New investment strategies for hot real estate markets

Smart investors are changing their deal sourcing model.

Those who survive and thrive the effects of the pandemic and current economic changes are leaving the status quo and finding new ways to secure and buy real estate.

If you’ve seen prices rise and fall in extreme asset prices, or are frustrated trying to find deals where the numbers really work (believe me, I can feel your pain) then this is a place to consider.

Here’s the breakdown of the old model versus the new model of acquisitions and why this shift is so important to you.


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The old model of real estate acquisition

The traditional way of finding and buying real estate is fraught with problems for investors. This increasingly leads to low returns and inconsistencies in deal flow and income. At best, this creates a lot of additional risk, stress, worry, and overpayments for real estate.

The old model of buying real estate is based on the fact that the offer of real estate is advertised and offered to you at all times – and rely on real estate agents and brokers to present you their offers and popular online public offer portals. In this situation, you and your finances are really held by the brokers and the optimism of the sellers.

They are either waiting for offers to fall into your lap or fighting in bidding battles for the same properties as everyone else at top prices. The good things are often not on this menu at all.

Not only can this lead to a lack of deals, but it also makes it very tempting to take too much risk and make your underwriting even more aggressive.

This is especially important now when many brokers persuade sellers to list too high prices and lazy investors tend to overpay if they wage bidding wars for the little they can find.

Why is the old model out of date?

For example, it was recently reported that, out of desperation, a fund paid a builder a 50% premium for its units. One of the youngest guests on my Kansas City podcast, who has built a portfolio of over 4,000 units worth $ 400 million, told our audience that he sees this problem even in the multi-family market for apartment buildings over 75 units.

He used to deal with two or three local competing buyers. Now there are up to 10 or 13 competing offers, and they come from all over the country and internationally. What makes it worse is that these investors are often just happy to park their money in real estate because of the inflation hedge or are used to investing for negative returns and negative cash flow to sell in a couple of years and gain profits from the property achieve appreciate. You are willing to pay far more than most investors make sense.

We even met this personally in Louisville, Kentucky. We checked our numbers on the deal and could almost have justified offering $ 7.5 million, which was probably too much. Then the agent said the seller was looking for $ 12.5 million. Completely outside of the ballpark.


More about lead generation from Advance Guide


The new model of real estate acquisition

We have been making this change for years. If you want control of your deal flow, investment performance, or delivery to your own investors, you need to find a better way to get deals. Even more so, if you don’t want to get stuck with speculation or oversized risk for millions of dollars, don’t worry about actually seeing double-digit returns.

The new model is about getting better deals at a better price from more motivated sellers. Here you will find more negotiation points, less competition, better prices, a lot more inventory and higher ROIs.

The new model is about taking control and sourcing the deals yourself – especially off-market deals. In this market there are probably infinitely more potential acquisitions in the shadows that are not yet actively for sale. There are at least millions to filter and make smart deals.

That means lead generation. Draw potential leads from various data sources, build your own pipeline, work on your CRM, and reach out using methods like direct mail, cold calling, and text messaging.

The next step where you can really differentiate yourself and gain an advantage is to track those leads and turn them into contracts. Often times, the first time the owner doesn’t have a problem for you to resolve, but things change. It can take creativity, discipline, and a willingness to do what other investors don’t want to do (ethically, of course), but it can pay off.

The follow-up enables you to differentiate yourself from the competition. That alone saved us nearly $ 800,000 on our latest 156-unit deal.

Take a hybrid approach

Some of you may not be ready to leave the old ways behind and immerse yourself fully in the new model of acquisitions. That is understandable. Consider a hybrid model.

Try to take more initiative and control and implement the new model. If the old model now gives you irresistible offers, that’s great, buy them.

Then monitor what works. Where do the deals you make come from? Where do the best performing businesses come from compared to the worst performing or the greatest risks?

Start by removing the underperforming and underperforming parts of your model and replacing them with better sources. Keep optimizing and improving.

This new model and even the hybrid approach are much more evergreens. It will let you survive and thrive in all phases of the market. By systemizing your processes, the new model can deliver more predictable results and the highest possible return on investment by providing value and solutions directly to off-market owners.

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