How to Find Good Investments When Prices Are High and Markets Are Competitive
How’s this for a success story? In just the last five years, Steve O’Brien and his team at Atlanta-based Arcan Capital have acquired more than 20 multifamily properties. Together, these assets are worth more than $300 million. How has Steve, Arcan Capital’s co-founder and chief investment officer, prospered in such a hugely competitive marketplace?
Well, Steve’s boiled his strategies down to four main pieces of advice. These tips should help you get ahead in the exciting but extremely crowded real estate industry.
1. Maintain Your Reputation
To start with, Steve stresses how building a stellar reputation takes a long time, but the results are priceless.
In the real estate community, many brokers and sellers know each other well. And many people discuss the firms they’ve worked with openly and candidly.
Therefore, it’s vital that, when you promise to do something, you actually do it. For example, don’t ever make a bid if you’re not sure you can afford it. If you follow through every time, people in the industry will know it soon enough.
Imagine that you bid on a deal, but two other real estate companies place higher bids. If those two companies are new and relatively unknown — or even worse, if their reputations are weaker than yours — it’s very possible that you’ll win that deal despite your lower bid.
2. Data, Data, Data
The only way to build a strong reputation is to really know what you’re doing. And the only way to know what you’re doing is to have thorough and accurate data.
Before you bid on a property, learn as much as you can about it. Study the local renting market as well. What are local renting habits like? What are area renters willing to pay for various options?
On top of that, you should be familiar with practically every contractor in the region. How much do they charge? How does their work compare? Which of them provides realistic quotes?
You should also get permission to tour the property with a trusted contractor. That way, you can find out what renovations are needed and how much they’ll cost.
Similarly, get to know as many maintenance professionals in the vicinity as possible. You’ll want to consult with a few of them to see how much it’ll cost each year to maintain the property.
Consequently, you can make data-driven decisions about which properties will pay off and how much to bid for them. You can be sure that many of your competitors won’t make such insightful choices.
You can also impress sellers and potential investors with the facts you discover during your research stage. For instance, it might be obvious that a certain property needs new windows. However, a contractor could tell you exactly what kind of window and what type of glass would be best.
Later on, when you describe those ideal windows to the seller and to people who might make investments, they’ll probably be impressed. They’ll see that you really know your stuff. And, once again, you’ll gain a distinct competitive advantage.
3. Be Honest With Investors
Of course, your investors are key to putting your deals together. And they definitely have lots of options when it comes to residential and commercial real estate. That’s why you should always take care to strengthen your investor relations.
If these people believe that you respect them and care about their opinions, they’re much more likely to partner with you again and again. After all, that kind of relationship isn’t necessarily common in the real estate business.
Therefore, be straightforward about your expectations for each deal. Never oversell. If you explain that, due to current market realities, a certain deal might yield lower returns than previous deals, most of your investors will appreciate your honesty.
Likewise, don’t take any investments for granted. Maybe there’s someone who’s been investing with you for a long time, and that person is always enthusiastic about your work. Even so, don’t assume this investor will automatically go along with your next deal. Instead, sell them on it as though you were collaborating for the first time.
In addition, you can use different methods to keep the lines of communication open. Business reports, informational newsletters, and phone calls are all great ways to keep your investors connected and updated, even when you don’t have a deal to pitch.
4. Go Your Own Way
Whenever you can, look for properties with less competition for ownership. You might find, for instance, that dozens of firms are trying to buy one multifamily home, yet there’s a multifamily residence nearby with a less competitive amount bidders. If so, consider that less popular alternative.
The second property may need more renovation or maintenance work. Maybe its estimated return on investment isn’t as high as some investors would like. However, you might be able to get it at a low price. And, if you have relationships with contractors and maintenance pros who’ll give you good deals, you could see healthy profits from that purchase.
This approach is known as the blue ocean strategy: seeking discounts and low-demand options in order to claim new slices of the increasingly competitive market.
As you can see, Steve O’Brien’s real estate triumphs have nothing to do with luck. Instead, Steve has grown his company through copious research, informed decisions, honest investor relationships, a reputation for reliability, and the occasional quest for less sought-after properties. These strategies can ultimately benefit anyone seeking to develop a competitive edge in their chosen industry.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.