Real estate as an investment offers many advantages over other vehicles. In fact, the overwhelming majority of millionaires amass their wealth through real estate investing, according to Tom Corley’s bestselling book “Rich Habits – The Daily Success Habits of Wealthy Individuals.”
As a real estate agent, you’re much better positioned than the average “civilian” to earn excellent returns when investing in real estate. Here’s how.
Advantages of Real Estate Investment to Build Wealth
There are many reasons that real estate lends itself to wealth creation:
- Property is a tangible asset that appreciates reliably over time.
- Real estate is easy to value. While two stocks in the same industry can have wildly different prospects, two similar properties in the same neighborhood will have roughly the same value.
- Real estate can be leveraged. It’s relatively easy to finance 75% to 80% of an investment property purchase. You can only leverage 50% of stocks, and you face margin calls if your investment value falls.
- You can invest for rental income over the long-term or for a fast gain on sale.
- You can manage your investment as actively or passively as you want.
- Real estate gets you special tax treatment, including depreciation, lower rates on long-term gains, and the ability to defer or shelter income.
- Rental real estate creates a hedge against inflation. When prices increase, rents generally do also.
These are the perennial advantages of real estate investing cited by financial planners and other experts. But there are additional benefits to property investment that apply specifically to today.
Advantages of Investing in Real Estate Right Now
While property always offers a handful of benefits not available with other investments, you can realize additional advantages today:
- Mortgage interest rates are still remarkably low, under 3% for owner-occupied homes and just slightly higher for investment property.
- Market participants anticipate economic improvement as the coronavirus is defeated by the deployment of many vaccines. Real estate prices took a hit during the early months of the coronavirus crisis but are already beginning to recover in many markets.
- According to experts interviewed by Forbes, 2021 will be a banner year for real estate price increases and record numbers of sales. For instance, Redfin’s Darryl Fairweather says that “2021 will see more home sales than any year since 2006. Annual sales growth will increase from 5% in 2020 to over 10% in 2021.”
So, there are many good reasons to invest in real estate anytime and a few more to invest in real estate right now. But if you’re a real estate agent, there are even more reasons because you have a few secret weapons.
Property Investment Advantages of Real Estate Agents
As an experienced real estate agent, you deploy your knowledge on behalf of clients every day. You help them find good properties for the money and avoid bad ones. You research neighborhoods and discuss trends with other pros, including appraisers, real estate attorneys, and title officers.
Your finger is on the pulse of your market all the time. So why not put your skills to work for yourself?
Here are some advantages to investing as an agent:
- Commission savings: Acting as your own agent, you can save at least half of the traditional commissions when you purchase a property.
- Access to local knowledge: You know when a property is overpriced, and you’re positioned to spot a bargain and nail it down before someone else does.
- Hidden deals: You may hear about properties before they even hit the market. Sellers who desire privacy may prefer to sell on the down-low with pocket listings and private deals. And then there is the wealth of off-market and foreclosure homes that most consumers never see.
- Financing: You’ve probably acquired a number of good and reliable financing sources to help your clients. You can also put them to use yourself. With fast private financing, you can compete with cash buyers, or you may create partnerships with other investors who have more money than time or expertise.
Invest Like Buffet
One of Warren Buffet’s most often-quoted pieces of advice is to “never invest in a business you cannot understand.” As a real estate agent, you have access to knowledge that’s out of reach for ordinary investors.
Regular investors take three months on average just to locate a single property to purchase. And then they have to compete with sophisticated cash buyers and industry insiders. They routinely pay more and earn less.
But you know what you’re doing. You know a good investment when you see it and can move fast. Every percentage point you shave off your acquisition cost goes straight to your bottom line. Every “friend” discount you get from trade professionals — from title and escrow services to home appraisals — is money in your pocket. You may have the knowledge to manage your own rentals, saving 10% to 30% on property management services.
Warren Buffet also recommends that you only invest in companies or funds with trustworthy, competent management teams. He’s very careful about whom he chooses to partner with and hire. As a real estate insider, you know better than most which local agents, sellers, and service providers can be trusted. This makes due diligence easier for you and eliminates some of the risks that other investors live with.
Words of Caution for Investing in Real Estate as an Agent
Of course, no investment is fool-proof and all have some downsides. Real estate agents who invest for themselves must contend with a few risks.
First, you must be diligent in avoiding conflicts of interest. Investors trying to negotiate the best deals for themselves can be hamstrung by disclosure requirements that don’t apply to ordinary investors. That is why many real estate investors do not want a real estate license.
Investors sometimes undertake perfectly legal decisions and actions that create ethical gray areas for licensed real estate agents. That’s due to property disclosure laws and advertising compliance rules. Therefore, licensed real estate agents who invest in property have a higher risk of lawsuits or being reported to the real estate commission for negligent acts — even if they do nothing wrong.
At a minimum, make sure all parties in a transaction understand that you’re a licensed real estate agent. The NAR’s guidelines are explicit: “Article 4 prohibits the REALTOR® from buying, presenting offers, or selling property owned by the REALTOR®, or in which the REALTOR® has any interest, without making full disclosure of the ownership or interest to the buyer or seller or their agent or representative.”
You probably don’t want to represent buyers when selling your own property, even in areas where dual agency is allowed. The NAR’s position is clear: “As an agent, the best interests of your client must always come before any contemplated interest you may have in the property.”
It’s the inevitable divergence of the interest of the buyer (the client) and the seller (in this case, you) that creates conflict. There is no way to simultaneously represent yours and the buyer’s interest. Don’t try.
Avoiding these cautions, however, is possible and shouldn’t deter you from investing.
Real Estate Investing: Now Is the Time
There are so many reasons to invest in real estate now, especially as a licensed agent.
Superior knowledge, extensive contacts, and lower costs allow you to achieve returns on investment that others must be very well-connected, highly knowledgeable, or extremely lucky to get.
This article has been contributed by Ben Mizes.