Staying Smart

Posted on November 3, 2012 by

The Atlanta real-estate market has finally hit bottom which means that things can only go up. How do I know that? Stupid money has returned: once again, people are willing to pay too much for properties, and banks are willing to look the other way. In fact, there is big money from hedge funds that are allowing people to buy many properties at once. What this means for us, the agents and small investors, is that we face more competition for the properties which are priced right.

So what do we do? We arm ourselves with research. Without knowing what we are up against, we cannot make informed decisions that will keep us in the game.

First, when you find a superstar, they become your benchmark: you do research and find out their business model. But studying them is not enough; you must take action by mirroring what they do to be successful.

One way that I’ve been able to research is through networking. One person who has helped me is an investor in Gwinnett County. He has first-hand experience with the technologically advanced hedge fund there. Through him, I know that the hedge fund last month in Gwinnet County bought 5 million dollars of real estate on the court house steps. If the average price of each property is $50,000, then this hedge fund facilitated the purchase of 100 houses—a phenomenal number.

As you probably already know, Georgia bidders don’t get to walk through houses prior to bidding at the courthouse. We can see the properties only through photos, and we can guess at the values through comparables. This one of the reasons that the court-house auctions are not for the faint of heart. We don’t know what we are buying until we can do the actual walk-through, and by then we’ve bought it.

The hedge fund groups, however, are required to place the money before they bid. Then, once they commit to bid, they own the house. But the question still remains: how are they able to out bid the smaller players? The answer is technology, namely Smart phones and tablets. They have a trained team of people standing at the court house steps. The team enters live data allowing them to bid in real time. In addition, they bank have already seen the property via photos, and they have seen the comparables in the area. Their return on investment (8-10%) is lower than the smaller bidders.

Armed with all of these things at the actual auction, the hedge fund bidders are able to pay anywhere from 5-10 % more for the houses than the other investors. 

 What does all of this mean? It means the banks are now going to be able to reduce their phantom inventory (houses that have either been foreclosed on or are not for sale on the open market). When they do this, they artificially increase the values of the properties they own. They are then able to sell more houses at  auction because the hedge funds have the advantages mentioned above, and with these advantages, they are ready to take more of a risk than the single investor.

This is where your strategies must be set. You must be able to compete, and the  way that you can do this is to buy properties before they hit the court house steps. Banks won’t spend the time going door to door to look at properties; you can. What’s more, you can get into the houses by knocking on doors and meeting the property owners. At this point, you might be able to strike a deal. 10 days is your window of time in which to do this.

So there are a number of good things about this new situation. First, you can now see that you do have the ability to compete. Second, the area where your properties are will be improving, and the rental business will become more competitive meaning that rents will remain flat. Either way, your bottom line increases. You just want to make sure that we can get as much as you can. This is where ambition and being smart come in.

The lesson is that being aware of the real estate market in Atlanta is not enough. Developing a plan is not enough. It is taking action on a plan that will move you toward your goal: success and wealth.

Russ HinerRuss Hiner is an active real estate investor, coach and mentor. Russ is currently the leader of the Atlanta REIA Creative Deal Structuring Group and Atlanta REIA Mastermind Group. Russ also teaches several workshops throughout the year on a variety of real estate investing topics such as Negotiations, Wholesaling 101, Wholesaling 401, Real Estate 101, Property Management and more.

Contact Russ Hiner


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