“I think some of the most important things people might be familiar with, the ability to comp a property and know what it’s going to sell for—but especially in this market, each neighborhood is unique. Each type of property is unique where they will appreciate differently, and that can help you.”
“One example,” he continues, “is the style of kitchen. I call it an L-shaped kitchen versus a hallway kitchen. If your kitchen’s narrow or it feels like a hallway…it’s not that open (or) doesn’t have a true L-shaped counter, that might give you less value than something that has an L-shaped counter. And that might not show on the appraisal report, but as an active REALTOR®, you start to pick up on these little nuances that sell a property for more or less.”
Agents can leverage their knowledge of the real estate process in order to build intergenerational wealth in a way that makes sense for them, by using another tried-and true-process: number crunching. Just as agents are familiar with making sure a client is comfortable with a transaction before pulling the trigger on a property, so too can they utilize a similar process with their own finances in order to make their wealth grow.
Josh McGrath, broker/owner of Better Homes and Gardens Real Estate Central, who has been investing in real estate since he was 19 and advises a team of real estate agents on how to invest themselves, had this to say when asked about how real estate agents can get started with investing.
“Most agents are trained in the art of sales, solving the problem, working through the solution of whatever the challenge at hand might be. When you’re looking at investing, you really have to understand how to remove the emotion out of it and look at the black and white, the numbers, making sure you’re taking everything into account. So it’s rent, it’s utilities, it’s taxes, it’s insurance, it’s deferred maintenance. It’s all of the things that would combine into the overall expense of owning that property in a 12-month period,” he says.
McGrath also cautioned investors not to get caught in the weeds when making a decision about whether to enter the investing market. If it’s something you’ve felt a calling to for an extended period of time but haven’t pulled the trigger quite yet, he feels strongly that you should escape from “the paralysis of analysis.”
“Most people think they need to read books and study and learn, and they want to do all of these things to try to become the most educated investor in the state when the reality is they’re not an investor because they still don’t own real estate,” he says.
Oduyingbo spoke to that very experience firsthand, detailing how the skills he acquired as a real estate agent were pivotal toward becoming an investor himself.
“I knew a lot where I could almost teach someone what to look out for, but I wasn’t really applying it and getting into real estate, going to the meetups and things like that,” says Oduyingbo. “When I became a REALTOR®, it put me in those moments. I knew from my own personal experience and the experience of others that a lot of people want to invest in real estate, but it does take some risk. The key is to have a calculated risk to really know the numbers, vet the deal and then take that chance.”
Making it pencil: The math behind real estate investing
And make no mistake, there are many types of chances real estate agent investors can take. Oralia Herrera, broker/owner of CENTURY 21 TK Realty and president-elect of the National Association of Hispanic Real Estate Professionals (NAHREP), provided an in-depth breakdown of how she first got into the investing game.
“I went in front of the city and petition(ed) that they subdivide my land into two different properties with two different pin numbers,” she says. “I remained at my single-family home, that was the one with the mortgage on it, and subdivided the second parcel so that I could build on it (and) refinanced the single-family home to cover the mortgage, and I had a completely buildable lot that was free and clear.”
When asked how he got into real estate investing, McGrath had a different strategy: buy a duplex and live on one side while renting the other.
“My very first investment property I purchased when I was 19, I used an FHA loan and purchased it, which is 3.5% down because I lived in one of the units and rented the other, and the unit I rented covered the mortgage payment.”
Frost took another tact entirely when acquiring his first flip, saving up the money for a down payment on a loan so that he didn’t have money spoken for in the numerous different realms of real estate, such as ongoing repair fees.
“It was my own funds, and I basically used my credit in a good down payment,” he says.
Frost also prefers not having to scour his market for tenants, instead opting to utilize his knowledge as an agent to find good investments and fix them up before flipping them at a profit.
“It’s obviously going to depend on upkeep, and you have to do any work to get it rented, and then you’re going to have some rental fees…(f)or us, we don’t want to buy and hold properties at this point. It ties up funds and then you have to upkeep it and then you constantly have to have it rented (from) one lease to the next.”
Oduyingbo also utilized the duplex strategy.
“My first property was actually a duplex side-by-side two-family I bought in 2021, and I still own it today. I had been saving money, I knew I wanted to get into real estate, but any first-time investor, you get some deals, you get some cold feet, and this one was actually on the MLS—and then it was withdrawn very quickly,” he describes. “So I reached out to the listing agent to see what was going on with it, and it looked like someone else was under contract on it, got cold feet off market, and that’s why they put it on the MLS—to show that there was a transaction, but it had withdrawn. I knew it went under contract at some point once they put it on there, and that deal was already dead, so I went in there, reached out to her, took a look at the property and got it under contract. I was happy to take on what someone passed up.”
For her international portfolio, Herrera acknowledges that she took a road less traveled, leveraging her knowledge of the Mexican market to acquire a property with significant potential for growth in the future.
“I went with something not very conventional,” explains Herrera. “I became an investor in a project I thought was promising. It was a new development coming up in Mexico, a beach destination, and as soon as the development opened, I became an investor in it, and that generated a good return for me. From there, we’ve invested in land mostly. We have a couple homes, but mainly land in up-and-coming projects.”
Herrera also recognized that knowing the laws of other countries is a critical component for investors considering whether to take on that maneuver.
“You have to know the laws of the country for foreigners. You want to make sure it is a foreigner friendly investment or country that you’re investing in. A lot of these are long-term, so you have to make sure that where you’re investing, that you have the right people to maintain and keep an eye on the property to supervise. Many of my friends have invested in Mexico, and they have Airbnbs that are self-managed by a core company right where the development is, and they’ve found (it) to be very profitable. They’ve invested in Cancun, they’ve invested in Riviera Maya, and they get great occupancy.”
Investing might look different for certain real estate professionals, nuts to bolts, depending on their station in life. McGrath detailed how he tries to tailor his investing advice to his team of REALTORS®, with their financial and personal situation in mind.
“If you’re single, young, just getting started paying rent on an apartment, why not use the FHA loan for the minimum 3.5% down, purchase a duplex and live in one side while renting the other, and have that income build equity? It really does depend on someone’s place in life as to what makes the most sense. But I’ve also started talking to people who just had kids and said, ‘You need to go buy an investment property,’ because if they buy it and put it on a 15-year mortgage and it makes sense, then in 15 years, they have a paid-for asset.”
McGrath also made note of the fact that the transaction should still make sense for the real estate professional in question, in spite of his preference that his agents have skin in the investment game. Just because real estate is a solid investment doesn’t recuse agents from having to do their homework to ensure everything makes sense before pulling the trigger.
“I’ve mentored a lot of agents in investing, whether it’s multi-unit properties for rent, single properties for flip renovation, resell type projects, and I tell them all the same thing,” he says. “You have to remember that it’s a business transaction. You have to look at all aspects and make sure you’re calculating, because I’ve watched people forget some of the expenses that are incurred with owning a property over a 12-month period. If you’re going to have a property manager, you have to budget for people when they move in and out, right? What’s the vacancy rate? There’s so many different things you have to look at.”
Scaling and diversifying a real estate portfolio can be just as important once a real estate professional is in the game, though getting started is typically the highest hurdle to jump over. Herrera acknowledged that she doesn’t want to be overextended in her real estate portfolio, choosing instead to find both solid strategies for investment and different types, with a system for making certain she doesn’t miss revenue from tenants.
“We diversified,” she explains. “We have an Airbnb, we have property in Mexico, we have the strip shopping center, we have an office building, we have retail—we’ve diversified. But for me, what was safest was the residential housing because there’s always tenants. We never, ever missed more than two months worth of rent. And if we missed two months worth of rent, that’s because we weren’t ready to paint and do the work, or we didn’t have our contractors in line getting it ready for the next tenant. At the beginning, when we first started growing, when we first started acquiring, we didn’t have the luxury of waiting a month or two. So we made sure that one tenant was out, we had that property ready and the next tenant in almost immediately.”
McGrath’s perspective reinforces the notion that diversification of a portfolio can help to make it stronger, in case unforeseen market conditions cause a wrinkle in the investor’s strategy.
“You never want all your eggs in one basket. It’s that simple. You need to have a multitude of things that are generating income, that are helping you build a legacy,” he says.
Frost’s fix-and-flip strategy skirts much of the risk involved in buying and holding real estate by its very nature. He expounded upon this dynamic, pointing out that quick turnarounds are possible.
“If you’re doing everything right, the investor is going to buy, and it’s going to take about 20 days to close. Then you get your contractors in there to renovate it, and let’s just say a long one, it may take four weeks. So now you’re in the thing for two months, then you put it back on the market and you got to sell ’em. So you’re going to get your money. The return on your investment is going to come back faster.”
Whatever strategy agents choose to utilize, investing in real estate can be a major way to springboard into your financial future by growing your assets strategically. Agents and brokers who choose to go the investment route typically only have to remove their own fears as a roadblock before jumping in on their first investment, according to Frost.
“Investment is a risk, but don’t let it scare you. As long as you look (at the) numbers or you have a good real estate agent, generally speaking, I don’t think (the) majority of our investors, including ourselves, have lost money at all,” he claims. “Don’t be scared to do it. Get in there.”
McGrath was equally insistent that agents put their skills to use in not only the selling of real estate, but also in buying. He used the example of potential retirement to entice real estate professionals to make their move.
“It makes zero sense for an agent to be licensed and selling people homes if they don’t own one themselves. The value of real estate is going to do nothing but go up. I look back 20 years ago and think, ‘Man, if I’d have just bought 10 or 12 houses, then I could be retired today.’ Well, what’s it going to look like 20 years from now?” he asks. “And the chances are, if you look at the overall economics of America 20 years from now, we’re going to say the exact same thing. The only difference is 20 years from now I’m going to say, ‘Man, I’m glad I bought all that real estate.’”
The one common thread that all of the agent investors kept coming back to was the fact that the numbers and the situation had to be in the right place, even if there is some risk involved—do your homework. McGrath makes sure to remind his investors of that when advising them.
“The numbers have to make sense…especially if you’re buying it for yourself,” he says.
