Overcoming the Five Challenges with Institutional Buyers

Challenge 1: Improving market means fewer investment opportunities

Institutional buyers were interested in acquiring bank-owned REO properties and distressed units. However, as the market continues to improve around the country, decreasing distressed inventory and rising prices are causing homes to move outside the purchasing criteria set by larger institutional investors.

The problem this is causing: The decrease in available properties meeting the set investment criteria has caused large investor companies like Blackstone to dramatically decrease the amount of properties they acquire. As these institutional  clients move away from home purchasing strategies, many real estate businesses who were servicing them are finding they need to shift to a more traditional business model.

Solution: Keep nurturing your investment buying firm contacts
When an agent sees that institutional purchasing in their area is beginning to dry up, they can stay ahead of the curve by moving their focus to building their traditional business while keeping an eye on the next big institutional  opportunity. This means staying in touch with contacts at large investment buying firms in order to be on the inside track in case these institutional investors decide to sell off their inventory. If these homes are sold down the road,  institutional investors will once again find themselves in need of reputable agents to help them do so.

Challenge 2: Time and lack of loyalty

Working with institutional investors is time consuming for agents. Despite the time required of an agent to find properties that meet the investor’s criteria, investors are focused on performance and their return on  investment rather than on building loyalty via a partnership with the agent. Because investors are aware of the large amount of business they are bringing to the table for the agent, while they are unconcerned about  the costs agents need to front in order to service them, expectations of both the investors and agents are often misaligned. Both consider themselves to be the client in the relationship.

The problem this is causing: In order to meet the demands of their clients, agents often add costly leverage to their businesses that are investor- specific, such as appraisers and field representatives who only research and inspect the possible properties to determine if they fit the investment criteria given. Once an investor decides to cut ties, agents have to find other places in their company for those employees, or risk losing talent.

Solution: Top agents always lead their businesses with revenue
When institutional buyers revise their investment strategy and move away from purchasing in a particular market, agents often find themselves needing to alter their own  strategies as well. This may result in helping staff that were initially hired to ensure the agent had the infrastructure in place to service the institutional investor to find other opportunities if the agent cannot continue to support the larger team structure.

Challenge 3: A strategy to obtain the property in high competition
What is happening: With low inventory comes high competition. Agents are struggling to find products that meet their clients’ needs and are fighting for what’s left of the distressed inventory. The problem this is causing: A lot of the larger institutional investors have dramatically dropped off their purchasing.

Solution: Identify the basic need of the institutional investor
Once the agent has identified what the investor’s intended purpose is for the property, they may be able to pinpoint real estate that wasn’t initially in the consideration set. For instance, the agent may be able to find the right inventory by broadening the parameters of a geographic area. Many investors purchase homes all across the country.

Challenge 4: Some agents don’t feel comfortable with investing
What is happening: In order to work with institutional investors, agents need to be able to speak their language and personally be comfortable with investing. The problem this is causing: Agents who are not familiar with investing are struggling to work with these large buyers because they approach home purchasing differently than a traditional client. The rationale of investors is often  misunderstood because agents tend to think that investors are more attached to the home than the rate of return, when this is typically not the case.

Solution: Education
Agents who educate themselves on the ins and outs of investing in real estate will be better positioned to handle investor clients. KellerINK offers three top-notch books on real estate investing: The Millionaire Real Estate Investor, HOLD and FLIP. After familiarizing themselves with the basics of investing, agents can learn through experience by working with smaller investor groups. Small investments provides experience and “learn as you go” education.

Challenge 5: Nonemotional clients
Institutional investors are all about the bottom line, and have a reputation for being “nonemotional” during the home-buying process.
The problem this is causing: For investors, the purchasing decision is all about the rate of return on the property. If a home fails to meet the investor’s parameters during the home-buying process, the investor may choose to walk away from  the deal. Clients on the other end of the agreement, who have prepared to move and have possibly even purchased a new home, may find themselves receiving the short end of the stick. This leads to some tough conversations for agents.

Solution: Be up-front with sellers
Agents are best suited to be up-front about the process of working with an institutional buyer when interacting with potential sellers for the deal. By doing so, they can better manage the expectations of everyone involved in the investment sales process.

The information in this article is from the 3L Blueprints: Leads, Listings, Leverage eBook. Download your FREE copy from KellerINK today.