Buying a property to rent out on AirBnB is different than buying a primary home. It is a cash generating financial investment and you need to find an agent who also views it as such.
The value of a buyers real estate agent has changed significantly over the past 30 years. With the increased popularity of sites such as Zillow and Redfin, buyers can now view all available inventory in the market (and even schedule private viewings) from the comfort of their own home. No longer are buyers agents the gate keepers to viewing available inventory as they once were. As such, the average commission a buyers agent charges, which has historically been 3%, can now be as low as 1.0-1.5% in 2022.
This is not to say that buyers agents are not valuable. A good agent will always be able to provide local insights that even the best Google searches will not be able to uncover. With an investment property, finding an experienced investor friendly agent will increase the chances you identify an appropriate money making property.
A primary home purchase is largely an emotional decision tied to where someone wants to live, and is constrained by a person's budget. An investment home purchase is primarily a financial decision, that should be governed by the potential return on investment of that property.
Finding an investor friendly agent will help you identify higher return on investment properties. So what exactly is an "investor friendly agent"? These are the traits you should look out for when talking to potential agents.
Understands Micro-Area Trends
Real estate has always been an industry where specific knowledge of micro-trends will make or break a property. For example, anyone who knows the Bay Area can tell you that properties located just one street apart in certain areas can have drastically different pricing. This is why an average home in Palo Alto cost $4M whereas an average home in East Palo Alto costs $1M. Having an agent who is informed about micro-area trends will give you insights that you would not know by merely visiting a city once or twice.
There are also nuances in what makes certain characteristics of property types (e.g. condos) more successful in certain cities. For example, in large metropolitan cities where you might consider investing in condos, the quality of the building a condo is in can drastically affect the potential income of the unit. Condos located in well maintained buildings with no hidden upcoming assessments are much more attractive than those in poorly maintained buildings with inept HOAs - and agents with micro-area knowledge will know how to spot which is which.
In my experience with buying homes in markets such as Seattle, Maui, and the Bay Area, I have too often encountered agents that know much less about the markets than I do. Unfortunately, the booming national real estate market in the last few years has allowed anyone with a pulse to sell a house. Unprecedented buyer demand coupled with limited housing inventory has made seller agents' jobs too easy these last few years. However, when you are looking to put your hard earned money to work to buy an investment property, you should expect more from your agent than just someone who can process a transaction. Don’t be afraid to interview a few agents to make sure they can provide that micro-area expertise.
Identifies Off Listing Properties
Off-market listings are those that are not searchable on Redfin, Zillow, and all other similar services (due to not being listed on the multiple-listing service). Typically, these off market listings are preferred by sellers who are looking to keep their transactions private. For example, the owner might have renters currently occupying the property that they don't want to scare away prematurely by listing the property for sale on the open market.
While it is not common to have a lot of off-market properties for purchase, it is important to ask your agent if they have access to off-market listings as it could increase your chances of finding the right property, particularly in markets where multiple bidders on open-market listings make it increasingly difficult to win properties the traditional way.
Provides Introductions To Service Partners
Buying a home to list on AirBnB requires more than just taking some photos and uploading descriptions of your place. How will you find cleaners, will you need a property manager to help manage bookings and guest communications, how about a contractor if there needs to be renovations? A good agent will have a network of these partners that they will be able to introduce you to, even before you close on a property. This will allow you to assemble your "team" of partners you will need to operate your AirBnB. I recommend reaching out to these potential partners before you close on your property to make sure you understand the full costs and scope of services, as that will impact your total return on investment.
Understands The Financing Landscape
While virtually every real estate agent has a mortgage broker or bank they can refer you to for financing your property, the really good ones will understand that the needs for real estate investors are a little different than those looking to buy a primary home. For example, they should have relationships with lenders that are more likely to lend on investment homes, which typically come with stricter lending requirements.
Investment homes usually require higher down payments (e.g. 25% down) and higher mortgage rates (typically 0.5% higher than a normal primary home mortgage). Despite these stricter requirements, investor-friendly lenders can be more flexible to help you get approved. For example, they may allow you to count the full income you generate from other investment homes you already own (if this is not your first investment property) in your loan application. This will make it easier for you to qualify for a new mortgage without exceeding the debt to income ratios banks use to check if they can loan you anymore money.
Understands Rental Rates And Expenses
One of the most important factors in selecting a property to buy to AirBnB is the projected revenue and expenses a property will generate. While most of this homework should be done by you even before viewing a property with your agent, having an agent that has familiarity with the rental rates, occupancy, and types of visitors for a particular property will help supplement your own financial projections. There are plenty of great sites (such as AirDNA’s rental analyzer) that will project revenue for specific properties, however these are just estimations that should be taken as a starting point for you to refine your own projections based upon micro-area nuances and property specific differences.
Finding a good agent can help you to refine your rental estimates so you are comfortable with the potential return on investment before purchasing the home. If you find an agent that is a real estate investor themselves in the area, even better! These agents will already be versed in the lingo (e.g. ADRs, occupancy rate, short term rental permitting issues), and can help you move quickly to call out potential red flags on properties as well as quickly narrow down to properties that are likely to be ROI positive.
Understands Different Real Estate Investment Strategies
A real estate agent well-versed in different real estate investment strategies can help you think of different options for monetizing your property. For example, in addition to listing as an AirBnB property for rent, they might also know what long-term rental rates are in that particularly area, or what typical renovation costs might be for a fix and flip of a similar home. The point is that a good agent can also help give you ideas on different options a potential property could be used for, in case you decide to use if for something other than AirBnB in the future.
For example, if you are a buying a house to AirBnB that is dependent on you receiving one of the limited number of short term rental permits in that city, what options do you have for the property if you don't end up getting the permit? Can this property be rented out as a long-term rental and still allow you to break even? Can you remodel the property and resell it? If you use it as a primary residence, can you then get permitting to use part of it as an AirBnB unit? These are all questions a good investor friendly real estate agent should be able to help you with to increase the number of options you have to make money, in case circumstances change.
Bottom Line
Do some research on potential agents before selecting one to represent you on your investment property search. You can start on sites such as Zillow and BiggerPockets to see reviews about agents in your particular target area. Make sure to ask them questions to see if they have the characteristics (which I listed above) that all good investor friendly real estate agents should have.
I was very fortunate to have found a great agent that was referred to me from an investor friend when purchasing my Maui AirBnB property. She was able to steer me away from a few properties that initially looked great on paper. For example, because she was familiar with the local regulatory environment, she alerted me that a particular property I was interested in was going to have a major HOA increase due to an upcoming shoreline erosion assessment on a narrow stretch of coastline in Maui. There was no way that I could have known about that by just looking at the Redfin listing page and photos. If I had ended up buying that property, my projected income from the property would have turned out to be very negative. My agent is also a real estate investor (with 5 AirBnB properties in the same target area) so she was well versed in what I should look out for.
While you might assume that every local agent you encounter must know more than you (particularly if you are looking to invest outside of the city where you currently live), you would be surprised at how much 10 hours of research on Zillow, Redfin, and AirDNA can make you better equipped than many local real estate agents to find good profitable properties. That's because most agents are not investors and they don't have an investing mindset. If you want to be successful with your AirBnB purchase, you should find an agent with that micro-area specific knowledge and is financially literate to help you find your dream investment property starting in 2023.
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