How do you compete against the big guys?

Question

According to Tom Barrack, CEO of Colony Capital (which manages nearly $50B) distressed single family housing is one of the most attractive investments of the past 20 years because government intervention has kept affordability artificially high (due to low interest rates) and you can buy below replacement cost even after the expense of fixing up the property.

What advantages do you think these guys have and how do you complete?

http://www.cnbc.com/id/100449849

What advantages do you think these guys have and how do you complete?

http://www.cnbc.com/id/100449849

Chris Adams · Answer

Warren Buffet said it best in an interview when he said its impossible to purchase such a large quantity of homes, and place proper teams to manage the rehab, sale, and property management needed to make such a large quantity of homes perform to their potential, over such a large geographical area such as the United States.

These guys can purchase large blocks of homes in specific zip codes, but REI's are going to heal the bulk of the problem a few homes at time.

Thomas Johnson · Answer

Big Banks sell on the Secondary Markets Freddie & Fannie, where they group assets together into bonds or portfolios etc and package to resell to investors making money over money No matter how big you are you will always be the lil guy. My advice stick to your markets and work your niche.

Darrell Shepherd · Answer

I dont know about other markets, but the big guys are slowing down in the ATL.  They are getting a little lesson in that Buffett quote above.  The numbers look great on paper, but trying to manage that kind of volume requires hands on work and some know how.  These guys are getting bent over at every turn and their ROI isn't coming in anywhere near where they thought it'd be.  I know the guys working Colony here (WRI), and they are terribly overwhelmed and throwing people in places that wreck them and move out owing money in a few months.  Pretty good way to lose money.  My fear now is that these guys decide its not a good investment and dump everything.

Account Closed · Answer

Karen,

I agree with Karen the big boys buy sight unseen with no contingency all cash.

Joe Gore

Karen Margrave · Answer

The fact is, you can't compete with the BIG guys, so don't worry about them! Here in southern California there are REIT's that have hundreds of millions of dollars and are buying homes, here and in other states. Just work your market, find properties that work for you, and make your offers. Most of the time the big guys aren't going after the same properties as the smaller investors, it's way to time consuming. They're buying in bulk.

Account Closed · Answer

Craig,
	 
	 Colony Capital is not as big on buying foreclosure and REOs as the OSI Partners

Joe Gore

Elizabeth S. · Answer

I would have to agree with you on this one @Chris Adams. There are always going to be larger investors who can buy more properties but there are also always going to be people getting out of real estate.

John Rooster · Answer

I reject the premise that Big institutions have an advantage. To further eliminate your concern, I would say that I doubt they are buying in Virgina, they are almost exclusively focused on the sand States.

Wayne Woodson · Answer

The best way to compete with the big guys is to become a big guy yourself. Until then as Nick said you have to provide solutions that the "big banks" can't.

Nick Walters · Answer

Craig, there's no doubt that the big real estate and private equity shops have the upper hand when it comes to scooping up REOs in bulk for two reasons.

1. They are paying all cash for these assets.
2. More than likely, the asset managers at the largest banks in the country were B-School classmates with these guys and therefore have the inside track on all inventory coming online.

The small, local investor will gain an advantage by focusing on customer service with homeowners, identifying a need and providing a solution. Big banks can't provide that service.

How do you compete against the big guys?

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