Choosing between a career path as a real estate agent or investor is crucial to step up your real estate game. If you’re confused about which one to pick, we’re here to help. This real estate agent vs investor guide will highlight all the differences and similarities between real estate agents and investors.
Real estate agents and investors both have their pros and cons. But, when it comes to flexibility and ease of making money, real estate investors have the edge over real estate agents.
About Real Estate Agents
Real estate agents are required to have a real estate license from their respective municipalities or townships to engage in real estate activities. They usually work in real estate or marketing companies and are generally full- or part-time employees. These agents earn commissions on every revenue-generating real estate transaction that they’re responsible for. Sometimes, these commissions come alongside the closing costs. An agent can work on different properties, such as residential, commercial, and industrial.
About Real Estate Investors
Real estate investors invest in different properties. The properties can be residential, commercial, or industrial estates. A real estate investor can be anyone who has money and would like to invest in properties to gain profits over it. They are not compelled to have legal requirements such as licenses; hence there are no earnings from commissions. Investors simply earn by buying properties less than the market value and selling them at competitive market prices.
Real Estate Agent vs Investor: Similarities
Real Estate Transactions
Whether it is a real estate agent or a real estate investor, both engage in real estate transactions. Furthermore, both have the right and authority to buy and sell real estate properties. There’s also no limit to the type of real estate they can buy.
Real Estate Brokerage
Real estate brokerage is provided by a licensed firm consisting of real estate brokers and agents. They also have reputed investors in their firms on long-term contracts. Most investors invest their capital which the firm handles. So, a real estate agent and a real estate investor can work at the same firm, side by side.
Marketing is an essential aspect of the real estate business. Nowadays, more and more people are attracted to online listings on social media platforms and property management websites. Real estate investors and agents both list their properties on such websites. Apart from this, many have websites to get in-depth information about the different properties.
In the same way, other investors and agents also work with real estate marketing companies. These firms sell their properties by placing unique and lucrative marketing techniques such as limited-time discounts, installment plans, and more.
Differences Between Real Estate Agents and Real Estate Investors
Before you choose to become one of the two, or if you are trying to pick one for the real estate business, you must also know the distinction. Below are some points to help you understand the key differences between the two.
By law, a real estate agent must have a real estate license to carry out transactions and other work related to real estate. Investors do not need licensing; thus, an investor can be cheaper than a real estate agent. An agent must pass the following tests to get a license:
- Real estate classes and tests
- Background check
- They must be a resident of that state
- Must work for a realtor or brokerage firm
Obligation to Work for a Brokerage
Real estate agents work for a brokerage firm. A real estate broker usually manages the agents. Many investors are generally not required to operate under any firm or other licensed practitioner.
Most agents earn a commission on buying and selling property during the entire process. The commission percentage varies between 5%-6%. This commission is further divided as per the following:
- Listing Agent: The real estate agent who listed the property for sale
- Seller’s Broker: The broker representing the seller
- Buyer’s Agent: The agents working on behalf of the buyer
- Buyer’s Broker: The broker working for the buyer
Usually, half of the percentage of the total commission goes to the seller’s broker and the other half to the buyer’s broker. Let’s take an example of a residential real estate project sold at $150,000. Considering a 5% commission, which is $7,500, the following is the split:
- Listing Agent: $1,875
- Seller’s Broker: $1,875
- Buyer’s Agent: $1,875
- Buyer’s Broker: $1,875
The above split can vary depending on the broker’s and agent’s agreements.
A real estate investor does not earn on a commission basis. The earnings of a real estate investor are based on the price difference between the cost of property vs. the sale price.
Standard Transaction Times
Selling a property through an agent usually takes up to thirty days at a minimum. An investor does not usually need such a long time as they do not work on the MLS listing. Investor agents may sell your property within a week.
Return on Investments
Real estate investors buy or invest in investment properties that give the best return on investment. They are not concerned about whether it is a residential or industrial estate. They invest in such real estate projects, including rental properties that give passive incomes over a long period. Following are some types of investments.
- Flipping: Such Investments are risky but give a higher price when sold at the right time. Such properties are usually renovated and sold when the property value increases.
- New Construction: This can include residential buildings or commercial buildings such as malls that are to be built from scratch. Real estate investing in such estates requires high capital, and the profitability often stretches over an extended period.
Conversely, agents are suitable if you have to sell your property or if you want to buy houses to live in as soon as possible. They will give you a good return on investment when selling your property. However, you have to bear their commission charges along with other documentation and legal charges at the time of selling.
Investors don’t need to work for anyone; they are their own bosses and can buy and sell properties without a license. On the other hand, an agent must undergo rigorous training and pass an examination before being able to work as a real estate professional.
An agent cannot deal with your capital; they can only help you buy and sell real estate properties. On the other hand, investors can invest their capital in profitable portfolios and help you buy properties or sell them in your best interest.
Real Estate Agents vs. Investors: Differences
Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.
Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.