If you have been in real estate for even a short while, you have probably heard that one of the quickest ways to get listings or find buyers is to work your SOI (sphere of influence).
To make sure we are on the same page here, let’s define SOI as any person who knows your name, has spoken with you before and definitely those people you’ve helped buy or sell a house previously (past clients).
It doesn’t take a Nobel Prize-winning mathematician to figure out that people generally don’t buy and/or sell homes very often. At best, you are looking at a move every five to 10 years.
The fact that people don’t move very often means your SOI is limited in potential. You can’t force people to move more often. Therefore, the amount of money you can make from your SOI by helping people buy or sell a personal home is limited, but that doesn’t mean you can’t leverage another aspect of real estate to increase the potential of your SOI.
Enter: real estate investing, specifically single-family rentals and rehabs/flips.
The idea of real estate investing has spread far and wide, catching the attention of almost every person with a regular 9-to-5 or W-2 job. This is largely due to all the HGTV shows and real estate seminars in consumers’ faces constantly.
People understand the basic concepts, and some have the extra time and desire to make some side money. Combine this exposure to real estate investing basics with the aspiration of your typical employee to increase his or her family’s income or help with retirement, and you have a sub-set of clients waiting for you to help them invest.
Let’s take this a step further and get to the point, if you want to increase the value of your SOI, you need to increase the number of houses they buy or sell.
To do this, you need to think outside of buying and selling their personal residences. You should discuss the idea of investing with your sphere.
Imagine this: instead of buying or selling a home every five years (being generous here), what if a client bought a rental property every two and a half years in addition to buying and selling their personal home every five years.
Over 20 years of working with the same client, would you rather represent eight sides (four buys and sells every five years) or 16 sides (four buys and sells every five years plus eight rental purchases)?
Before you attempt to use this knowledge to increase the value of your SOI, we want to go through some quick tips on the how, what and why. Check out these four tips, and then go multiply your commissions!
1. How to approach discussing investing with your sphere
This is pretty easy. You can mention it in postcards, emails or calls and texts when you are touching base with your sphere.
You are keeping in touch with your SOI, right? Of course you are!
Be knowledgable and not pushy here. You could hold an SOI class to discuss the idea with multiple people at once. After you get one person successfully into investing, leverage that success story with other clients.
2. What to expect from your SOI with investing
Don’t expect 100 percent of your SOI to get into investing. Some just can’t afford it, and some just don’t want to regardless of the returns.
Also, be patient with your sphere. People typically don’t jump into investing in real estate very quickly. You might have to talk with 15 interested people, do an in-depth meeting with five — and then one or two might actually start investing in real estate.
3. Paint the picture
Think of a good real estate listing description, it doesn’t just describe a home’s look, it paints a picture of what it feels like to live there.
Do the same when talking to your SOI about real estate investing. Don’t talk just about buying a rental home, talk about paying for their kid’s college or adding to their retirement plan.
It isn’t just flipping a house, it’s making an extra $10,000 to $20,000 a year to help pay down debt.
Put the benefits of real estate investing into terms people can touch and feel.
4. Understand the basics before you talk to your SOI
This goes without saying, but if you don’t understand the basics of real estate investing, you shouldn’t be consulting clients on investing.
At the end of the day, real estate investing, like any investment, comes with some level of risk. You don’t want to get your clients into investing by creating false ideas in their heads or providing bad information.
Find some contractors your clients can use. Make sure you know what accurate market values are. Make sure your clients account for all costs such as vacancy, insurance, taxes, repairs, closing costs and commissions. Tell them about the downsides and risks too.
It’s also important to understand how financing works on investment properties. A limiting belief for many new investors is that they can’t afford to buy a rental property or a house to flip.
Most local banks will do a commercial loan covering anywhere from 85 percent to 100 percent (typically 90 percent) of the purchase price plus rehab costs. This means they can buy an investment property for a 10 percent down payment. Or, your buyers can do a conventional loan if they have 20 percent to 25 percent down.
If you sit back and do the math, you can quickly tell that if only a small percentage of your SOI bought an investment property every two to three years, your income would change pretty drastically each year.
Not only would you make more money, but you’d also be helping your clients. Helping them retire faster and with more money. Helping them pay off debt quicker. Helping them pay for their children’s education.
Helping them make a better life — that is what every quality agent strives for.