Part 2 of the 2016 Property Investor Survey by TRES Labs examined the challenges that real estate salespeople and investors encounter when researching residential real estate and the tools and methods they use to find investment properties.
The company says a common misconception about software technology is that it’s simple to produce. The reality is that most commercial software is very expensive to create (a video game can cost $100 million) and for this reason, it’s why there is a relatively small selection of good, everyday tools for Realtors, says TRES Labs.
“As a result, the latest fads come and go but the agent’s basic tool kit seems to remain the same,” it says.
The survey found that a typical real estate investor will purchase more than one property in their lifetime “and for this reason, working with investors can be more profitable for some agents compared to people looking for their primary residence. Less advertising is required, investors may be more experienced in the process and they tend to be more impartial to esthetics if there is cashflow. For these reasons, most agents will say they are interested in working with investors: the exercise is about making a business case, not satisfying a lifestyle.”
In the survey, investors were asked about their No. 1 challenge. The most popular answer was simply finding a viable investment property that fit their needs (ROI) and wants (type, area). “Investors want properties that have potential equity enhancers, special financing or other incentives and, at the same time, their business plan requires a certain balance of risk and profit or the venture is not worthwhile,” says TRES Labs. “As a result, agents say that working with investors requires an inordinate amount of research. Qualifying lucrative investment properties in sufficient volume to satisfy the demands of investors is a stultifying, and often unrewarded process that discourages excellence. And, while the ability to find investment properties is a high priority for many, few are enthusiastic.”
When asked how investors find properties, respondents ranked peer networking and private sales as the best methods to find leads. When asked specifically about the MLS System, only 52 per cent said it was a satisfactory source of investment properties although it is somewhat helpful for the public. About 15 per cent said online ads, such as Craigslist or Kijiji, and door-knocking were the most important methods for finding properties that fulfilled their needs and wants. Respondents said that commercial listings, like multi-family and retail mix properties, are submitted to the MLS less often compared to residential properties, which creates a second tier of exclusive listings that may not be easily accessible to buyers, the survey says.
“Once a property has been discovered that fits the investor’s ‘wants’, it is then analyzed to determine if it fits the requirements for ROI,” the company says.
“Respondents were asked which tools they rely on to determine if a property is suitable. The majority said their knowledge and experience as a real estate professional or investor was their primary investment decision-making tool. A significant number stated that a pocket calculator or spreadsheet was their primary tool. A small group said that they have developed their own tools for making decisions. The major theme for tools and methods was ‘real estate valuation methodologies using empirical data and financial analysis’, which in plain language could be described as a comparative market analysis and cash flow analysis.”
The study concluded that the tools used most often focused on the financial statements of the property with less emphasis on other factors that contribute to total ROI.
Almost 80 per cent of respondents said that effective analysis is very important to the process of selecting an investment property; however, they felt that investors are not satisfied with their market knowledge, calculators and spreadsheets.
“This gap is a concern for agents who market themselves as investment experts because it introduces dubiety into the relationship with the buyer,” says TRES Labs. “Is the effort required to overcome skepticism counterproductive to the fiduciary relationship? If yes, it leaves a question unanswered which is, How to inspire an investor’s confidence in the process of finding and qualifying quality real estate investment properties? Real estate agents working with equity-hunters seem to be particularly challenged to please their clients and prove their worth as ‘hunter-partners’.”