How we built a distressed real estate investment fund

[Tom Pappas]

Investment Info:

Single-family residence other investment.

Co-founder of Visio Ltd, operating a real estate investment fund across 48 states dealing in distressed single family homes sourced from financial institutions and sold to fix & flip and buy & hold investors. $100 million equity & debt managed.

What made you interested in investing in this type of deal?

I was interested in the finance and legal aspects of operating a multi-state buy and flip equity fund. I was intrigued with the prospect of buying distressed properties in bulk quantities and finding local investors who could rehab them and put them back on the market.

How did you find this deal and how did you negotiate it?

We used an REO broker to find bulk packages of foreclosed distressed houses for sale from banks.

How did you finance this deal?

We had 20 high net worth investors who placed equity and debt with us with a profit splitting arrangement.

How did you add value to the deal?

We bought lists of homes and sold them off individually.

What was the outcome?

We sold 70% of the packages off in 90 days and the remaining 30% were sold in 12 months. We distributed profits to investors quarterly and returned a 45% IRR to investors annually.

Lessons learned? Challenges?

The complexity of selling nationally forced us to expand our headcount. As large investors entered the market to acquire single family houses, our margins were squeezed and we ultimately could not maintain our target investor returns as the market totally changed.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We handled everything in-house from the point that we acquired the properties to listing them on our website and pushing them out thru an internal sales force that did outbound calls to investors.