Who is buying the other 99 out of 100

Question

I am a new investor, yet to complete my first deal but I have a question that pops in my head every so often when I am reading an investing book or article or listening to a podcast....If everyone says smart investors are looking for that 1 great deal out of every 100 that are on the market, who is buying the other 99??

I mean I get it for SFH as investors are competing with retail buyers, and I get it for lower price investment deals let's say under $500K  where there may be a lot of inexperienced investors buying up properties but presumably the people picking up multimillion dollar properties are sophisticated investors. Why would they be buying those listings on loopnet at price levels that I would think are not great deals?  Is the point you can have a successful deal on just about any listing, it's just a matter of how much return you require once you are dealing with that class of investment?

Rhondalette W. · Answer

Tyrone, one investor may look at a property and determine that it is not a good deal because it does not fit into their particular investment strategy (flip/rehab/buy and hold etc) For example, some investors may want properties that need extensive work as long as they can buy at a deep discount and flip for a profit and other investors may buy turnkey properties that will cash flow for long-term buy and hold.  Another investor may want low price with small rehab it just all depends. So, the other 99 can be purchased by other investors who have a different strategy or owner occupants.

Larry Turowski · Answer

@Tyrone Jackson The short answer is homeowners and investors who are satisfied with the non-best deals (generally those with more money or who are less savvy).

There are plenty of foreign investors who buy rentals in the city where I live.  They may not be able to buy in the quantity they need or want to if they would only settle for the best deals.

In the suburbs it is generally homeowners.  Investment deals are the ones that need extensive work.  These are the one in a hundred.

John Hyatt · Answer

Hi Tyrone,

I believe what they are referring to is people who can make a living buying investments. Believe it or not there are people out there on the other end of the spectrum and they have billions of dollars that need to be placed, to them a 5% return on a very safe apartment complex is a great deal. To a real estate investor 5% is nothing, you wouldn’t tie up $1m or more to get a 5% or 6% return if that is all you had, but if you had $1b then there are only so many investments out there that you can make money on. Would you rather have $1b in the bank making less than 1% or several massive apartment complexes making 5% or 6%? To them it is a great deal, but to us real estate investors it’s a rip off. We are looking for the deal that provides 10-20% + where we can put sweat equity (negotiating, sorting through the 99 not so great deals, fixing up, managing, etc). Wise investors know that inflation is 2% a year on average and if they do nothing with their money it starts to decline. So they buy deals not only to make money, but also to beat inflation.

-John

Brandon Schlichter · Answer

There are alot of investors out there willing to take deals well under what I would accept.I see many duplexes locally sell for gross returns of 16% based on purchase price alone. I wouldn't touch them and personally go for 25% or better. Many times people will buy a few of these, get burnt out due to low ROIs and high headaches (I'm more than happy to deal with problem tenants, as long as I know I'm making good money).

Then into the mix, many owner occupants are happy to buy 'something' even if they don't 'get a deal' on it because it's their 'dream home'. I try to be cold and calculated with real estate, even when it's time to buy something I will be moving my family into. I've met many purchasers who have lost $50k+ in a deal because they liked it even though there was no good financial reason to make the choice.

Mark Shaffar · Answer

@Rhondalette W.good point about eviction costs

Mark Shaffar · Answer

@Frank DurhamThat sounds ridiculous but I guess if it's legal and money is going into the neighborhood...

@John Hyattanother way to look at it is to say some investors are happy with singles and doubles, while others will sit on their cash, losing money to inflation and waiting for that home run. I'm more of a singles, doubles and triples investor.

Rhondalette W. · Answer

I love that story, especially the part about simply entering the home without keys because there is no door...lol. You have a brave friend to deal with homes in D class war zones. I found it interesting that you said he actually evicted. I wonder if cost of eviction was more than cost of the home itself? Interesting...

Frank Durham · Answer

Great point !!! you see .. this is what folks mean by . .one deal for one person is not necessarily a great deal for another.. eg.. you can buy a home for $1k in MD .. sure riots and all. but they will stop rioting soon..  but I'd buy properties all day long for $1k.. and then sell them on craigslist  for $1k down .. and payments on the other $9k .. I make my $$$ back. and now rent to own it paying me $500.00 a month .. i'm your bank !! . at 7% interest.. You stop making payments. I get to evict you . put the ad back on Craigslist. for another $1k. .and start over .. but the last guy that was there did a few improvments. so now i'm selling it for $15k  .. now $14k in financing to the 2nd guy.. if there is one.. but you see it all depends on what/how you want to make $$$..  I have a friend who buys these properties like this all over the  country and puts ads in local papers and sells them to folks.

I remember the 1st time he did it.. he said.. some guy called him from Kentucky or wherever the house was and asked if there was anyway to get the keys to see the house. my friend said. GO right on it. there is NO front door on the house.  the guy walked in looked around called him and said I"LL TAKE IT..  .. he gets all kinds of checks every month in the mail on these properties.!!!

Tyrone Jackson · Answer

@Rhondalette I was thinking more like if a deal is listed at $700,000 and the current specs does not match my criteria, chances are if I could get that same property for $500,000 for example then i would think it would be a good deal. I am almost thinking of a strategy where one routinely offers massive low ball buying prices in hopes of getting a small percentage of the deals.  I know a lot of investors probably do something like this anyway and I don't think it would be very practical or professional to do it all the time, just wondering if the premise makes sense.

Who is buying the other 99 out of 100

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