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VOLUME IXThe Ins and Outs of Working with Investors By Andrew Paniello American real estate increased in value by nearly $7 trillion in 2021 alone. And due to the skyrocketing demand for property in the United States, an increased number of investors are considering real estate rentals as a long-term investment option. Savvy investors will almost always consider properties that offer strong rates of return and minimal exposure to risk. In response, Realtors will need to adjust their property marketing strategies accordingly.
Property investors typically have different wants and needs than a standard tenant. While tenants of rental properties focus on factors such as property quality, location and monthly rent, investors may focus on one overarching factor: return on investment. Here’s what Realtors need to know about how investors generally decide whether they want to invest in rentals.
The Ins: How to Win Investors OverThe neighborhood will be the most important factor when determining both the current and future values of any given property. While potential investors could always add more to their investment in order to make the property more desirable, there is no amount of money that will empower them to move the property somewhere else.
Location Matters Texas and Florida are two of the fastest-growing states, which has put pressure on housing supply, especially in urban areas. Between the 2010 and 2020 censuses, Texas increased in population by 15.9% (third-most overall), and Florida increased by 14.6% (seventh-most).
When Realtors connect investors to locations that appear to be stifling, they will likely need to market it as a “value” property with “high potential return.” On the upside, properties that are in dense urban areas with high rates of growth will usually be the easiest to market to prospective property investors.
Making the Most of Tax Season Realtors that help investors navigate the ever-changing property tax landscape will be much more likely to close on a rental deal.
In Florida, the average property tax rate is 0.98%, with the average Florida homeowner paying $1,752 per year in property taxes. Monroe county has the highest average annual property tax payments ($2,971) while Calhoun county has the lowest average payments ($520).
In Texas, the property tax rates are a bit higher—in fact, Texas has the seventh-highest property taxes of any state in the country. The average rate in Texas is 1.69%, with the average Texas homeowner paying $3,390 per year. Within the state, there is a large amount of variation between counties. In Collin County, average annual tax payments are $5,594 per year while in Kennedy County average payments are just $228.
Investors might be interested in learning about various tax deductions their property might qualify for. For example, as a part of the Tax Cuts and Jobs Act (TCJA), every state now has “opportunity zones” that give investors special tax benefits. In Texas, there are 628 opportunity zones. In Florida, there are 427. Property is often more affordable in these zones, creating high potential for investor return.
The Outs: Where Realtors Will Face Investor Challenges Even with the most experienced Realtors, miscommunications may happen during real estate transactions. Whether it's a one-on-one conversation or involving an entire group, here are a few ways to prevent mishaps before they can happen.
Condo Bylaws: Are Investors Welcome? Some condos have strict bylaws that prohibit multiple investors from buying properties. Realtors should investigate whether there are rental restrictions before pitching available condominium units, and identifying which are open to accepting outside investors versus residential owners. If the investor is willing to wait until the wait list opens, this is also a potential alternative.
Developing Effective Communication Strategies Introducing a set of standard communication protocols between Realtors and investors can be beneficial. One common communication problem faced by Realtors will be investors who assume (whether literally or in practice) that they are their Realtors’ only client. This can lead to a situation in which Realtors are expected to be available at all hours of the day or may even be asked to perform uncompensated work.
On the other hand, Realtors might also annoy investors who have demonstrated a limited level of interest. Avoid sending offers that are out of budget, that are in the wrong neighborhoods or don’t fit the amenity specifications that an investor is looking for.
Both situations can be damaging to an otherwise mutually beneficial relationship. Waiting for a clear sign of interest—mutually initiated contact, genuine property matches, investors adding their names to contact lists—can help create a better balance. Additionally, outlining how communication will take place—date, time, method, etc.—will help minimize communication conflicts.
Working with Inexperienced Investors Working with new clients can be a mixed bag. While some will be eager to make an investment, others might be hesitant to allocate their wealth anywhere that’s unfamiliar. There are also challenges that come with dealing with inexperienced investors, which might end up creating additional work for Realtors.
When investors have limited experience, they will likely need additional guidance during each step of the investment process. This might simply require answering a few questions. With others, it might involve having to complete additional paperwork (ex. mortgage applications, leases, etc.) and facilitating connections between investors and other people (lenders, attorneys, etc.). Working with new investors shouldn’t be outright avoided, but these are the kinds of things Realtors must always keep in mind.
Investor Deal Is DoneWhile completing rental deals between landlords and tenants is already a lucrative career, building and nurturing relationships with investors may be just as important. As long as Realtors can illustrate the value that each property will offer and also understand how to work with investors of varying experience levels, success will be inevitable.