Redfin Investor SHare Home Purchase 2022

Investor Brokers Fish in the Blue Ocean

Investor Friendly Agents Fish in the Blue Ocean

One of the major advantages enjoyed by investor friendly agents is that there is so much less competition from other agents for investor deals.

Most Realtors don’t have the expertise or experience to work with investors. As a result, a very small percentage of investor friendly agents enjoy little to no competition attracting business from real estate investors.

In addition, what most agents don’t know is that the investor friendly market is a massive market dominated by so few agents. Not only is there less competition, but most agents don’t realize that there are so many transactions and so much commission revenue available to agents.

We won’t dig deep into the stats, but 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 between one in five and one in six home purchases were by investors in 2022. That’s a massive number of transactions completed by a small number of agents with little to no competition.

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 Concept of Blue Ocean Strategy

This concept is a personal favorite and I’m going to show you why savvy agents should train up and retool their business to work with real estate investors.

  1. Chan Kim and Renee Mauborgne wrote a best-selling book called “Blue Ocean Strategy”.

The central premise of the book is that there is a red ocean and a blue ocean. The red ocean is packed with competition and becomes a blood bath between businesses competing for new business.

The blue ocean is a wide-open place with little to no competition. Businesses can do business at their leisure and without compromising on price.

Business 101 is that you don’t need to compete with competitors if you can find a way to make them irrelevant. Instead of battling your competitors head-to-head in the blood bath that is the “red ocean”, rather adapt your strategy to create and operate in uncontested areas where there is high growth and profit called the “blue ocean”.

OK, so how does this apply to being an investor friendly agent and real estate investor?

Most real estate agents compete for the same business and consequently operate in the ”red ocean”, where the main way to differentiate is through price and service. This puts a squeeze on profits and limits growth potential as more and more agents compete in the marketplace.

Another way of explaining it is highlight that most agents read the same guru advice and use the same marketing strategies. As a result, homeowners are bombarded by calls and letters from agents all with the same strategy. In the end the homeowner usually hires an agent willing to offer them lower commission or added services.

This puts real pressure on margins as agents seek to outbid each other to get the deal, especially if you have a dominant agent in your market.

Gurus teach very similar techniques that tend be a “numbers game” and can’t realistically be achieved or maintained by agents. Not surprising is that a vast majority of new agents fail and are out the industry within 2-years.

My challenge to you is to do two things:

  1. create your own “blue ocean” where you have no competitors and where you get a premium for your efforts. You can do that by becoming an investor friendly agent or train up and specialize to work with niche or institutional investors.
  2. build a system that generates a consistent flow of deals.I strongly urge you not to do the “numbers game” and not to do “onesy-twosy” listings, but rather build a system that constantly generates quality listings and premium profits.

Let me give you a real example. I found a way to work in the “blue ocean” in the early 2000’s by being one of the first investors to develop a system to buy excess inventory from new home builders in a slow market.

I found a way to buy bulk deals at a 30% discount from national home builders that included a fast cash close.

I backed my offers up by building a network of private and hard money lenders who provided bridge financed to take deals down on short notice.

I also built an investor network willing to buy each deal from me at a discount of 25%, leaving me a profit of 3% to 5% per deal. In the early 2000’s that was about $10,000 to $20,000 profit per deal.

I had to put together all the pieces of the puzzle to make the deals work – the inventory, the finance and the buyer network.

What I effectively did was create my own “blue ocean” that was devoid of competitors.

Not only was I able to do deals in large quantities but I also got paid a premium to do so because I had little to no competition. I was able to cherry pick great deals and get paid a premium by the builders because I was able to solve their inventory problem.

In money terms, that translated to a high six-figure income per year.

I wish exactly the same for you.

The early 2000’s seems a long time ago and markets and opportunities have changed. There are new opportunities now, especially around institutional investors and new disruptive technologies and business models that create blue oceans for savvy investors.

As an example, there are now hedge fund backed institutional buyers snapping up a high percentage of starter homes in large urban markets. This has created huge problems for traditional investors and wholesalers who relied on buying homes below market value as there is huge competition for these homes and this has driven up the price of homes.

I spoke with a fix and flip investor in Phoenix who thought he was going out of business when iBuyers like Opendoor and institutional buyers like Invitation Homes entered his market and started outbidding him on just about every deal. They simply had more money and were willing to outbid him to get the property.

The market had changed on a dime and his prospects looked bleak.

Then something happened that changed everything.

He soon realized that the iBuyers didn’t know what they were doing and were overbidding on homes and overpaying on fixing up the homes. It wasn’t that they were stupid. In fact, they were some of the smartest people he knew. It was just that they didn’t know the market like he did and had different expectations of return on investment.

He pivoted his business to wholesaling to iBuyers and institutional buyers. He then contracted with them to do the fix up work and earned a contractor fee instead of a profit from the resale.

He made money flipping the homes and then money fixing up the homes for his new iBuyer partners.

Less profit but almost no risk.

Now he has an unlimited pool of opportunity because he found a way to work with a couple of buyers who dominate his local market.

He worked with investor friendly agents to find and write contracts on homes that met the iBuyer’s investment box.

The investor and agent created their own blue ocean.

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