How to Beat the Hedge Funds and Wall Street Investors
Equity firms, hedge funds, and other institutions are out-bidding investors like you and me, making it very difficult to buy investment properties. If you have been actively trying to buy properties, I don't have to tell you how competitive things are as real estate investors because of these types of companies. It is futile to compete with the hedge funds and Wall Street investors because, though we are looking to purchase the same properties, you and I tend to have different objectives. For starters, we tend to value residential properties (in part) based on comparable sales. In other words we are looking to purchase the property at, or preferably below, a retail price. One of our objectives is to make money going in to the deal. This is done by purchasing the property below retail pricing so we can start day one with instant equity.
The big-money Hedge Fund and Wall Street investors are yield-driven, meaning; comparable sale prices take a back seat to income potential on a property. Ultimately what most Wall Street investors are looking to do is buy property that they can rent out and capture their required yield. Their requirement for yield tends to be their number one objective. Also, their yield requirement tends to be less than yours and mine. The Wall Street investors are looking for a return that is equal or better than they can get elsewhere on Wall Street. As we are individual investors investing for a larger purpose, we tend to want to capture all 5 of the wealth building principles.
And because their exit strategy requires a much lower yield than you and I would expect on a single purchase, they can easily pay more....not to mention, they have much deeper pockets. Remember they have billion dollar checkbooks (which happens to be NOT their own money) so they are not as diligent as you or I would be.
Wall Street investors are an undeniable force in the market, and mostly accountable for a large part of the housing recovery since 2010.
Pushing a big rock up hill: Uneducated investors are ignoring this force, and in doing so, they are doing more work for less profit.
Solution: there is a way to beat these "Walmart’s of real estate" with a fraction of the effort and a lot less emotional drain.
Coming next week The Solution.