Last updated on April 4th, 2025 at 03:36 pm
Last Updated on April 4, 2025 by
In today’s competitive real estate market, working with real estate investors is one of the smartest ways for agents to expand their real estate business and create long-term success. Whether it’s rental properties, single-family homes, or multi-family properties, investor clients require a specific skill set—and many real estate professionals are unprepared.
This article will:
- Explain why working with investment property clients requires a unique approach
- Share common mistakes new agents make with property investors
- Provide insights on how to build your reputation as an investor-friendly realtor
- Lay the foundation for future articles in this series on real estate investing best practices
Why Investor Clients Are Different
The first step to working with real estate investors is understanding what makes them different from traditional homebuyers. These clients:
- Focus on cash flow, cap rate, and rental income
- Want clear data on property values and local market trends
- Expect their agent to act as their eyes and ears, especially if they’re investing from another city or state
- Often ask more technical and financially driven questions
- Prefer working with investment realtors who understand the entire process
According to the National Association of Realtors, 22% of all homebuyers in 2023 were investors—and 42% of them were new investors. That’s a big portion of the real estate industry you don’t want to miss.
Real-World Examples
Recently, a potential client reached out after finding what seemed like a good deal on a single-family home listed on a major listing service. They wanted me to assist with the purchase. With my extensive experience in real estate investing, I was able to explain:
- Why a low purchase price doesn’t always mean a smart investment
- How to assess rental income potential based on local market trends
- What to look for in terms of needed repairs, property management costs, and long-term investment strategy
In the end, the client chose not to move forward—which was the best choice. Had they worked with an agent without this solid understanding, they might have made a costly mistake.
The Real Estate Investment Curve: When to Buy, When to Wait
The reason I bring up this single example is because it reflects the experience of many prospective real estate investors I’ve spoken with over the years. I’ve had countless similar conversations with real estate agents as well.
If someone is serious about investing in residential rental properties, they must take the time to do proper research. Unfortunately, there are far too many new investors entering the market without the right experience—or without an experienced real estate agent to guide them. These investors often buy properties they later regret.
Common mistake
One of the most common mistakes occurred during the post-COVID property rush. Many people hurried to buy vacation rental homes near the end of the pandemic. By that point, prices had already spiked. The real winners in this cycle were the investors who bought before COVID or early in the pandemic, especially in states that stayed open, such as Mississippi—particularly the Mississippi Gulf Coast. They got in early when prices were still low.
The real losers? They followed the herd long after the ideal time to buy had passed.
Just take a look at the bell curve above. It visually represents the real estate market cycle—when to buy, when to stop buying, and when to sell or even negotiate a short sale. Timing matters, and so does guidance.
A knowledgeable real estate agent who specializes in rental investment properties can make all the difference. They can help new investors avoid making life-altering financial mistakes. Sometimes, doing the right thing as a real estate professional means walking away from a potential sale. But that integrity is priceless.
I’ve personally made decisions that cost me commissions—because I knew it wasn’t the right time or the right deal for the buyer. Some of those clients returned later, better informed, and made smart investments. That’s the long game in real estate, and it’s how you build trust—and a career worth being proud of.
Common Mistakes When Working With Investors
Here’s what often goes wrong when agents without investment property knowledge try to work with property investors:
- Underestimating renovation costs
- Overestimating rental income potential
- Ignoring market trends and local vacancy rates
- Recommending properties with weak cash flow or negative cap rates
- Lacking connections with property management companies or real estate development companies
What Investors Expect From a Good Real Estate Agent
Whether you’re working with new investors, successful investors, or members of investor groups, they’re all looking for the same key traits:
- A friendly real estate agent with a clear understanding of real estate investing
- Someone who can help evaluate investment opportunities using real numbers including average expenses e.g. water
- A licensed realtor with professional networks and local insight
- Familiarity with off-market properties, Investment properties, rental properties, and rental rates by area
- An agent who understands capital gains, mutual funds with real estate exposure, or even self-directed IRAs
How to Become an Investor-Friendly Agent
If you’re not already experienced in investment real estate, don’t worry—it’s something you can learn. Here are some best practices:
- Take education courses focused on investment strategies. This one is excellent
- Partner with a seasoned real estate broker or investment realtor in your office
- Attend local investor groups, seminars, and networking events
- Use social media and open houses to attract investor clients
- Study how to analyze deals: cap rate, cash-on-cash return, GRM, ROI
- Build a team of professionals—contractors, lenders, property managers, inspectors
- Get familiar with local real estate laws and zoning regulations
- Keep business cards handy and market yourself to fellow investors in your area
This article focuses on you as a buyers agent assisting investors in buying residential rental real estate. Check back as we will be adding an article about working with existing investor owners who want to sell their investment properties from single-family homes to multi-family properties.
Working with experienced investors to sell their existing properties is a skill set that you should learn. Check back with us.
Final Thoughts: The Best Way to Start
Working with real estate investors can be one of the most rewarding paths in the real estate business. Not only do they bring repeat deals, but they also refer family members and colleagues when you build good relationships.
If you’re serious about growing your real estate career, here’s the best way to begin:
✅ Learn how to speak the language of investors
✅ Build a reputation as a good investor-friendly agent
✅ Commit to learning from real deals—either with your own money or by partnering with an active real estate investor
✅ Keep learning—this article is just the beginning
Real Estate Agents are investors
One of the best ways you can become familiar with the process of selling residential investment property is to become an investor yourself. Many prospective buyers who are real estate investors prefer to work with a real estate agent who has firsthand experience as an investor. In fact, according to the National Association of Realtors, approximately 26% of Realtors own residential investment properties, and 37% own a second property such as a vacation home or rental. These figures show that a significant portion of agents are also involved in real estate investing—and that experience can be a major trust builder with clients.
As noted above, 22% of homebuyers in 2023 were investors. The more you know about residential real estate investment, the better your chances are of working with that 22% of potential buyers. If you haven’t already been studying to become an expert in this area, you are in effect leaving a large portion of prospective buyers out of your sales orbit—and missing out on a powerful niche in the real estate market.
But just owning a rental property isn’t enough. You also need to develop the skills to evaluate investment opportunities, understand cash flow, analyze market trends, and determine whether a property is truly a good investment. This is how you evolve from simply being a licensed realtor to becoming a trusted investment realtor.
🏘️ Basic Measurements of Residential Real Estate Investing
If you’re working in the real estate industry, one of the best ways to attract and retain real estate investors is to speak their language. Whether you’re a licensed realtor, a new real estate investment agent, or a real estate professional building your real estate career, understanding the core principles of real estate investing is one of the most important things you can do to expand your client base and help your investor clients succeed.
🏡 Types of Real Estate Investment Opportunities
Before we dive into the specifics of residential real estate, let’s briefly cover the main categories of investment properties that property investors might consider:
- Residential Real Estate (our focus today is on the single family home)
- Commercial Properties (including retail spaces and office buildings)
- Industrial Real Estate
- Vacant Land
Each category involves different investment strategies, financing options, and regulatory environments. Understanding these categories is essential if you want to guide real estate transactions successfully and help clients find the best deals in the local market.
🏠 What Counts as Residential Real Estate?
Within residential real estate, there are further divisions, each with unique features:
- Single-Family Homes (SFH)
- Popular with new investors due to simplicity
- Lower barrier to entry
- Easier to finance and manage
- Often a great way to start building real estate portfolios
- 2–4 Unit Multi-Family Properties
- Still considered residential by lending standards
- Eligible for owner-occupied financing (FHA, VA, conventional)
- Provide better cash flow potential than SFHs
- A solid investment strategy for house hackers and active real estate investors
- 5+ Unit Multi-Family Properties
- Treated as commercial real estate investments
- Require commercial lending
- Subject to HUD regulations and more stringent due diligence
- Often analyzed based on cap rate, rental income, and property values
🔍 Why the 4-Unit Threshold Matters
The dividing line between 2–4 units and 5+ units isn’t just about size—it changes the entire process for financing, managing, and analyzing the investment property:
- 2–4 Units:
- Qualifies as residential real estate
- Easier for new investors to finance and manage
- Lower down payment options
- Potential to self-manage or use a property manager
- 5+ Units:
- Considered commercial properties
- Financing is based on rental income and property performance
- Typically requires working with property management companies
- Subject to federal and local real estate development companies regulations
Understanding this distinction is critical to becoming a good real estate agent and the right agent for investor clients. It’s also a good idea to learn how to find off-market properties, analyze market trends, and estimate potential returns—all essential skills in real estate investing.
💡 Why This Matters to Agents
If you want to serve real estate investors effectively:
- Learn the fundamentals of cap rate, cash flow, rental income, and purchase price
- Study investment strategies and monitor market value shifts in your local area
- Build professional networks with lenders, contractors, inspectors, and real estate development companies
- Join investor groups and engage with fellow investors through social media, events, and open houses
- Carry business cards and build good relationships with friendly real estate agents in your brokerage
- Continue your growth with education courses, podcasts, and case studies on real estate investment trusts, self-directed IRAs, and mutual funds
📈 Stats & Final Thoughts
Did you know that according to the National Association of Realtors:
- 22% of homebuyers in 2023 were investors
- 26% of Realtors own residential investment property
- 37% own a second property such as a vacation or rental property
If you’re not learning how to work with investment properties, you may be excluding a large segment of potential clients from your real estate business. The best choice you can make as a real estate broker or investment realtor is to become the type of agent who delivers value to this growing niche.
🔁 Coming Up Next
In the next section, we’ll explore:
- How to evaluate a good deal using real estate math
- Key formulas to assess rental income and market trends
- How investor-friendly realtors attract and retain successful investors in our next article.
Stay tuned for best practices, real-world tips, and tools to become a good investor-friendly agent in today’s fast-moving real estate market.
Real Estate Math: Understanding the Basics
For many real estate agents and new investors, the world of real estate investing is filled with terms and ratios that can feel overwhelming at first. Concepts like cash flow, cap rate, and “good deal” are tossed around frequently in the real estate market, but without a solid foundation in real estate math, they can seem meaningless.
Let’s simplify one of the most widely used tools to evaluate rental properties and help you, as a real estate professional, quickly assess investment opportunities.
📏 The 1% Rule: A Quick Screening Tool
Among real estate investors, the 1% Rule is a popular shortcut used to determine whether a potential investment property might generate sufficient rental income. It’s a fast and easy filter to apply—especially when you’re scanning multiple listings.
The 1% Rule states that the monthly rent should be approximately 1% of the property’s purchase price.
Example:
If you’re considering a single-family home or condo with a purchase price of $150,000, the 1% Rule suggests it should generate at least $1,500 per month in rent to be considered a possible cash-flowing rental property.
You don’t even need a calculator to apply this rule—just estimate 1% of the price and compare it to the market rent.
💰 When to Use the 1% Rule—And When to Skip It
Of course, the 1% Rule is most commonly used in connection with financed properties, where mortgage payments, insurance, and taxes affect overall cash flow.
However, if you’re paying all cash for a property, this rule becomes less relevant. In that case, you can skip this filter and move directly to deeper analysis—such as assessing cap rate, net operating income, or total return on investment.
For cash buyers, the focus shifts from short-term rent ratios to long-term equity growth, market trends, and investment strategies suited to their financial goals.
🔍 Best Practices for Applying the 1% Rule
Use the 1% Rule as a first step—not a final decision-maker. Here’s how you can use it efficiently:
- ✅ Filter listings quickly from your local market, MLS, or off-market properties
- ✅ Compare monthly rent to price and flag properties that meet or exceed the 1% threshold
- ✅ Skip properties that fail the 1% Rule—unless you’re targeting equity plays or cash deals
📈 Next Steps in the Investment Process
Once a property passes the 1% filter, it’s time to dig deeper using more refined real estate investing metrics, including:
- Cap rate
- Cash-on-cash return
- Rental income vs. expenses
- Debt service coverage ratio (DSCR)
- Market value trends in the local area
These tools will be explored in detail in upcoming sections designed to help you become a good investor-friendly agent and a trusted guide to your investor clients.
Key Real Estate Investment Metrics Explained
Once you’ve used the 1% Rule to filter potential rental properties, it’s time to dig deeper using industry-standard financial tools. These metrics are essential for both real estate investors and investor-friendly realtors to assess the true value and cash flow potential of an investment property.
Understanding and applying these terms will set you apart as a real estate professional who delivers serious value to your investor clients.
1. 📊 Cap Rate (Capitalization Rate)
Cap rate is a quick way to estimate the potential return on an investment property, without considering financing. It’s often used by experienced property investors and commercial real estate analysts to compare investment opportunities.
Formula:
Cap Rate = Net Operating Income (NOI) ÷ Purchase Price
Example:
If a property generates $15,000 annually in NOI and was purchased for $200,000:
Cap Rate = $15,000 ÷ $200,000 = 7.5%
A higher cap rate typically suggests a better return, but it may also come with higher risk or location-based challenges. Always evaluate in context with local market conditions. The Cap Rate is a popular measurement with many investors. Remember that this is just one measurement.
A true analysis requires looking at many factors and other measurements.
2. 💸 Cash-on-Cash Return
This metric measures the annual return on the actual cash you’ve invested in a property (usually your down payment, closing costs, and renovations). It’s a favorite tool among real estate investors who use financing.
Formula:
Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested
Example:
You invest $40,000 into a property and earn $4,000 in annual pre-tax cash flow:
Cash-on-Cash Return = $4,000 ÷ $40,000 = 10%
This is a strong tool for evaluating potential returns on leveraged deals.
3. 🧾 Rental Income vs. Expenses
Every investment property has both revenue and operating costs. You need to compare gross rental income against all recurring monthly and annual expenses, including:
- Property taxes
- Insurance
- Maintenance
- HOA fees (if applicable)
- Utilities (if paid by the landlord)
- Vacancy allowance
- Property management company fees
Formula (simplified):
Net Operating Income (NOI) = Gross Rental Income – Operating Expenses
Understanding this difference gives you a clearer picture of real-world cash flow and helps avoid surprises later.
4. 🏦 Debt Service Coverage Ratio (DSCR)
The DSCR shows how well a property’s income covers its debt obligations. Lenders use this metric when deciding whether to approve financing for investment properties.
Formula:
DSCR = Net Operating Income ÷ Total Debt Payments
Example:
If your property has $15,000 NOI and $12,000 in annual mortgage payments:
DSCR = $15,000 ÷ $12,000 = 1.25
A DSCR above 1.2 is generally considered healthy. Below 1.0 means the property doesn’t earn enough to cover its debt—something both investors and real estate brokers want to avoid.
5. 📈 Market Value Trends in the Local Area
Keeping up with local market trends is critical for assessing whether a property will appreciate in value or stagnate.
When analyzing property values and market trends, consider:
- Year-over-year home price changes
- Local rental rate increases or decreases. This is very important, you will be asked to provide rental information. See below
- Supply and demand (new construction vs. inventory)
- Employment and population growth
- Comparable property sales (comps)
This is also where your expertise as a local real estate agent or investment realtor shines. Knowing your local area gives you an edge in identifying the best deals, potential capital gains, and long-term growth for your clients’ real estate portfolios.
💡 Why I Prefer the Cash-on-Cash Return Method
Of all the financial metrics used in real estate investing, I personally prefer the Cash-on-Cash Return method for evaluating a deal. Why? Because I almost always recommend a leveraged investment strategy—where the real estate investor uses someone else’s money (usually a lender’s) to finance part of the deal.
This concept is simple:
The less of your own money you invest, the higher your potential return on investment (ROI).
Using leverage allows you to control more real estate with less of your own capital, maximizing your cash flow and improving your long-term wealth-building strategy.
🧮 Two Quick Examples: Leveraged vs. All-Cash
Let’s assume the net annual cash flow on a $300,000 rental property is $40,000 in both scenarios:
✅ Example 1: Leveraged Purchase
- Purchase Price: $300,000
- Down Payment (20%): $60,000
- Annual Cash Flow: $40,000
- Cash-on-Cash Return:$40,000 ÷ $60,000 = 66.7%
💵 Example 2: All-Cash Purchase
- Purchase Price: $300,000
- Down Payment: $300,000
- Annual Cash Flow: $40,000
- Cash-on-Cash Return:$40,000 ÷ $300,000 = 13.3%
As you can see, using leverage dramatically increases your Cash-on-Cash Return, making it a powerful tool for scaling your real estate investment portfolio. This is especially valuable for new investors who want to grow efficiently while minimizing how much of their own money they tie up in a deal.
🧠 Pro Tip for Real Estate Professionals
Mastering these five metrics helps you:
- Build trust with real estate investors
- Offer value that goes far beyond showing properties
- Establish yourself in professional networks as an ideal real estate agent for investment strategies
- Grow your real estate business by adding informed investor clients to your client base
Tool for evaluating a property
The above program is offered at no cost for the first few property reviews. I recommend a subscription for any Real Estate Agent interested in understanding what a property investor is looking for.
In a future article, I will provide some examples and explain how you can learn to use this and find properties that can be good investments for you or a client. dealCheck also provides some rental rates which is a good start.
Work with a Local Property Manager
Understanding current rental rates for different types and sizes of properties in your area is essential to evaluating the profitability of any investment. This local knowledge is often the most valuable asset you can offer to investors—especially those coming from out of the area.
Online tools like Zillow can’t provide the full picture. Rental estimates are often inaccurate or outdated, and they certainly don’t reflect neighborhood-specific trends that only a local expert would know. That’s where you come in.
Pro Tip: Partner with a trusted local property manager. By referring your investor clients to someone who can professionally manage their rental properties, you gain something just as valuable: insider, real-time knowledge of rental demand and current rates. This partnership benefits everyone—you, your client, and the property manager.
Encourage your out-of-area investors not to self-manage. Instead, connect them with a professional who knows the local market and can help protect their investment. Use our Rental Rate Data Collection tool below:
Rental Rate Data Collection Tool
Instructions:
For multi-family properties, assume each unit is the same size and rental rate.
For example, in a duplex, both units will rent for the same price for a one-bedroom.
If a duplex has a one-bedroom and a two-bedroom, enter them separately on the correct lines
with the correct rental rate for that size.
We’ll be sharing articles soon that dive deeper into why using a property manager is a smart move for remote investors.Coming Soon…
Future posts in this series will cover:
- Working with Investors to sell their investment properties
- How to find off-market deals
- Evaluating long term investment strategies
- Building your own real estate portfolios
- Working with real estate development companies
- Tapping into creative funding like REITs, mutual funds, and more
Don’t miss out on this growing segment of the market. Working with investors is a great way to future-proof your career, build wealth, and become a go-to real estate investment agent in your local area.
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