Individual Real Estate Investor Versus Wall Street
There are a number of small real estate investors concerned about all the property Wall Street has been purchasing. It is, of course important to know what your competition is up to. Many wondered how they can compete with them, while others are intimidated by the size of their check books. Many wonder how to compete with such a giant as your competition. It is true that these institutional investors are coming in with big check books and buying up whatever real estate they like. I believe however that when you understand what their objectives are you can quickly ascertain they are not as big of a conflict as you may have first thought. For the most part the institutional investor has a different objective than most of you individual investors do. Sure if you both want to buy the same real estate they may have the ability to outbid you but that is just for that one property. There is room for everyone to play. Knowing what the institutional investor has as their objective is important to understand how to work around them. Let’s take a look at some generalities.
The institutional investor:
• Buys with an objective of lower cap rates, (they have a higher risk tolerance than the individual)
• Buys for the cash flow as its primary objective
• As buyers using stock holders money they have less personal vested interest in the outcome of the investment.
• They have no personal contact (directly or indirectly) with the tenant. (Tenants hate this)
• Intent is to sell the yield spread on Wall Street.
You can see this institutional investing is more of a systematic cookie cutter investment with a primary objective to capitalize on cash flow. There is no relationship building in this business model.
Individual investors know that to build a strong and profitable business you must build a strong and trusted relationship between the business and the customer (The owner/landlord and tenant)
Individuals do this well. A typical small or individual investor has different objectives.
The individual investor:
• Buys for cash flow and capital growth
• Buys with higher cap rate requirements (holding your money more accountable)
• Buys with strong exit strategies in place
• Builds relationships between themselves (the investor and their property manager) and the tenant (Tenants love this)
• Buys using their own money giving them the strongest motivation for buying right and running it right.
You can see the differences are vast. Tenants love working with individual investors because they understand you want to build a relationship with them and in turn will be happier renting form you.
Do not be intimidated by the Wall Street investors, there is always room for everyone in real estate investing, the key is to find out your competitions objectives and simply continue to run your investments like a business and build relationships with your tenants and do not be intimidated by competition.