I invest my own and other peoples’ money into real estate to create cash flow and wealth for time and freedom. These are big problems to solve and here is a 3-part series that discusses the challenges we work through to achieve our goals.
Real Estate Investing is Hard
Part 1: Finding and Buying a Deal
Buying real estate is not hard, but finding a good deal is! In a nutshell, if you want to buy real estate, whether it’s an apartment building, single-family house, or office building, you have two options: buying on the market or off-market. We understand that buying bad deals is a quick way to go out of business, so we’re working hard on getting good at both.
- On-market deals. These are listings by a broker and are teed up for ownership transfer. There are prepared financials, nice looking marketing materials, and tenants typically are aware of the sale. The problem with on market deals is that there are a lot more eyes on them so the competition is higher. To win, you must have the best terms; that could be price, speed, contingencies, etc. If you’re a smaller investor and want to buy bigger projects, you will be competing with big fish that are capitalized better so you’ll have to find ways to stand out to sellers. The best way to buy on market deals is to have a vision to add value that other buyers may not have. In a competitive market, you have to be able to analyze the deal and submit offers in 24 hours or less. You can also build relationships with brokers so they give you a heads up before good ones hit the market!
- Off-market deals. These are direct-to-seller deals that aren’t listed with a broker. These conversations start by relentless outreach to owners and catching potential sellers at the right time. These owners have some motivation to sell but have not taken the steps to interview brokers, prepare materials, or notify tenants, and they may prefer an “easy” transaction. We love these deals because we’re able to dig into the motivation of the seller and structure win-wins that we may not have been able to if it was on the market. The benefits are the lack of competition which allows for more flexibility on terms, but the challenges include not having a broker facilitate the transaction, getting accurate financials, and an often inflated opinion of value of their property.
The best investors have their eyes on the market at all times, network with brokers, and also reach out to other owners. As companies grow, they have entire departments solely focused on acquisitions. Competition is fierce so you constantly need to find opportunity where others don’t see it or provide an excellent service to owners that they don’t want to sell to anyone but you! Our best successes have come from our repeat sellers. If we can create a win-win transaction in the first place, why wouldn’t the seller want to do business with us again?
Make no doubt about it, finding good deals is hard work. It’s rare to hear “we have too many deals we don’t know what to do with them.”
If you don’t have the capacity to find good deals, partner up with someone who does! There are many options such as investing into syndications and real estate funds that allow for the same benefits of owning real estate but without all the boots-on-the-ground effort.