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Investing in real estate can be a lucrative second stream of income for individuals working in any industry, but for real estate agents, it quite possibly could be the perfect second stream of income. However, many agents do not invest in real estate.
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The reason for that is often the same reason that a person working in any other industry may not invest. They don’t know how. They don’t know where to start. Their uncle’s friend’s brother owned a rental house, and the tenants destroyed it (everyone knows a person like that). The list goes on.
Many agents don’t realize it, but the nature of the job of being an agent is the perfect preparation for being a real estate investor. As agents, we are intimately familiar with the values in given areas of our markets.
For example, when a property is listed in your market for significantly under value, do you jump to call a client who is looking for value over perfection? Have you ever made recommendations to a seller client on how they can improve their home to reach the value they’d like to sell for?
Congratulations, you know how to identify a potential investment property and determine a scope of work for improvements. I am a real estate agent who owns several hundred investment properties across the country, and I’m going to give you my top three reasons that agents should invest in real estate.
It is a tangible asset to which you can add value
You can touch and feel real estate; it cannot get up and walk away. A run on bank deposits will not make it disappear.
The cool thing about real estate, which is not possible with stocks or other types of investments, is the ability to make it worth more than what you paid for it. You can do this by updating the property (specifically kitchens and bathrooms), countertops, paint, changing out fixtures and exchanging carpets for luxury vinyl plank.
As an agent, you already have the skills to determine the ARV (after-repair value) of the property through your familiarity with values in your market. You’ll just need to determine if the cost of making the updates is worth what the ARV will be.
The strategies are flexible
There are many types of real estate investing strategies. Thanks to HGTV and the like, the strategy most people are familiar with is flipping. Flipping is where you buy a house for cheap, fix it up (the adding value piece that we talked about in the previous point), and sell it for the new ARV. The spread between the cost of the repairs and the ARV is your profit, which will be subject to taxes, of course.
There are a number of different strategies. The buy-and-hold strategy (this is the one I use the most) is where you buy a property, rent it out and hold it indefinitely.
There is also BRRRR (buy, rehab, rent, refinance, repeat). This strategy is a combination of flipping and buying and holding. With BRRRR, you buy and rehab a property as if you were going to sell it, but instead, after you rehab it, you put a renter in the property. Then, you refinance the property to pull back out the amount you put down on the property as well as rehab costs. With BRRRR, it’s as if you were able to buy the house for $0, if you’re able to pull out your down payment and rehab costs in the refinance.
You can buy single-family rentals, apartment buildings, vacation rentals (Airbnbs) — I own all of these asset classes. Do you live in a market that has a high barrier to entry price-wise? The cool thing about investing in real estate is you don’t have to do it in your market.
It’s easiest to buy in the market that you know the best, but not everyone lives in the best market for them to invest in. Investing in real estate remotely is a very common practice. I only own three properties within an hour’s driving distance from my home.
Wealth building
Andrew Carnegie observed that 90 percent of millionaires are made through real estate. I could argue that, as an agent and expert in your field, you have a much easier path to millionaire status than a person working in any other industry in existence. You are already familiar with how to find deals and the attributes of a property that make it more or less valuable.
Owning investment real estate builds wealth outside your primary income in two ways:
Cash flow
Cash flow is the amount of money you’ll make each month on rent or Airbnb income after expenses. Cash flow is of primary importance when it comes to real estate investing. It does not make sense to buy real estate that does not make money over and above the rent and expenses on a property.
Real estate is not a get-rich-quick investment; it’s a get-rich-slow investment. You won’t be quitting transactions to live off your rental income from two or three properties. Over time, as you build a fortress of investment income around your primary income, you’ll have a monthly secondary income that anyone could be happy living off of. Just don’t expect to get there overnight.
During every real estate market scare of the past 10 years, I slept well at night, knowing that my investment property income would allow us to continue our current lifestyle even if the real estate sales market ceased to exist.
Equity
Equity is the primary driver of wealth building in real estate; however, it should be the secondary priority after cash flow when it comes to investing. As we all know as real estate professionals, the value of homes fluctuates but tends to trend upward over time. If you hold a property or a number of properties long enough, the value will continue to rise over time, which will increase your net worth.
I started investing in real estate in 2013, and my portfolio value has tripled over the last 10 years. That’s not a typical amount of growth, because we held our investments through the COVID boom, but in my opinion, I do think we will see values surge again as interest rates tick down; real estate rarely trends downward for long.
Real estate agents sit in the perfect position to springboard themselves into being astute real estate investors. You already have the knowledge, you just need to implement it. You’re building your clients’ net worth every day when you advise them on home purchases and sales, why not apply some of the knowledge you have accumulated to start building your own net worth as well?
Avery Carl is the CEO of the country’s TOP short-term rental and Airbnb real estate agency. Connect with her on Instagram and Linkedin.
