4/3/10: Wholesale Opportunities – Using OPM to Heal Hurting Markets
Easy money caused hot markets to go super-nova. And when the music stopped these formerly high flying markets came crashing down in unprecedented fashion. Now, there’s a BIG MESS to clean up – and that’s bad, right?
It depends on who you are and how you look at it.
Without re-hashing several of our past (and very excellent) broadcasts, suffice it to say that if you’re a seller in a down market, you’re not a happy camper. But if you’re a BUYER, you’re a kid in a candy store – especially because prices have swung so far the other way, you might actually have equity on the day you buy. Yes, Virginia, equity still happens. But that’s a whole other topic.
Of course, who wants to be a penniless kid in a penny candy store (don’t even get us started on whatever happened to penny candy)? If you lost your cash, credit and income in the recession, but can see the great real estate deals available all around you, there’s still hope for you!
We’ve been talking a lot about syndication (raising money from others and forming a business to invest in real estate), but there’s another, less complicated, way to profit in a market like this. It’s called “wholesaling”.
You can wholesale anywhere, but it works best in markets that have been hit REALLY hard, the average price is pretty low, and whatever made the market attractive when things were hot still remains. Hmmmmm…. can you think of any markets like that?
We thought of one and flew there to check it out. We met a guy who is not only an active wholesaler, but he trains investors how to do it. We thought you’d enjoy hearing from him, so we invited him to call in and share his insights.
Contributing to the conversation in this episode of The Real Estate Guys™ Radio Show:
- Your wholesale host, Robert Helms
- Your discount co-host, Russell Gray
- Special guest, investor, entrepreneur and trainer, Lex Levinrad
Listen in and find our what’s happening in the South Florida real estate market and how enterprising entrepreneurs are helping heal a hurting market place.
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6/27/10: Cashing In on the Changing Retail Market
Retail real estate across the country has been mauled by the recent bear market. Many large retail centers are vacant and dilapidated, while many more are under performing. What’s next for retail? More importantly, what’s the opportunity? To find out, The Real Estate Guys™ call on a big deal hunter who has over 30 years and billions of dollars of experience!
On safari in the studio for this broadcast:
- Driving the jeep in his khaki’s and bush jacket, host Robert Helms
- Pushing the jeep in his leopard skin loin cloth, co-host Russell Gray
- Riding shotgun and snacking on frikkadels, the Godfather of Real Estate, Bob Helms
- Big deal hunter, special guest Tom Morris
When you enter the jungle of real estate investing to hunt for opportunity, you never know what challenges will cross your path. Many obstacles and dangers can be avoided. Others must be met head on. Of course, when you’re hunting, your objective is to locate the prey and subdue it. In other words, there’s risk involved.
Shooting fish in a barrel or hunting rabbits is one level of risk…and one level of reward. Going after the big opportunities often entails a higher level of risk and requires a higher level of skill and experience. That’s why most investors are well-advised to start small. It’s also a really good idea to be mentored by more experienced hunters before taking on the big game.
So you can imagine how excited we were when we first met Tom Morris. He’s been hunting big time real estate opportunity for over 30 years and after billions of dollars of deals, he’s telling us that now is one of the greatest times ever to be a real estate investor. Really? Okay, we’re listening!
Although he’s very experienced in all types of real estate, Tom’s love is retail. We’re talking BIG TIME retail – as in shopping malls and retail centers with hundreds of thousands of square feet (on the small side)! Tom’s been involved in mall projects with millions of square feet and hundreds of retail tenants in a single project. Wow! THAT’S big game. Of course, if a big deal turns on you it can devour you very quickly, so you better know what you’re doing! Fortunately, Tom tells us there are many things you can do to mitigate risk.
We start quizzing Tom about the state of retail in the wake of the Great Recession. What are the problems? What are the causes? Where are the opportunities? We were SHOCKED to hear how BIG the discounts are on distressed retail assets. It’s AMAZING how, with relatively little money, you can acquire assets with HUGE UPSIDE potential. (Sorry for all the caps. We’re just EXCITED!).
BUT…(and it’s a big but), you better have a plan. And you better have connections. And you better be able to think outside the big box. If you do, then there’s BIG money to be made!
Tom shares with us some of the creative strategies he’s currently employing to acquire and re-hab distressed retail properties. Even if you don’t have plans to be a mall mogul, the principles Tom employs are applicable to other types of real estate. Besides, any time someone with 30 years and billions of dollars of experience wants to share their wisdom, we think it’s a really smart idea to listen. Our attentiveness is rewarded when Tom reveals the single most important component of his success and the #1 investment of his career.
Not everyone is able to chit chat with a big time investor. Tom doesn’t do seminars, write books or sell boot camps. He’s just out in the real world doing the real thing. That’s why you have The Real Estate Guys™! Our mission is to hunt down big brains, powerful ideas and great resources that help you succeed. Your job is to listen, learn and take action. Plus, we really appreciate it when you tell all your friends about The Real Estate Guys™. Enjoy!
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WSJ says House Flipping Make a Comeback
We noticed an interesting headline it today’s Wall Street Journal. “House Flipping Makes a Comeback”. That brought back fond memories of easy equity during the days of “irrational exuberance” in real estate. Of course, there’s a dark side to irrational exuberance which we’re sure you don’t need to be reminded of.
So why did this article catch our interest?
The star of the article is a real estate “investor” in Phoenix…really? Phoenix? We thought Phoenix was a train wreck. Or, is their opportunity in chaos?
Anyway, this guy in Phoenix went to an auction and bought a house that was formerly worth $1.3 million. He paid just under $489,000. He then sold it to a woman for $699,000. That’s about $210,000 in quick profit. In The Real Estate Guys’ world, we call this “found” equity. It’s “found” because he didn’t do anything to the property to make it worth more. It was worth more than what he paid for it at the time he bought it. The bank left money on the table. He found it.
Sounds easy, right? How many of those would you like to to do in a year?
The article goes on to talk about different markets and statistics. It provides some insight into bank motives. Blah, blah, blah. This isn’t to be critical of the Wall Street Journal. But they write for a different reason than we do. We’re thankful they brought the topic up. Now we have something to build on.
What we’re interested in is HOW to do it. Though we’re not experts in purchasing foreclosures, we have certainly done our share of “found equity” deals. Based on our experience, here are some tips if you decide to play this game (which can be very fun and profitable!):
ALWAYS know your exit before you get into the deal. And ideally, you want more than one. The article doesn’t say if the Phoenix guy had his buyer identified BEFORE he bought the property, but that’s the way we would have played it. With a buyer in hand, you show up at the auction (or go into the open market) and look for a property that your buyer wants. If you know what they’re willing to pay and you can buy it for less, then you have margin and a quick and known exit.
Make sure your buyer is real. That is, he’s ready, willing and able (as in financially capable of buying). If you’re a real estate agent, this is basic. If you’re a newbie flipper, it’s gold. You don’t want to be stuck holding the property.
Make sure your margin is more than 6%. Even though 6% on a $300,000 deal is $18,000 and it sounds like doing that 10 times a year might be a decent living, it’s the same as if you were a real estate agent. The difference is a real estate agent isn’t putting his own capital at risk. If you’re going to take more risk, you need to receive more reward.
Don’t put all your money into one deal. It will be SO tempting when the “no miss” deal comes along. But remember, this is real estate. Something ALWAYS goes wrong. It doesn’t necessarily mean you lose money, but it might be tied up for awhile, so you lose opportunity. Side note: If you don’t happen to have $500K sitting around like our friend from Phoenix apparently did, go find 10 friends who have $50K and do a small syndication. Now no one has all their money in one deal. And if this whole process takes 90 days, $200K on $500K is a 40% return in 3 months. That’s 160% annualized. We’re betting there are some investors out there who would want to get in on that. If you decide to go this route, make sure you visit with your attorney first. Syndicating isn’t something for the newbie do-it-yourselfer.
Did we mention to have a plan B? And C and D? If your buyer falls through, have 2 or 3 more lined up. If possible, be prepared to “Flip and Hold”. This is what we call buying a property for cash, then refinancing it to get most of the money (or if you bought it low enough and wait a bit, you can sometimes get ALL your money back out). Then rent the property for enough to float the mortgage and expenses. Obviously, this is more complex and there’s some math to do to make sure it all makes sense. And we know that getting loans on certain types of properties (and cash out loans in general) is harder to do today than in the past. We recommend knowing your financing options BEFORE you buy, even if you don’t plan to hold. You never know how it’s going to work out. The more options you have the safer you are.
We obviously could go on and on (we’re experts at that). This topic is too deep for a simple blog post. But it should get your brain whirring (which is always a good thing). Our recurring theme is that there is a lot of money to be made in real estate right now simply because most people still aren’t ready to play. This guy in Phoenix made 200 grand because other people weren’t there bidding. And what a great service he provided for his buyer!
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