What To Consider Before Wearing Both Hats

If you’re a real estate broker, you likely see many deals and may have considered investing yourself. While some professionals choose to focus on one path, it can be possible in some cases to carry out both roles. You may want to provide brokerage services while building an investment portfolio.

This dual role can offer some advantages, though there are also other factors to be aware of, including potential conflicts of interest and ethical concerns. Before stepping into both worlds, you’ll want to understand what’s involved in each role. It can also be helpful to weigh the pros and cons to ensure that you maintain professional integrity.

My Approach to Investing

As a broker who has made personal investments, there are a couple of rules I’ve always followed. Number one, when I get a potential opportunity as a broker, and an owner says they’re interested in selling, I never for a second think, “Would this be a good property for me?” Whenever any of my clients comes and asks for advice, I always wear my broker’s hat.

Second, for any property that I work on, I never have any involvement in acquiring it. Some might think that it’s okay to come in after the transaction takes place as a limited partner. However, that can always bring up questions regarding the price and whether the transaction was handled in the right way with proper disclosure.

For me, if I am going to invest, I only invest in deals where another broker is handling the property. This way there is no conflict of interest, as the seller already has representation. Then I might go and buy the property or invest in it. Also for most of my investing, I act as a limited partner, meaning there’s already a buyer who has negotiated the deal. I’m brought in after, so there is no question of whether the owner followed a fair process.

In my experience being part of a group that raised two real estate funds that totaled $350 million in capitalization, it was always important that we didn’t actually buy the property. We only operated as joint venture equity, and we would invest in deals after sponsors had already brought the deal or had it under contract. Then we were limited partners and didn’t make direct offers to owners.

Differences between Brokerage and Investing

As a broker, you gain exposure to a variety of opportunities, and likely know a little about a lot of different properties. This broad knowledge can help you spot trends and understand overall market dynamics. Investors, on the other hand, often take a deeper dive into fewer deals. They’ll develop a more thorough picture of each property. This extensive analysis is important when making investment decisions.

While brokerage focuses on transactions and providing services, investing often takes a long-term approach. As I discuss in my book, “The Insider’s Edge to Real Estate Investing,” you can use investments to build a team and a portfolio. Your business plan will often dictate how long you hold properties and the approach you take regarding which asset classes to focus on.

Pros of Being Both a Broker and an Investor

As a broker, you’re constantly interacting with property owners, developers, and other investors. This network can be leveraged to find potential partners, secure financing, and gather valuable insights into market trends. You may also enjoy the chance to learn a new skill. If you make investments yourself, you could have a better understanding of what clients are looking for in your brokerage business.

Cons of Being Both a Broker and an Investor

You’ll want to be careful as a broker when making investments to avoid potential conflicts of interest. You may want to keep your brokerage business and investments separate. This approach helps you work with clients for their deals, and also consider your own independently.

When getting involved in brokerage and investing, you’ll want to manage your time wisely. Your role as a broker may require certain hours each week, and you might choose to do your investment work during free times.

Best Practices for Balancing Brokerage and Investing

As a broker, your fiduciary duty is to your clients. You’ll want to prioritize their best interests in transactions. Over time, your transparency and honesty could help you attract more business.

Some jurisdictions have strict guidelines on how brokers can participate in deals where they have a personal interest. When investing, you’ll want to work with attorneys and financial advisors who understand real estate to ensure that you’re complying with all relevant laws and regulations. They can also help you structure deals in a way that minimizes conflicts.

You’ll also want to keep thorough records of all transactions, including disclosures made to clients and also your investments. Documentation can protect you in case any questions arise about your conduct.

Being both a broker and an investor can be a powerful way to build wealth and expand your career in real estate. By leveraging your market insight, professional network, and industry experience, you can create multiple streams of income and increase your long-term financial success. However, balancing these roles requires careful consideration of potential conflicts of interest, ethical alignment, and maintaining client trust. With transparency, ethical practices, and a proactive approach, you can successfully navigate the challenges and enjoy the rewards of both brokerage and investing.