The Five Investor Broker Channels of Opportunity
The Investor Broker community was born out of a think tank with a group of investor friendly agents. We brainstormed and white-boarded the things we needed most to be successful investor brokers.
We quickly zeroed in on the one most important thing that we all wanted – more closed transactions. More deals generally mean more commission checks and a thriving, growing business.
Sure, we know that education, connections and resources are all an important and critical layer of a business. But all these layers are built to support and produce a defined end result – more closed transactions.
That’s when we put our focus into current, new and emerging market opportunities to work with private and institutional investors. We focused on identifying the most attractive lead pipelines and opportunities that would turn into recurring and constant closed transactions.
We identified five channels with the opportunity to generate massive deal flow for investor friendly brokers. Within each channel there are dozens of addition sub-channels and niche opportunities to generate massive deal flow.
The five channels of opportunity for investor brokers to create major lead pipelines are:
- Investors – Developing the mindset and skillset to work as an investor friendly agent and investment broker.
- Homeowners – Develop the expertise and marketing plan to become a wealth and investment advisor to homeowners.
- Private Investment Channels – Develop the expertise to represent private investors in core and traditional investment deals
- Niche Investment Channels – Develop the expertise to work with specialized investors in niche investment deals.
- Disruptive Real Estate Models and Institutional Investors – Develop the connections and expertise to work with institutional investors and new disruptive real estate models.
Channel 1 – The Investor Friendly Agent or Investor Broker
The first channel may seem obvious but there is a lot of hidden detail that goes into becoming an investor friendly agent and working with real estate investors.
Investor friendly agents work in the overlapping space between residential and commercial real estate. We call this space the investment real estate space.
Most real estate agents don’t truly understand that the investor real estate market is a huge market with massive deal flow and very little competition.
How big is the market?
Here’s a simplistic way to get a high-level view of the market.
Overall USA Market Size
2022 USA Population 332 Million
2022 USA Residential Market Value $43 Trillion
2022 Total Number of Occupied Homes 128 Million HUD
2022 Homeownership Rate 64.5%
2022 Non-Homeownership (Investor) Rate 35.5%
Key Takeaway
The residential real estate investment market is massive, accounting for as much as 35 percent of the overall market and adding up to around 42 million properties.
That’s a lot of opportunity, with very little competition, for investor friendly agents to grab a share of the annual $100 billion commission pie.
Top 20 Metro Markets
Now let’s take a look at more specific stats from Redfin as they chart investor sales in the top 20 metro areas.
We won’t dig deep into the stats, but it’s obvious that investors enjoyed a roaring trade, peaking at 20.2% of all sales, in the top twenty metro markets, through first quarter 2021, before overall market share starting to sharply decline in Q2 2022 down to 17.5% through the end of 2002.
The key takeaway is that in 2022 in the top 20 real estate markets, between one in five and one in six home purchases were by investors. That’s a massive number of transactions completed by a small number of agents with little to no competition.
In 2023 it is predicted that around 13% of all residential real estate sales (not just the top 20 markets) will be closed by real estate investors. That’s around $13 billion worth of real estate commission. That’s a lot of commission.
The market is cyclical and will rise and fall over time. As investor friendly agents we will need to adapt to each market cycle.
The second thing that agents need to understand is that it will take time and commitment to train up and develop the expertise to work with investors. Agents can’t just show up and offer to process a deal like a regular homeowner primary residence transaction.
Agents will need to develop both the mindset and skill set to work with investors.
Channel 2 – The Homeowner Wealth Advisor
We believe that disruption in the real estate market will place pressure on real estate commissions and will force all residential agents to train up and develop additional marketing and advisory expertise.
In the future, we can’t just be showing agents or gatekeepers with a key to get homes listed on the MLS or access to show a listing. There are simply too many ways to automate or replace these basic functions.
The pandemic has taught us that working from home is a real option and is here to stay; that living in your second or vacation home is an attractive option; and that there are substantial lifestyle and financial benefits to owning an investment property in a lifestyle location that attracts short term renters.
At the same time, we’re faced with a rising housing affordability crisis and realization that real estate is an essential, if not critical, cornerstone of the retirement plan for the majority of retirees.
This means that by default, every homeowner is a real estate investor. This creates an opportunity for investor friendly agents to provide wealth and investment advisor services to their clients.
This requires that we educate homeowners and reposition ourselves as wealth advisors.
The most important stat for you to know is that for 73% of retirees, their primary residence is the largest asset they own and will be responsible for a significant portion of their financial and retirement portfolio.
That equates to a retirement portfolio value that is four times larger for a homeowner versus a renter.
That’s a big deal.
When a home buyer buys a home today, you need to let them know that today’s decision is probably going to be the most important decision they make about their retirement plan.
Your sales pitch to home buyers is that you can not only help them buy a home, but you can add an additional layer of investment expertise focused on buying the right home and optimizing it’s value, that other agents don’t possess.
This makes you a wealth advisor.
Get used to the term “wealth advisor” – it’s going to gain traction within the residential real estate industry.
The benefit of positioning yourself as a wealth advisor doesn’t stop with your client’s primary residence.
You should also think of every homeowner as a future buy and hold investor.
The typical homeowner will start to build up equity in their primary residence after a few years of ownership and can be quite substantial after ten years. Equity will build as a result of appreciation in the property and through the paydown of their mortgage. The equity is generally locked within the property but can be unlocked relatively easily through a home equity line or second mortgage.
This gives the homeowner the ability to access the equity and use it as a down payment on a second home or a rental property.
You start your relationship as a wealth advisor on their primary home and expand your services to be an investment advisor on their future second home and rental properties.
Note that we use the terms wealth advisor and investment advisor is a descriptive way that is limited to your role covered by real estate licensing laws.
Channel 3 – Private Investment Channels
Private real estate investors traditionally invest in three core investment channels – wholesale, fix-and-flip and buy and hold.
Most investors are private investors focused on buying single family homes or small multi-family properties. They will use different acquisition, financing and ownership structures, but at the heart of most deals will be one of the three core investment channels.
The Private Investment Channels
- Wholesale
- Fix and Flip
- Buy and Hold
- Wholesaling
This real estate investment strategy involves “buying” real estate at X price and reselling it quickly at X plus Y price.
I use the word “buying” in a very broad way because usually a wholesaler will not take title to the property but instead will simply “take control” of the property. Most wholesalers will put the property under contract and then assign, broker or double close the property. The main reason for this is that by not closing on the property the investor avoids closing costs and makes more profit.
Wholesaling is a great way to build up the cash reserves that you need to be really successful investing in real estate. It’s a great “no money” down” technique that generate quick cash flow with little cost, hassle and time commitment.
Most wholesalers use an assignment clause to wholesale real estate.
A practical example is where a wholesaler contracts with a seller to buy a property worth $250,000 for $190,000. The buyer of the property is written up as “wholesaler and / or assigns” and gives the wholesaler the right to assign the contract. The wholesaler then assigns the contract to a new investor for the same price of $190,000 but includes a provision that the new investor will pay the wholesaler an assignment fee of $10,000. This means that the effective purchase price for the new investor is $200,000 and the wholesaler makes $10,000.
Note that the wholesaler never took title to the property and assigned the contract to the new investor before closing.
Note also that the wholesaler doesn’t sell the property to the new investor but instead sells the contract to the new investor.
- Fix and Flip
Fix and Flip refers to the process of finding a distressed property, fixing it up and then selling it for a profit.
The process of fixing the property is also called rehabbing.
The fix and flip process has been made famous by countless TV shows like “Flip this House” on Home and Garden TV. You’ve probably also seen ads and billboards by companies that say “We Buy Ugly Houses”.
The central premise in a fix and flip is that you can buy a house at a steep discount because it needs work to get it back to an acceptable condition., fix it up and then sell it for a much higher price.
The house may be damaged and needs to be repaired. It may be outdated and needs to be modernized. It may lack some functionality, like an extra bedroom or a garage, and needs to be improved.
In a fix and flip you need to determine the “as is” value of the property. This is the value of the property in its distressed state.
You then need to determine the cost to buy, fix and hold the property.
Finally, you need to estimate what the value of the property will be after the fix up. This is the “after repair value” or the ARV.
If everything works to plan you will buy the house for $X, fix it up for $Y and sell it for $Z, where $Z equals more than $X plus $Y.
A word of caution.
Fix and flipping works best in an appreciating market. When home values go up it doesn’t matter too much if you’re stuck holding the property as the value will usually increase over time. In a depreciating market there is normally tremendous pressure to sell the property quickly as its value will decrease over time.
This means that in a depreciating market only the savviest investors will be successful as fix and flippers. A down market is not the time to learn on the job.
- Buy and Hold
In an ideal world you should buy and hold every investment property. In the real world, investors need to sell many of their investment properties to cover living expenses, repay debt or build up the capital needed for bigger and better projects.
The main advantage of working with buy and hold investors is that they usually have both the willingness and ability to close on a deal. They normally have capital for a down payment and the ability to close on a mortgage loan.
Channel 4 – Niche Investment Channels
Niche investment channels require additional expertise and are much more specialized than the core investment channels. Just as a doctor can remain a general practitioner or choose to train further and specialize in a niche medical field, so too can a real estate agent or investor become a niche specialist.
Niche investment channels are specialized channels that yield great deal flow but require a significant level of expertise, technology or funding.
Examples of niche investment channels include investing in specialized types of properties like accessory dwelling units, storage units or car washes; specialized types of ownership like probate homes or multifamily syndications; specialized use of property like short term rentals or senior living; or by creating or unlocking value through land development or condo conversions.
These niche investment channels have been around for a long time and are dominated by savvy local investors (and the agents who work with them). They require an extra level of experience and expertise, much like a doctor that specializes in a niche type of medicine or surgery.
Niche investment channels are specialized channels that yield great deal flow but require a significant level of expertise.
Types of Property
Accessory Dwelling Units (ADU)
Car Wash
Self-Storage
Types of Owners
Probate
Out of State
Senior Living
Types of Co-Ownership
Syndication
Fractional
Type of Use
House Hacking
Short Term Rentals
Types of Funding
Rent to Own
Add or Unlock Value
Land Development
Condo Conversion
A limited number of investor friendly agents have a expertise or experience of needed to close niche investment channels and can assist investors with buying and selling niche investment properties.
Channel 5 – Disruptive Real Estate Models and Institutional Investors
We’re grouped disruptive real estate models and institutional investors together as almost all disruptors are institutional investors. Their new real estate models are generally venture funded and have the capacity to acquire and sell a large number of properties.
Institutional investors have also entered the residential real estate marketplace and have quickly captured significant market share in a number of top metro markets, particularly across the South and Southwest.
Disruption channels center around institutional proptech, fintech and venture funding. It’s interesting to note that most of the creative investing strategies used by investors have been adopted into new business models and backed by huge amounts of venture and debt funding.
A simple example is the emergence of lease option or rent-to-own homes. Creative investors have been working rent-to-own deals for decades. Most deals were closed by local mom and pop investors with limited capital or access to funding.
The rent-to-own strategy was recently been adopted by a number of venture-backed companies like Divvy. Divvy is now an institutional cash buyer of residential properties that they then leases together with an option to buy to credit or capital challenged renters (who become buyers). A portion of the rent is escrowed and allocated towards a future down payment when the renter buys the home.
Another example is the iBuyer business model. IBuyers are institutional cash buyers who focus on buying, rehabbing and reselling starter homes.
Their business model is very similar to companies like Homevestors and their We Buy Ugly Houses program. At their core, they both buy homes, fix them up and then resell them direct to the public.
The main difference is that iBuyers are all-cash buyers and believe they don’t need to buy at the same deep discounts to value required by smaller investors.
Portals
Zillow
Sundae
Roof Stock
Buyers
Institutional Buyers
Build to Rent
iBuyers
Power Buyers
Homeownership Accelerators
Rent-to-Own
Finance
Alt Lenders
Ownership
Pre-ownership
Co-ownership
Fractional Ownership
Shared Ownership
Living
Co-living
Use
Co-use
Investment
Fractional
REIT
Web 3
Blockchain
Digital Real Estate
Tokenization
Crypto
Professional Services
Insurance
Inspection
Appraisal
Title
What’s The Opportunity
All five channels offer tremendous opportunity for investor-friendly agents to train up and develop the niche expertise to work with private, institutional and prop tech investors.