Three potential challenges when working with fix and flip investors (and how to solve them)

The following article has been supplied by Nate Zielinski, of RCN Capital.

One of the best ways for brokers to build a foundation for their career and garner repeat business is to find potential fix-and-flip investors that are in the early stages of their journey as well and try to grow together. However, working with investors that are looking to grow and establish a foothold in the industry does present some challenges for a broker.

The onus is then on the broker to elevate their professionalism and serve as an asset for these investors. Whenever an investor has questions or doubts about how to handle a certain situation in the industry, the broker can step in and alleviate these concerns and keep the investment opportunity on track. Here are some of the challenges a broker may face, and more importantly how to solve them.

Newer, less educated client base

The first potential challenge a broker can face when dealing with fix and flip investors is that they may be new to the industry and aren’t up to speed from an education or experience perspective. This process can be overwhelming at times for new fix and flip investors, so the first approach a broker may want to take is to act as a sounding board for the investor. Let them vent and take notes about certain pain points or questions they may have and go from there. Along the way, if a broker can alleviate stress during the process of the first few investments, the newer fix and flip investor will remember this and trust the broker moving forward.

Brokers can also be of service by providing figures on the deal. Offering a newer fix and flip investor client multiple quotes and loan options is a sign that a broker is working diligently trying to secure the best deal on behalf of their client. Providing only one option can seem lazy or misleading from the perspective of the fix and flip and client. A newer fix and flip investor can also push back on the higher interest rates these short-term loans offer, and this may warrant a discussion or explanation. This will be one of the many instances where a broker can flex their industry knowledge and be an asset. Explain to them that these fix and flip loans have a shorter loan term and include property renovations which means the lender is taking on risk and the interest rate rises as a result. However, once these loans are completed, the fix and flip investor can move onto the next property and only make high interest payments for a few months at a time.

Other forms of advice or education a broker can offer are loan strategies, options or tips and tricks to speed up a renovation process they may have learned from another one of their investor clients. The desired result for a broker is displaying value and creating a relationship with a new fix and flip investor that can last for years and be profitable for both parties.

Timeline management & lack of industry connections

Any veteran real estate investor will be the first to admit that networking and connections in this industry can make all the difference on a deal-to-deal basis as well as throughout the course of a career. This comes into play in almost every fix and flip scenario, so the newer investors may be at a disadvantage when beginning their journey. Managing expectations may be one of the first hurdles for a broker to come in and handle when working with a new fix-and-flip investor. Investors will want the process to be completed as fast as possible so they can get their first few transactions done with and start seeing some profit in the industry.

However, combatting this challenge as a broker is a must. Be involved with the investor’s plan and let them know that even the best plans and most experienced investors can get derailed as it pertains to their expected timeline. These delays and management expectations can come into play in two key spots during the life of a loan. The first time will be during the loan closing process. There are documents to be reviewed and specifics to be discussed to ensure the best loan possible. Investors may get impatient, but as a broker it is imperative to have some patience and get the best deal for your client.

The second occasion will be during the renovation itself. Whether its waiting on a shipment of materials, getting an addition or alteration approved by a town or county, or even waiting on the contracting crew to finish a specific job, timelines are always getting changed. One of the best things an investor can do early on in their career is extend their timeline at the beginning of the process to factor in any unforeseen complications. Adding in an extra two weeks or a month from the onset can alleviate a lot of stress for all parties involved. As a broker, you can step in as well and ask for the scope of the projected work and offer your timeline suggestions as well.

Always remember to have conversations with an investor client about forming these partnerships with other industry professionals. For example, if a newer investor is serious about fix-and-flip investments long term, then a reliable general contractor is a must. Remind an investor they can use social media and local real estate investor associations (REIAs) to forge these connections with like-minded professionals that can help them grow in their careers.

Lack of trust/loyalty

The last and most important potential challenge that a broker will face when working with newer fix-and-flip investors is building trust with them that will eventually lead to loyalty in the industry. A broker’s career can drastically change if they can secure a few investors that will provide them with repeat business.

To try and ensure they are gaining an investor’s trust, a broker will want to stay connected throughout the process. Always try to pick up the phone when an investor calls or respond in a timely manner to help solve an issue as soon as possible. There are numerous opportunities where a broker can provide value and display their skillset within the industry. Another good habit to instill is to be proactive with these investor clients. Call them to check in on their thoughts and where the head is at as it pertains to the real estate transaction. Brokers can plant seeds to get the investors thinking a few steps ahead to make the process as smooth as possible. Investors will remember all the help a broker provides throughout a stressful process and that is the first step to trying to secure a partnership that can generate repeat business.

Start overcoming these challenges today

Any profession has problems to solve, and the real estate investment space is no different. Brokers can take these challenges head on and be ready to defuse them for their investor clients. As a broker it’s important to establish trust, provide value and offer tips and actionable strategies that can improve an investor’s mindset and bottom line. Today is the day to start being the best broker possible for your next fix-and-flip investor client.