It's very well known amongst local investor circles and there is plenty of information on the web that explains what is going on. This article from the Washington Times is a good summary. Basically Wall Street finally figured out that there is money to be made in residential real estate and they have been buying houses by the thousands!!
I have seen them at the monthly county courthouse auction, I have competed against them when making offers in properties and I have heard from other investors in other cities going through the same. Big Wall Street hedge funds and Real Estate Investment Trusts (REIT's) that have put together billions of investment dollars and are using them to buy thousands of residential properties in Atlanta.
But here is the problem…
They are overpaying! I have lost bidding wars against them and I would not have paid what they did…I would not have been able to make money on the deal if I had paid that much.
This is not only for properties that I want to flip. I have also been trying to buy a house to keep as a rental and find the same situation. They will pay $100,000 for a house that will rent for $900-1,000 per month and needs $5,000+ in repairs. That is a pretty raw deal in my opinion.
It gets worst when you figure out that there are so many new rentals coming into the market that simple supply/demand theory will tell you that with increasing supply the demand and/or the rents will have to start going down at some point. So that house they are renting now for $900 might rent for $800-850 a year from now.
So all I can figure out is that since they are getting a pretty poor return on their money with the house as a rental they are planning on making their money on appreciation. Meaning that they plan on selling that house they paid a $100,000 for maybe $125,000 in a couple of years???
So although the media is touting the real estate recovery across the country a lot of it is driven by these big investor funds.
There will definitely be an impact on the real estate market from all of this investment activity. Unfortunately no one really knows what it will be. So in the meantime I have to figure out a way to find an investment opportunity right now!
One of the lessons I have learned in real estate is that you can't fight the market you have to change with it, and it's always changing…
The barrage of foreclosures on the open market over the last couple of years made it relatively easy to find deals that way. Since that opportunity has dried up I have to seek buying opportunities somewhere else.
Since I can't compete with these big money funds I am looking for buying opportunities elsewhere. These include short sales, pre-foreclosures and finding motivated sellers. Basically looking at situations where the owner of the property needs to sell and positioning myself in a way I can reach them.
In the next couple of months I will be using direct mail, signs, advertising and good ol' tax record searching to find more of those opportunities. I have never done this before so there is plenty to be learned. Of course, I will let you know how it goes. Stay tuned…
QUESTION: What would you do if you were in my shoes?
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