A couple years ago a friend of mine asked me to help him become a real estate investor. He knew I was a real estate broker at the time with a company called Allen Tate Realtors. I said sure and off we went buying houses. The thing was I knew the market was based on what a primary home owner wanted and I did not realize it did not work the same way with an investor. My friend has gone on and done well with his investments but I have been on a long journey of discovering what the term real estate investor means.
I am now a part of a group called My Town Agent Inc. My goal is to build an investor model for people who ask me to help them become real estate investors. I had a company called The Courtney Group Real Estate in Charlotte N.C. and had identified real estate buyers in different categories. Each group has a componient of what I perceive as a real estate investor. The group themselves are obvious but componients are slight and without background in real estate, mortgages and finance the general public would miss a very important part as they try to invest in real estate.
Group one - First time buyer couples - This buyer is shopping on emotion. Falling in love with the home based on looks and feel. This buyer seems to shop more for payment than interest rate. More time than not this buyer is looking for long term protection like a 30 year principle and interest loan. It is only after not qualifing do these buyers educate themselves on the short term loans and interest only programs. These buyers are not always married and maybe focusing their attention into nesting rather than investing.
Group two - First time single buyer - This buyer seems to always open the meeting with me by saying I think I am wasting my money on rent so I want to buy something. They also say they want to invest in a home. Many of these buyers have visions of renting this home and going on to buy many others. This buyer is always the one that has me showing homes in neighborhoods that are less than 'let's say' safe. These buyers consider themselves the real estate investor. Without proper guidance this is the group that will over pay for a property. These buyers do notice interest rates and shop for payments at the same time. Their DTI's (Debt to Income Ratios) are low because the only thing they own is a new car and maybe a student loan.
Group three - Have a small house, need a bigger house - This group has a specific need. It is that 4th bedroom that they did not think about when they were the first time buyers in single or couple form. Mom is coming to help with the kids and the couch is not an option. These buyers have an area in mind. Usually a must have neighborhood. These folks don't need the 30 year fixed loan anymore. Payment shopping is a must now because they have bills. The DTI ratio is now affecting them and they feel it. Look and feel is still important but now proxcimity to work is in the mix. Travel time cuts into family time. These buyers will give up look and feel for size and bedrooms and baths.
Group four - The relocated buyer - This buyer is coming to town and has a time limit. What is the best deal today. This buyer will buy based on condition. They will pay more if the time table and condition match. This buyer has specific needs so the house will be in the buyers mind before they see it. If a relocation buyer wants a 2 story near downtown with 4 bedrooms then if there is only 4 avalaible when they arrive then the choice will usually come from those 4 avaliabe homes.
Group five - The part time investor - This buyer has a friend who has a good investment and now they want a real estate investment. The emergence of th HUD, Fannie Mae and VA foreclosures have given this group life. A quick purchase from our list of ten or more foreclosures on any given day and this buyer feels like a pro. This buyer is usually not educated on the effects of buying this home to his credit ratios. If this buyer does not do well on this investment then he will not normally invest in real estate again.
Group six - The watcher and waiter - This buyer is the closest to a real estate investor as you can get without doing it as a profession. This buyer saves money for a down payment to insure the lowest interest rates. They do not carry much debt so their DTI is very low. These buyers do not buy on impulse. This buyer requires to see everything on the market and then identifies a style or type of home which meets a profile. This buyer will shop mortgages to the point that the deal is in danger. There is no emotion in this purchase. The buyer only sees dollars. This buyer rarely loses money but in some cases has broken even. This buyer is willing to do hard work on the home to insure the equity is protected.
Group seven - The commercial investor - There is a whole book on what I could write about the triple net (NNN) investor. There are investors who like land and buildings and mobile home parks (this describes me) and many other deals that are based on leases rather than the actual property. I will write another blog describing this group one day.
Group eight - The renovator - I like to call these buyers the Home Depo buyers. They find a neighborhood going up in value due to the location. These buyers will find a home that is dated and needs more work than a conventional buyer is willing to do. These buyers get the home on the low side of the price range and then tear the roof off. They will gut the kitchens and bathrooms and update the plumbing and electric. Sometimes new windows and HVAC and tada. Thy sell the home on the higher side of the price range with now twice as much square footage. These buyers have to quit their real jobs to do this investment right. These buyers usually get greedy and buy too many homes or pay too much and they go out of business quickly. Slow and steady is how you do this investment.
Now that I have described the different groups of buyers that I am familiar with I want to build the perfect investor model. Obviously the most important compoinent of all the groups was education and patience. My point of this blog is to get other points of view in requirements , responsibilities and ideas to service investors better. Please feel free to add, comment and correct as you feel fit.
