New investment strategies for popular real estate markets

Smart investors are changing their deal sourcing model.

Those who survive and thrive from the effects of the pandemic and current economic shifts are moving beyond the status quo and finding new ways to secure and buy real estate.

If you’ve seen prices soar and cringe at extreme asset prices, or become frustrated with finding deals where the numbers actually work (trust me, I feel your pain), this is a mindset shift to consider.

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

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The old model of real estate purchases

The traditional method of finding and buying real estate is fraught with problems for investors. It increasingly leads to low returns and inconsistency in deal flow and revenue. At best, it leads to a lot of extra risk, stress, worry and overpaying for properties.

The old real estate buying model relies on the real estate menu being advertised and pushed on you at all times – relying on brokers and agents to bring you their listings and popular online public listing portals. In this situation, you and your finances are really ransom held by the optimism of the brokers and seller.

Either you wait for deals to fall into your lap or fight in bidding wars for the same properties as everyone else at premium prices. The good stuff is often not on this menu at all.

Not only can this lead to the appearance of a shortage of deals, but it also makes it very tempting to take too much risk and be even more aggressive in your acceptance.

This is especially important at this point, as many brokers convince sellers to list at high prices, and lazy investors like to overpay in bidding wars on what little they can find.

Why is the old model obsolete?

For example, it was recently reported that out of desperation, a fund paid a builder a 50% premium for their units. One of the recent guests on my Kansas City podcast, who has built a portfolio of more than 4,000 units worth $400 million, told our audience that he sees this problem even in the multifamily market on apartment complexes with more than 75 units.

He used to have to deal with two or three local competing buyers. Now that number is up to 10 or 13 competitive bids and they come from all over the country and internationally. Making matters worse, 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 few years and profit from the investment. real estate to get value. They are willing to pay much more than makes sense to most investors.

We even personally encountered this in Louisville, Kentucky. We checked our numbers on the deal, and in the end we almost could have justified bidding $7.5 million, which was probably already too much. Then the broker said the seller was looking for $12.5 million. Completely off the mark.

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The new model of real estate purchases

We’ve been making this cover for years. If you want to take control of your deal flow, investment performance or delivery to your own investors, you need to find a better way to acquire deals. Especially if you don’t want to keep speculating or take super-sized risks for millions of dollars, let alone actually earn double-digit returns.

The new model is all about getting better deals, with better value, from more motivated sellers. Here you will find more negotiating points, less competition, better prices, much more inventory and higher ROIs.

The new model is about taking control and finding the deals yourself, especially off-market deals. In this market, there are probably infinitely more potential shadow acquisitions that are not yet actively for sale. There are at least millions to filter through and get smart offers.

This means lead generation. Get potential leads from a variety of data sources, build your own pipeline, use your CRM, and get in touch using methods such as direct mail, cold call, and text messaging.

The next step, where you can really set yourself apart and take the lead, is following up and converting those leads into contracts. Often when you first contact the owner, the owner may not have a problem for you to solve, but things change. It may take creativity, discipline and a willingness to do what other investors don’t want to do (in an ethical way, of course), but it can pay off.

Follow-up allows you to differentiate yourself from the competition. This alone saved us just under $800,000 on our latest deal of 156 units.

Choosing a hybrid approach

Some of you may not be willing to completely abandon the old ways and plunge into the new model of acquisitions. That is understandable. Consider a hybrid model.

Try to take more initiative and control and implement the new model. In the meantime, if you’re getting irresistible deals through the old model, that’s great, buy them.

Then keep an eye on what works. Where do the deals you close come from? Where do the best performing deals come from versus the worst performing or greatest risks?

Start by removing the underperforming and underperforming parts of your model and replace them with more of the better sources. Keep tweaking and improving.

This new model, and even the hybrid approach, is much greener. It ensures that you can survive and thrive in all market stages. If you systemize your processes, the new model can deliver more predictable results and the highest possible ROI by delivering value and solutions directly to off-market owners.

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