Thursday, September 28, 2023

How to find undervalued real estate to invest?

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Shreya Christina
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Through Lisa Song Sutton, a Las Vegas-based entrepreneur, real estate investor, and former Miss Nevada. Co-founder of Sin City Cupcakes.

Every savvy person I know is currently cashing in on a “catastrophic” recession that will result in real estate windfalls that would put the 2008 global financial crisis to shame. It is therefore not surprising that we have to wait a little longer. And that windfall from real estate deals may not be such a windfall after all, since everyone seems to have the same playbook. As a real estate investor with a growing portfolio of over $50 million, this is what I do to take advantage of opportunities right now.

Determine your investment nexus.

Are you more at home in residential or commercial? When it comes to housing, are they single-family homes with long-term tenants, holiday apartments with short-term tenants, or a combination of both? If it is commercial, are you looking for warehouse space, shopping centers or land? There is an abundance of options and no lack of diversification when it comes to property types for the savvy investor.

My recommendation is to find your niche and stick to it. Branches only with an experienced (in that kind of real estate) partner. Over the past decade, I’ve seen friends and colleagues lose money chasing the next hot vertical investment. One of my real estate mentors always reminds me, “grow in what you know.”

Get off-market inventory through relationship building.

The best way to find off-market deals is to work on your relationship with a licensed broker. I know, it seems that after the pandemic everyone and their mother have their real estate license. While that’s kind of true, you just have to ask the right questions to find out who can really be of value and help you make money in real estate. When you meet (or if you already work with) a licensed agent, ask them:

  • How much real estate do you own?
  • Which parts of the city do you invest in?
  • What type of real estate do you prefer? Why?

If they can’t answer these questions or if they don’t have satisfactory answers, find a cop who not only talks, but can walk. If you’re an investor and the agent handling your deals isn’t, then you’re leaving money on the table. Every good agent has a short list of investor clients they work with consistently. Maintaining the relationship is a two-way street. Every investor wants a deal. The best way to obtain them is to have them brought to you by a professional you trust.

Make friends with a lawyer.

You can skip the personal injury guys. I’m talking about inheritance and bankruptcy. Unfortunately, the pandemic brought with it a large number of unexpected deaths – unexpected deaths that resulted in estates without wills or trusts. With no guidance on how assets should be bequeathed, courts are inundated with cases.

This backup has created some interesting real estate opportunities. Importantly, the probate court still requires an appraisal of the value, but generally the appraisals I’ve seen don’t come in at the top of the market. They were very reasonable if not slightly below value. Courts are encouraged to work with a cash or quick investor so that the estate can be liquidated in a quick, efficient manner.

Contact your local probate attorneys, bankruptcy attorneys and trustees. Introduce yourself as an investor, share your investment criteria and ask them to keep you on their shortlist of reliable, fast close, easy to work with investors.

Buy companies that also own their real estate.

One of my real estate mentors focuses on an interesting niche. He buys small businesses that also own the real estate where the business is operated. He then either improves the business or lets the business go and then sells the property for a profit. I believe this is working at this particular time because of the transfer of wealth from the Baby Boomer we are in.

People born in the 1950s are now reaching retirement age. Some have built a “mommy and daddy” type business such as a small RV park, arcade, shipping store, or neighborhood restaurant, and they cleverly bought the real estate their business operates on. Now that they want to retire, they are selling the business, which also happens to be accompanied by real estate.

Every situation is different; some properties are fully owned and others have a low mortgage. The common denominator is that 100% of the transactions my mentor has bought were circumstances where the property was undervalued or there was an opportunity to make the property more valuable through improvements or zoning changes.

Real estate is an excellent hedge against inflation, and it is one of the best ways to build wealth over the long term. Even when there is uncertainty in the market, you can still find ways to take advantage of undervalued real estate resources.

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