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Why Hedge Funds Can’t Compete with Solo Real Estate Investors

There are 2 reasons real estate investors shouldn’t fear big bulk buyers of distressed properties and 4 ways they can level the playing field and vault ahead of them…

 

Some smaller real estate investors and the media have been creating panic by stirring up stories of bidding wars and a lack of discounted inventory for flipping houses or at least locking into the best cash flow spreads and long term wealth building opportunities on rental properties. Most point to over-sized hedge funds and some 6 billion dollars in cash they have to throw around as the main problem but there are 2 good reasons why this shouldn’t be so much of a concern or reason to start sprucing up resumes to find a 9-5.

 

1. The Non-Performing Loan Iceberg

 

It is true that the visible selection of housing inventory for sale has dropped dramatically in some locales and that some zip codes have seen the percentage of foreclosure homes drop in share of transactions but there are many more non-performing loans out there than most realize.

 

What most investors see as available inventory on the market is just the tip of the iceberg and so are the estimated 5.6 million homes lurking in shadow inventory today.

 

The latest non performing loan report from BankProspector shows that there is over $238 billion in residential non-performing mortgage loans out there today. Keep in mind that residential only makes up a tiny 26% of the distressed properties in some stage of foreclosure too.

 

That leaves plenty of opportunity for every investor to make an incredibly sizable income over the next few years.

 

2. The Disadvantages That Bulk Buyers Face

 

Being bigger isn’t always better. In fact smaller investors have many advantages over their hedge fund counterparts.

 

We know speed, flexibility, market intelligence and due diligence are the keys to profitable real estate investing.

 

These are the assets smaller investors have and areas where they can excel. Big bulk buyers face many challenges and while they might be buying big, that doesn’t mean they are making more money. Even the discounts they receive on auxiliary services due to volume are easily eaten up by a lack of focus and cumbersome corporate structures. They are plagued by poor property picks which quickly sabotage the good deals they do get and it is unlikely they have adequately anticipated the true expense associated with rehabbing and managing these properties.

 

4 Real Estate Investing Strategies for Defeating the Competition with Bigger Pockets

 

It is true that some real estate investors may want to switch up or at least augment their acquisition strategies to keep up deal volume and find wider spreads; so if you are going to avoid going head-to-head and overpaying in the hottest markets, what’s the alternative?

  1. Consider markets where foreclosures are surging like CT, IN, IL and MA
  2. Pool money together or use transactional funding to walk in with more cash
  3. Jump the line and target off market REOs
  4. Take them down even earlier as non performing mortgage loans for sale

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