There are many key questions every investor needs to ask their prospective real estate agent before making the decision to hire, says Tahani Aburaneh, author of "Real Estate Riches: A Money-Making Game Plan for the Canadian Investor." and I couldn't agree more with Tahani, not every Toronto Realtor is created equal!
The Toronto real estate market is so hot at the moment that investors should research any potential investment more thoroughly or they increase the risk of making a bad investment. Any property owner that has a good investment will not sell its investment unless someone out there is willing to pay a huge a premium.
Here are some questions you should ask the Realtor prior to committing to working with him or her;
How do you determine if the property is a good or bad investment?
Any top notch Toronto Realtor will explain cash flows, cap rates and return on investment, they will also be able to explain the difference between the net cash flows versus the gross and how the marginal tax rate could affect cash flow. They will also have a metric in how they analysis cash flows either through exclusive software or their own spread sheets. Being able to process and identify a good versus a bad investment through the data is a crucial element for any savvy investor.
Do you as a Realtor invest in multi unit or commercial properties?
The old line is; if you believe in the product, only than can you sell it! to some degree it's true, successful Realtors will invest in the product because they understand the long term benefits and sometimes short term benefits. Having said that there are some Realtors who do believe that there money should be invested in the stock market per say but also understand the product just as well. As an investor I would feel more comfortable with a Realtor who himself has something to lose just as much as I would. I guess I will leave this one for you to answer, which would you choose?
What percentage of your business is done with investments versus selling single family homes?
My belief is simple, a Realtor who sells investment properties as a specialty can help any buyer with any other type of purchase, but a sales/rep who sells single family homes for a living should stay away from any type of commercial property. As an investor you should stay away from a Realtor who is not overly experienced in commercial matters, especially investment opportunities. The Toronto market is overly hot at the moment and investment owners hire Realtors who are not experienced because they want to dictate the asking price which in most cases is not true market value, as an potential investor looming at this investment wouldn't you want to be represented by a true professional who could advise you accordingly, plus back up everything up he/she is saying with a property analysis?
How well do you know the local marketplace that I am interested in?
This is a great question! The Realtor should know local rents based on the current state of the property plus what the potential rents is once the property as been improved with maximum and minimum lease hold improvements.
Potential rents vary from neighborhood-to-neighborhood. Just because a store front in Liberty Village has income of $25.00 per sq ft doesn't mean that a commercial store front in Parkdale or Roncesvalles is equal or better. Knowing the local marketplace is crucial to the investors success rate.
How familiar are you with financing strategies like a Vendor take Back?
This is also a very important question that you should ask any potential person that you might be working with. It's imperative that a Realtor understands and knows how to negotiate market rates and mortgage terms if dealing with a private lender. Some of these deals having a vendor take back makes sense for both seller and buyer and works like a charm without any hiccups when set up correctly.
Here is a hint; if the Realtor responds with "we will cross that bridge when we need to" or suggests that your lawyer negotiate the mortgage term; that is a red flag when the Realtor has zero experience in dealing with private lenders. Run like hell if that's the answer that is given.
It is prudent that investors ask these questions and just as vital that the Realtor provide data justifying the investment, if the Realtor cannot answer accordingly or cannot provide data that helps in the decision process than move on and keep interviewing Realtors. After all this is not a small investment, don't you want the best working on your behalf?