Question on Competition

[Matt Byrne]

What's up, everyone,

I'm a complete novice who has been bitten by the real estate bug, igniting a serious interest in this business. I've been reading, analyzing properties, listening to podcasts, and talking to people about it, and am looking to utilize as many other resources as I can, so this seems like a fantastic place to go. I really hope to meet like-minded people, as it's evident just how important a solid network is.

All that said, I have a question relating to buying a rental, and would appreciate any insight. I'm looking on Zillow at different properties, and sometimes feel as though I can assume it's being sold by an investor. This makes me question the soundness of the investment. If the property seems like it has potential, and some numbers are looking decent, yet it is being sold by an investor, where does that leave you? Do you assume it must be a bad investment? Do you assume the seller was a bad investor and did not run his business successfully, and that it could be a great investment? Again, this assumes the seller is an investor, but this dilemma is something with which I'm having some difficulty. Thanks in advance for any/all responses. 

[Corey Hawkinson]

@Matt Byrne There might be many reasons why an investor would sell. Here are a few:

1. The investor doesn’t know what he/she is doing. I never like to assume this one. I also hate listings that emphasize “below market rents” too much. Buy a property based on the existing cash flow, and make a bigger profit if you improve the cash flow. Never assume you can instantly increase rents.

2. The investor wants to move up through a 1031 exchange. I’m very small compared to most people on this site but even I have completed a 1031 exchange. Great tool for a buy and hold investor. It might make sense to sell a duplex making $500 a month to buy a 4-plex making $1,500 a month. The duplex can still be a good purchase.

3. The investor wants to retire. This happens a lot. This was the case on the property I purchased most recently.

With all this said, you should try to understand why the investor is selling. And never trust someone on the other end of the sale. Verify everything.