How can smaller real estate investors compete with huge hedge funds and private equity firms in the San Diego area? More importantly, is it possible to surpass them?
This is a growing problem with many San Diego investors, and especially for those just trying to break into the business. It’s one of the biggest challenges in today’s market as well. Fortunately, there are several solutions for beating out the ‘big boys’ and there is definitely a silver lining to this cloud.
Real estate investors, on a national level, have had to acknowledge the presence of larger hedge funds and private equity firms for a while. However, more investors have begun to complain about their involvement. According to them, these large firms are buying all of the available housing for outrageous prices, essentially making it more difficult for the average investor.
Blackstone, in particular, has reportedly scooped up homes across the U.S. at a rate of $100 million a week, totaling almost $2 billion and 40,000 units over the last couple of years.
Investors in cities like Phoenix, Atlanta, and Chicago are griping that these over-sized vultures are buying up everything they can get their hands on. It doesn’t help that they are paying well over the asking price, making it more difficult for individuals to make a profit. This makes it extremely frustrating for those making endless bids, only to find that they have already been beaten to the punch by the same players yet again.
So what’s the work around?
How to Win:
Fortunately, there are at least six ways to kick this hurdle to the curb. Part of it is simply re-framing the issue and the questions you are asking.
Most should stop asking how they are going to outbid these competitors. You aren’t going to win by outbidding. Subsequently, if you snagged the deal by paying more, you’ll just be overpaying.
Here are some more profitable and practical solutions to consider:
1. Be Faster
If it doesn’t make sense to beat them on price, then real estate investors must find another angle for getting the edge. Paying cash or selecting which contingencies and clauses to include is really a moot point by now. However, another option is to be faster. Be wired into the best feeds, have bird-dogs on the constant hunt, and build relationships with professionals that will bring you new deals before other players even know they exist.
2. Switch Niches
Most of the bigger funds are all honed in on one niche. Butting heads with them can often just mean a lot of frustration. So instead of bidding for properties with the same criteria, why not just change your target? Look at different price ranges or property types.
3. Get Out of Town
If billions of dollars are blindly buying up everything in your town, maybe there are better deals to be found somewhere else?
4. Sell to Them
With such a hunger to buy every piece of property possible, perhaps there is great profit to be found in getting in and flipping houses to these buyers.
5. Buy for Them
Large funds like Colony have announced switching gears to funding other, smaller investors to go out and do the actual work of buying, rehabbing and flipping houses. So why not get them to pay you to do it, and get them out of your way at the same time?
6. Be Patient
You may not have to do anything different at all. Be encouraged that many of these firms are reporting that they are moving on to new niches and investment strategies. They have been switching up which cities they focus on constantly over the last few years anyway.