Selecting, validating, renovating, and managing a successful rental property requires specific skills, local knowledge, processes, and resources. The only source for what you need is a local investment team. Without it, you are merely guessing.
The Most Important Team Member Is the Investment Agent
Investment agents are entirely different from regular residential agents. Here’s how.
Residential agents
Residential agents help clients buy or sell homes. The process is simple: Clients scan real estate sites or drip feeds and choose the properties they want to see. The agent provides access to these properties.
If the buyer wishes to submit an offer, the agent facilitates the offer. If the offer is accepted, the agent facilitates closing.
Except for adding the buyer to a drip feed, providing access to the properties, and handling paperwork, residential agents provide little value to an investor.
Investment agents
Investment agents assist clients in purchasing income streams, not homes. They need to understand finance, market trends, ROI, and tenant demographics, and they are always part of a team.
The process is entirely different. Here’s a high-level overview of our process:
- Define the client’s financial goals.
- Develop a property profile that supports the client’s goals.
- Find conforming properties and generate analytics.
- Perform an on-site evaluation for properties of interest, including sending annotated walk-through videos to the client and property manager.
- Obtain the property manager’s evaluation of the property based on the video, including estimated rent, time to rent, and recommended renovation items.
- Estimate the renovation cost based on the property manager’s recommendation.
- Recommend offer price and terms.
- Manage due diligence, including inspections and in-person walk-throughs for property managers.
- Obtain quotes for all renovation items.
- Overwatch renovation after the close of escrow.
- Facilitate property manager take-over and rental listing.
The takeaway
Investment agents and their team members provide a wide range of services, including property selection, property analytics (not MLS data sheets), validation, renovation management, and more. These are highly valuable services for investors.
Qualifying an Investment Agent
Finding a (good) investment agent can be challenging. The problem is that while there may be thousands of residential agents, there may be only one or two investment agents in a market.
Some residential agents will occasionally sell real estate that becomes rental properties. However, the client selects the properties and provides all the investment skills. The residential agent usually provides no services beyond those needed for homebuyers.
Interview questions
How can you tell an investment agent from others? By asking the right interview questions.
Before interviewing candidates, compose a list of 10 or fewer questions; you will not have time for more. Ask each candidate the same questions, and note each response for later comparison.
Here are sample questions, along with acceptable responses. Will you find a candidate with the “right” answer to every question? Probably not, but make sure they provide reasonable answers.
- Tell me about your investment team: You’re looking for a response like, “I’ve worked with X property manager for years. We’ve completed X properties,” or “I work with several renovation companies…” They have no value to you if they are not part of an investment team. Move on to the next candidate.
- Do you own investment properties? I would reject the candidate if they have not personally owned investment properties.
- How many investment properties did you close in the last 12 months? Some agents only sell two or three properties per year. Even if all were investment properties, there is insufficient repetition for the needed processes, experience, and resources. A minimum of 12 investment properties per year is necessary to be proficient.
- Did you or your client select the properties? This is an important question. Residential and investment-friendly agents do not pick properties. They send MLS data sheets for the properties the client requests. The client evaluates the properties and selects one or more to make an offer. The agent adds almost no value if you do all the work. Investment agents select potential properties and provide analytics. Reject the candidate if the client selected the property.
- What were your primary selection criteria? It could be the initial return, appreciation, tenant pool, or something else. You’re looking for a plausible answer based on analytics, not opinion or “feelings.”
- Tell me about the tenant pool segment you target: Understanding the existence of tenant pool segments and their characteristics is not common knowledge. It requires a person with investment experience. If they do not have a plausible answer or do not understand the question, go to the next candidate.
- How did you estimate rent and time to rent? They should be able to describe a process like, “I look at recently rented comparable rentals.” Another good answer is that they work with a property manager who supplies this information. If they answer that they use Zillow, Redfin, Rentometer, etc., they do not know how to evaluate investment properties. No real estate sites I’ve seen provide usable estimates of rent or time to rent for specific properties. This is critical information when you are evaluating investment properties.
- Tell me about your renovation process: You are looking for an answer like, “I work with the property manager to determine a list of renovation items. Next, I work with XXX company to get a quote. Once escrow closes, the renovation company does the work, and the property manager does final acceptance.” Renovation is a critical success factor.
- What else should I have asked you? This is an absolute golden question. I’ve learned a lot by asking this question at the end of interviews.
For example, I was checking out a neighborhood I did not know. Nothing looked unusual or concerning. While walking around, I saw a woman sitting on her front porch. I talked to her about the neighborhood for a while. I was about to leave when I asked her, “Is there anything else I should have asked you?” Her response blew me away.
She told me that when two drug dealers lived on the street, and they would occasionally shoot at each other. One was sent to prison about a year ago, and the remaining drug dealer keeps things quiet. I saw nothing to indicate the presence of drug dealing, and would not have known if I did not ask the “what else?” question.
If the candidate answered all questions satisfactorily, you are reasonably assured they know what they are doing.
Final Thoughts
Ask the right interview questions to determine whether an agent has the skills you need. Once you find and vet an investor agent, that person will bring the team of people and resources you need.
However, much like in any company, the investment team will only function as well as the leader, which is you. You are still responsible for directing the team and making all major decisions.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
