Why are investors are purchasing TLC properties over value

Question

I'm going to be honest. This Real Estate market is trash, especially in New Jersey. The reason is because gurus are making newbies come into the business, and now markets are saturated with investors. Newbies are bidding up properties in desperation to buy their first investment property. Anyhow, that's not why I made this post.

The other day I was on Hubzu looking at a couple Multi-Fam properties in Essex county, NJ. These are areas that are run down, gang infested, and drug empires. The ARV on these properties are around $350k; and please be reminded that these properties have stolen pipes, hot water heaters, boiler system, and etc; ultimately, they need a lot of work. However, Investors are bidding these properties up at market value, which makes no sense!!!! For example, if the house is worth $340k, these guys are coming and bidding $330k. I have no idea if it's the guys at Hubzu doing this in hopes to get more money, or if investors are really doing this ridiculous bidding. Also, because of these inflated prices. Investors are buying properties above market value, and listing them ABOVE market value. Which again, makes no sense. It has to be out of desperation that investors are doing this.

Also, properties are hitting the market and in less than 9 hours they are already under contract. These realtors are giving these properties to their investor buddies, and is making unfair competition for other investors. It's a lot of shady things happening behind the scenes in this business, and it's ridiculous. From the Fraudulent coaching "guru" programs, all the way up to these REO listing agents. I've been involved in this business since late 2016, early 2017, and I've never seen this much competition, especially in New Jersey.

Guy Gimenez · Answer

I've been investing since 2000 in multiple markets in Texas and this is meant as constructive criticism.

It appears you're complaining about the free market system. If noobs are buying high and able to sell them even higher, it's not unfair, it's business. The market is talking and others are listening. Competition is what forces innovation in our businesses. Adapting to market conditions is how you'll survive in business long-term. I don't buy anything that is on the market, HUBZU or any other site...I buy direct from motivated owners before others are aware of the property. It sounds like you're fishing in the retail pond instead of the wholesale pond. Time to do a check-up from the neck up and realize the market is not the problem, your refusal to innovate is the problem.

Evan Wiesner · Answer

Honestly, if you're getting beat to properties, whether by newbies or experienced investors, take it as an opportunity to analyze what they are doing and see if you can improve what you are.

After a decade of buying at trustee sales around the country I can honestly say that losing an auction is still frustrating, but there's something that I've always kept in mind and you should too. My model, my finances, my needs, are different than everyone elses. So when I win, they think I'm crazy and when they win, I think the same of them.

Is that logical, no, but if it's working for them when they win then they are doing it right. And the same goes for me. It's not a level playing field and some people have inroads you might not. Buy and hold investors SHOULD beat out flip investors, and sometimes they can pay over ARV because of the rental returns. Add in that large funds sometimes need to buy more than they can at optimal returns, and they might play the appreciation game on either value or rent.

I chalk it up to variables, and for some reason it sounds like yours are getting beat at the moment. Big movements take big changes, might be time to look at it from that perspective.

Why are investors are purchasing TLC properties over value

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