Investing in Real Estate: Why most Realtors won't have enough money to retire and how to fix it

Matt Fagioli woke up one morning with a startling sense of dread.

Until now, the former Keller Williams Rookie of the Year (his first year) and top 10 Georgia Realtor had done it all. 

From building a real estate business, to consulting for the likes of Realtor.com and Dotloop, to hosting one of real estate's leading conferences on tech and marketing, and even starting his own brokerage—Matt was 45-years-old and killing it.

But there was one thing he sort of forgot…

Planning for retirement.

Like most Boomers of Matt's background, he had a solid investment portfolio and a nice income—but was it really enough to live the life he'd always dreamed of?

Probably not.

Here's how Matt Fagioli, broker, entrepreneur and dad to two is putting his retirement planning on the fast track, by taking advantage of the opportunities right in front of him. 

More Realtors need to invest in real estate...like, now.

After committing to doubling down on his nest egg, Matt hit the books.

He spent a ton of time researching investment options and learning about trends in private wealth management.

The more he learned and the more conversations he had, the more he realized Realtors were at a huge advantage. With the right plan, they could easily become some of the biggest, wealthiest, or at least smartest, real estate investors out there.

When Matt got in the game in 2003, the real estate market was super hot. He and the majority of other agents during that time were eagerly snapping up properties, making investments and flipping houses.

"You could buy anything and make money… It was like bitcoin or something," laughs Matt.

But after the crash, everyone was terrified to get back in.

Source: MarketWatch

"A lot of us were holding lots of real estate and then it all kind of blew up. So a lot of people that have been in real estate that long don't invest out of this fear that, 'Oh man, I don't want to get stung again."

But fear isn't the only factor causing people to miss out.

According to Matt, there's also a systemic trend in the US. "There's no long-term planning going on," he says.

In 2019, only 10% of US-based survey respondents said they're confident they’ll have enough for retirement. On average, people say there’s a 45% chance that they’ll run out of money in retirement. 

And 41% say that they haven’t taken any action to change that fact.

Fact is, most people aren't giving wealth building and personal finance the attention it deserves, and that includes real estate agents.

How to take advantage of the investment opportunities in front of you

"Realtors are supposed to know more about real estate than anybody. And the opportunities are right there, you see it every day. But if you polled 100 Realtors, maybe five, maybe ten would have any kind of investment portfolio."

As a real estate agent, you know better than anyone how to:

• Access unique MLS data not readily available to the public
• Access all the vendors you need
• Negotiate to get the best deal
• Choose upgrades and improvements that add value to a home
• Market properties to sell (or rent)
  

You put that knowledge to work for your clients each and every day.

So why aren't you doing it for yourself?

For Matt, if you're among the minority of people who are planning for retirement and it's a choice of stock market or real estate—that's a no-brainer.

"For Realtors, why would you put money in the stock market, which you absolutely don't know as much about? You are an industry expert in real estate and it's one of the safest and most consistent investments you can make. That's the bottom line."

Here are Matt's tips for breaking free of the masses and building a real estate investment portfolio that will take care of you long after you're done showing homes.

Drop the 'dream home' mindset and think like an investor

For agents, the first step is to break free of the 'dream home' mindset

"A lot of residential Realtors are in the business of selling the dream home, so they might not understand how to evaluate whether a property is going to be good as an investment, and the biggest piece of that is the 70% value because that covers a lot of sins."

Matt's personal plan to enjoy a very comfortable retirement is to buy 18 properties in 18 years at 70% LTV ratio.

Here's an over-simplified way of looking at it:

"If a property is worth $150,000 and you buy it for $115,000, you could screw up a lot of things and still win. And if $1,500 rent more than covers the mortgage, you're good," explains Matt. 

Of course, every market varies and you'll have to decide what makes the most sense for you.

Matt recommends starting at the lower end of the market until you get your investing legs underneath you. To do that, just keep your eyes peeled for anything that might look like a good opportunity.

"It's just a matter of saying, 'Hey, I want to buy a blue Honda' and now boom, you see blue Hondas everywhere. Once you make that mindset shift, you just see them."

Know your criteria: property, price and area

If you're ready to build a profitable real estate portfolio, there are two main things you need to know:

1. Your math
2. Your criteria
   

Matt only purchases properties that he can get for 70% LTV and that sit within the 10 mile radius near his home, because he chooses to manage his properties himself.

That doesn't mean his criteria are the only criteria.

Matt knows agents who will buy a property 100 miles away because they spotted a bargain—and that's fine, too.

Whatever your criteria, the important thing is that you define them and stick to them—that's how you minimize risk in real estate investing.

Source: ManageCasa

"If you bought it right and you're buying properties that have cash flow and you're staying disciplined with your system, it doesn't matter if it's up market, down market, whatever—people need a place to live and they're going to pay the rent," Matt explains.

According to recent data, he's spot on.

A recent Freddie Mac survey found that apartment demand in the second quarter of 2019 jumped by 11% from a year ago, with some 82% of renters say renting is more affordable than owning.

"There's a huge demand in rental markets and a perception, right or wrong, that the millennial generation thinks renting is better or doesn't want to deal with home ownership, or whatever. So, the rental demand is big but it's still smart to be in an area that's a growth area," says Matt.

A simple way to do that is to simply look at where the Home Depots, Walmarts and Chick-fil-A's are setting up shop. These brands do deep analysis to pinpoint high-growth locations—and hey, come to think of it, so do you!

Put two and two together, and you'll start seeing properties that meet your criteria all around you.

Do your math to account for costs and growth

70% LTV is the first and most important factor in a winning real estate investment.

But it's not the only factor.

"Let's say you buy a home that's worth $150,000, 15 years later the mortgage is paid off and the property's worth $300,000. Not only that, you've had a renter in there the whole time, so you didn't pay for it. It's literally the best investment there is," says Matt.

And after the property's paid off, you have a $300,000 asset that's still being rented, still generating profit.

Of course, you have to account for your costs. 

Repairs, vacancy time, property management...there are a number of expenses that can factor in. But again, no one is better-positioned to account for those costs than a savvy real estate agent.

Be ready to jump: finance and renovate fast 

Matt suggests getting all your documents lined up and your pre-approval ready to go so you can snap up deals as soon as you see them. (Or, better yet, use cash!)

This should be easy enough for agents, as most Realtors already have at least one lender relationship.

So move fast.

"We're supposed to know what the market wants. What colors? Picket fence? What's going to make this property sell for more?" If you can make the changes and get a property sold or rented in 90 days, you're doing great.

According to Matt, sometimes a little facelift can make a $20,000 difference in the value of a property in the eyes of a buyer.

"Realtors know this, but we don't always think that way," he explains. 

Recently, Matt paid 60% of the home value on a property in a hot market. After renovations, it'll still be at less than 75%. Because of his expertise as an agent, he knows the property value on a newly renovated home in that area will increase by up to double in the coming years.

No matter which way you cut it, it's a win.

For Matt, no one knows the upside on a real estate investment better than a smart agent. It's just a matter of "stepping away from the 'dream home' thing, even though that's our daily rhythm, and putting our investor hat on."

The vacancy rates has fallen in all US regions since 2014. Source: Statista

Stay committed

Matt has two kids in their early 20s—and he "strongly encouraged" them both to buy real estate.

"That's my whole passion and I guess it's gotten amplified by my conversation with my kids," he laughs.

And it's true that millennials are a unique breed when it comes to real estate (though the jury's still out on the avocado toast thing).

Data shows they're getting married later, having kids later and buying homes way later, if at all. But Matt's not shy about his passion to change this mindset in millennials.

"There's plenty of renters available so for those people who get it and are going to start buying assets, there's no limit... It's not that scary," Matt laughs.

The trick is you have to stay disciplined.

"If you own an asset at 70% of what you think it's worth, you can't get hurt. That's the thing. It's just making those good decisions so that the debt is very well-leveraged."

For those who are ready to take the leap, Matt suggests Bigger Pockets as the go-to resource on all things real estate investment—they also have a number of helpful books on the topic.

Then of course, there's Gary Keller's The Millionaire Real Estate Investor based on the industry "bible", The Millionaire Real Estate Agent.

Source: 678RealEstate

As Matt continues to bring real estate's leading experts together for his annual Xplode conference, he also collects insights via interviews with pros like Keri Shull, coach, speaker and owner of the Keri Shull team and Forrest Odend'hal, founder and managing broker of Long & Foster Companies.

"There are a lot of people industry who you wouldn't necessarily know who are doing really smart analysis, good investment and just thoughtful business. Once you start looking, there's plenty of information and plenty of people who want to partner, too."

Today, Matt works with investor partners who help finance excellent investment opportunities—he's the acquisition expert, they're the bank.

As with any investment, there are always exceptions to the rule and you need to have a solid system and good tenants in order to keep your portfolio profitable. But according to Matt, if you get the formula right and you stick to it, you can't lose.

You just have to be ready to pull the trigger.

"I have eight properties now and I wish I had 20," he laughs.