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5/19/13: The Rise of Nimble Money – Fast Moving Investors Find Great Deals

Real estate is getting hot again, which means more competition for the best deals.  To complicate matters, big hedge funds are coming into the market and grabbing big chunks of available properties.

What’s a little investor to do?  That’s what we discuss during this episode of The Real Estate Guys™ radio show!

Behind the microphones in the American Airlines conference center at the Dallas / Fort Worth airport:

  • Your nimble host, Robert Helms
  • His numbskull co-host, Russell Gray

When you travel the world like we do, looking at real estate, meeting industry thought leaders, attending mind (and network) expanding conferences, and sampling the wares of a variety of micro-breweries, you never know where you’ll be when it’s time to broadcast a radio show.

For this episode, we found ourselves between flights in the DFW airport.  No worries!  We just whip out the microphones, set up our mobile studio, and voila!  Instant radio show!

So in the spirit of being light on your feet, we decided to discuss the why and how of being nimble in a competitive market place.

It’s actually strange to be talking about this.  It seems like such a long time ago when great deals were being bid up in multiple offers.  But those days are back in many markets, so being able to respond to opportunity quickly is the renewed name of the game.

The good news is that when an asset class gets hot, it attracts money.  More accurately, when money rushes in to snap up bargains in a particular asset class, that asset class gets hot.  The point is that money is pouring into real estate right now – mostly from investors.

However, “investors” are moving into real estate on both the equity and debt side.

What does that mean?

Simply that some investors want to OWN the real estate, while others want to own the DEBT on the real estate.  In other words, lenders are coming back into real estate too!  This is great news for the nimble real estate investor, because unless you’re flush with cash you want to tie up for the long haul, you’ll probably want to use financing of some kind.

Think about where we are in the market cycle.  Ten years ago real estate was red hot and on the upswing as Fed-induced low interest rates and gobs of liquidity poured into the markets to save us from the tech bust and 9/11.  All this loose money set off a feeding frenzy in real estate.  And we all know what happened a few years later.  Prices came crashing down and one of the biggest financial disasters in modern history ensued.

It was a painful transition with a lot of great lessons learned.  But that’s all it was: a transition.  And while there will certainly be more financial ups and downs ahead, once the real estate market put in a bottom, investors realized the world was still spinning and people still needed real estate.  The only difference is that many former homeowners are now renters.

That’s the beautiful thing about real estate.  Even when financial markets implode, the properties continue to exist.  Businesses may fail.  The financials of a property owner may fail.  But the actual real estate survives.  And so does the basic human need for real estate.  This is why there’s always opportunity in real estate.

So where are we today?

Prices have stopped falling and our now rising.  Inventories are shrinking.  In some markets, new construction is beginning.

BUT, home ownership is still very low relative to recent history.  So WHO is buying these properties?

Investors.  And not just Mom & Pop investors.  Big investors, like hedge funds.

And who is funding these purchases?  You guessed it.  Investors.

All this to say that investors are putting money into real estate, which is heating things up.  So the key for little guys is to be nimble.

Relationships and positioning will always be the first and best way to get in on the action.  After all, when a great deal comes to market, someone close to it knows early.  If you’re in a relationship with that someone and have good positioning, then you have a shot at finding out about the deal before it hits the street.  Insider trading is perfectly legal in real estate!

Of course, you need to be able to make a decision and bring your money to the table quickly, which is a big part of being nimble.

This is where private money loans can be a huge advantage.  Conventional lending guidelines, though improving, are still restrictive. And the approval process can be time-consuming.  Private money can bypass a lot of that.  But “private money” doesn’t have to be “hard”.

It could be friends and family.  Maybe someone’s self-directed IRA.  Remember, you only have one chance to buy the property.  But once you have it, you can always refinance it later with more favorable terms as they’re available.  And the tea leaves are showing a gradual loosening in lending guidelines as banks, the government, the Fed and private investors are all seeing improving stability in real estate.

Another part of being nimble is just being organized.  Any lender, private or institutional, is going to want to see your financials.  So keep yours up to date and ready to present quickly upon demand.

If you do decide to use conventional lending, you can speed things up by being pre-qualified.  A great way to burn up a relationship is to get into a contract you can’t close.  If you’ve been stringently pre-qualified, and have a back up plan (a private lender or cash), you can make an offer without a financing contingency.  In a competitive market, that’s an edge.

What about bigger deals?

If you’re dealing with your own money, it’s basically the same.  Just have your stuff together, which includes your team.  You don’t want to be shopping for a real estate attorney or lender during escrow.  Everyone should be all lined up BEFORE you get into contract.

Now if you’re syndicating your big deal, then it’s really important to have “you ducks lined up”.  You should have your offering documents largely prepared, so all you have to do is put in the specifics of the deal itself.  You should have your investors all lined up.  Ideally, you have money in an escrow account so you’re certain of your funding.  Next best is a list of pledges from investors who are ready to wire funds when you call them.  In this case, be sure to have more lined up than you really need because Murphy’s law says someone will have a personal situation which precludes them from fulfilling their promise.

Side note (and shameless promotion): If the idea of putting together a syndication interests you, consider attending our Secrets of Successful Syndication seminar.

Of course, the foundation of being nimble is having a clear investment philosophy and strategy in place.  It’s essential to know what financial result you’re trying to produce, then look for markets, properties and deal structure that will fit your model.  It doesn’t have to be complicated.  It just needs to be clear.  That way, you’ll recognize a good deal when you see it and be emotionally ready to move quickly.  Because all the organization in the world won’t help you if you’re unwilling to pull the trigger.

So listen in as we discuss the why and how of being nimble in a competitive market!

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