What with their specialized knowledge in the product, one would think every real estate professional would have some real property as part of their investment plan. But @properties agent Holly Connors has noticed she’s one of just a few of her colleagues who have done so.
“Agents don’t necessarily see their own self worth in a lot of ways,” she said. “They’re not using their own knowledge base” to make investments.
But for Connors — who with her husband owns a few two- and three-flats in the city as well as some single-family homes in Arlington Heights, where she lives and does a majority of her real estate work — it was a natural avenue to pursue. “I don’t know enough about the stock market to make really good investments,” she said. But she noted that she has enough experience now that she would feel confident even going to another city and finding properties that might make a good investment, thanks to her knowledge base in real estate. “You can use these investment properties to invest in yourself as a business.”
Still, Connors didn’t start out with an investment plan when she began her real estate career at age 20. “I was thinking I was going to build a real estate business. The investment piece came as a bonus,” she said.
Part of the reason agents don’t invest in real estate is that it takes some serious capital to get started. “It took some time to build a savings account,” Connors recalled. “You have to have enough regular income to make the down payment [and] to maintain the property.”
While having an investment nest egg first is important, Connors does offer a couple of other caveats for agents looking to expand into the investment side of real estate.
First of all: Just like any investment class, it makes sense to diversify, even if you’re an expert in one particular asset type. “If your portfolio is full of only two-flats, you’re going to set yourself up for failure if the market shifts,” she said.
Also, it’s important to maintain a business-minded perspective. Just as investing in property can help agents double down on their real estate careers, the opposite is also true: Having a professional mindset can help you make more mature business decisions and avoid bad bets. “The hardest part about running your business as a business is knowing how to determine value,” Connors said. “When it’s your own listing, you might have an emotional attachment” that prevents an accurate assessment.
Connors has found that some of the most difficult questions about evaluating a property have to do with potential costs for repair and maintenance. “If you Band-Aid the furnace through the winter, you’re not going to have good results in the end,” she said. “The maintenance piece is one of the biggest unknowns.”
Like many agents who invest in real estate themselves, Connors also regularly helps those looking to add income-producing properties to their portfolios. But she added that there’s an inherent conflict of interest in this situation, particularly if you’re actively searching for opportunities in the same area that your clients are. “Honesty is the best policy,” she said. She always gives her clients a heads-up about properties that she thinks will make good investment sense. But she’ll also be upfront about what might happen if they’re not interested, letting them know, “If you don’t buy it, I will.”
Finally, real estate investors need to learn how to become comfortable with ambiguity. “Real estate is not black and white. There’s a lot of gray,” Connors said. Sometimes she’ll see a listing that “may look horrible on paper” but turns out to be a great opportunity because it’s underrented or the current owners aren’t taking advantage of all of the property’s inherent benefits.