What Does Your Broker Invest In?

THIS POST MAY CONTAIN AFFILIATE LINKS. LEARN MORE BY READING MY DISCLOSURE.

I’m going to rant against some of those in the real estate brokerage industry.

You see, I’m a commercial real estate broker who loves the product he represents.  My clients can see and hear my enthusiasm when we talk about their needs, whether it be buying, selling, developing or leasing. 

A lot of my excitement stems from the fact that I own real estate.  I own various types of commercial property.  From small retail strip centers, a couple office buildings, a ground leased property and even a some residential rentals.  I love real estate.

It’s one of the reasons I started Building-Income.  I wanted to share my excitement for the product.  I’m always looking to buy another piece of property.  It’s how I’m going to secure my retirement and leave a legacy for my family.

It’s one of the best investment vehicles out there and I wish everyone could feel the excitement I do.

However, there are some in my industry who don’t feel the same way.  They take their commissions and run.  They buy anything but real estate.  If they invest in anything, it’s the stock market.

Now, I’m not against the stock market or even investing in a business.  I’ve invested in both.  It’s just that I believe a real estate broker should practice what they preach and put their money where their mouth is.

Why I’m a Better Broker for Owning Real Estate

As a broker, I support my clients while they select properties, conduct due diligence, address property management concerns and discuss leasing strategies.  It’s a worthwhile career and I love being a part of helping people build their wealth.  However, when I’m in this supporting role, I’m never the final decision maker.  I’m just there to help. 

When I build my own real estate portfolio, though, those experiences stop being as a supporting role.  I am now the primary figure responsible for those decisions.  It made everything more important and forced me to get a better understanding of each process.  

As my portfolio grew, I learned what it was to:

-        Put properties under contract and struggle to make deadlines with various contractors;
-        Create a vision for a project for others to rally around;
-        Pay thousands of dollars to architects and attorneys for their services only to have a project die for one reason or another;
-        Bring investors together to purchase a project;
-        Negotiate without the benefit of someone telling you to “go back and ask for more”;
-        Pay leasing agents for bringing tenants to my buildings;
-        And too many more to list ….

I fully understand what my clients go through.  Our analysis approach may be different, but regardless, once the property is selected we share a similar experience moving through the process.

My clients appreciate the fact I own real estate.  The individual investors see that I’m following the same path that they have.  Some of them take an interest in what I’m buying and ask what deals I’ve jumped into recently.   They can appreciate the fact I’ve bought a $400,000 building with a partner even though they are working solo on a $4,000,000 development.  They started where I am and they “get it.”  Real estate investors who get the bug are excited regardless of the size of the deal.   They like to hear about what others are doing. 

When a leasing deal is submitted on a property I represent, my clients appreciate the fact that I will look them in the eye and say, “I wouldn’t do this deal if it was in my building.”

A couple of my clients will hold out for the higher end of the market often to the detriment of some longer-term vacancies.  I also have clients who get antsy as soon as a vacancy has gone one month and press me to lower rents.  There’s no right or wrong answer.  Each client answers that question for themselves just as I do.

However, they know I understand what they are experiencing because I’m in their shoes.   

Unfortunately, there are brokers out there who will pretend they understand when they are just blowing smoke.  They don’t own any real estate, except their own home.  I’m not talking about the new agent who is just building their nut.  I’m talking about the agent who has been around five, ten or even twenty years.

They will give every excuse for why they haven’t purchased real estate.

The Worst Excuse of All

Some brokers will even say, “I don’t want to compete against my client so I don’t invest in real estate.”  What a crock.

First of all, that’s like a stockbroker saying, “I don’t want to compete against my client so I’m not buying any stocks, but please buy stocks from me.”  There’s enough real estate out there that you can buy some without competing with your clients.

Second, if your broker is a professional, they’ll handle their responsibilities as such. 

Some real estate brokers don’t buy real estate, but will invest solely in stocks, business start-ups and other non-real estate ventures.  They obviously want to invest, but they don’t invest in real estate.  These guys need to be eyed with real suspicion.  Something isn’t right, there.

They are either afraid to invest in the product they are selling or they don’t understand how. 

I get the latter part of that statement.  I was there before.  I had a hunger to buy real estate but didn’t know how.  I needed to jump into a deal with someone before I got over that fear.  That’s okay.  It happens.

However, there is the broker out there who knows how to buy real estate and doesn’t.

Two Types of Brokers

There are two types of brokers:  order takers and order makers.

Order takers does what's  called “clerking deals.”  They wait to be told that someone wants to buy, sell or lease a property.  They are simply middlemen.  They are expendable and can be easily changed out.

An order maker, however, is the broker who sees a deal when no one else does.  They assemble the deal, call the various parties and get it closed.  Order makers eventually move into developing deals for themselves.  It’s the natural progression.  Check out most developers.  They started as order takers and now are directing the developments and signing the front of the checks. 

Almost every broker starts off as a deal clerk and that’s okay.  However, it’s whether your broker stays there or not which is what you want to watch.

Brokers are Important, but …

Brokers have knowledge of the market that most individuals won’t.  They pay attention to who’s moving where, who’s in trouble, etc.  They understand traffic patterns and what a tenant needs in a space.  Don’t discount the value of a broker.

However, don’t put too much faith in them either if they aren’t buying what they’re selling.  Would you go do a doctor who refused modern medicine?

If you’re interviewing a broker, ask them what real estate they own.  Cut them some slack if they’re new to the business.  However, if they’re an experienced broker and they don’t have a portfolio assembled, move on.  Why would you want to work with them?

They obviously don’t have the creativity you want.  Unless, of course, you just want an order taker.  Then by all means, hire the one who has the fancy toys and the stock portfolio.  Just don’t ask him his opinion on real estate matters, because you know he’s feeding you a line of bull.  It will sound exactly like what you wanted to hear – sort of like a politician.  All style and no substance.

Fair enough?