Don’t Lose Heart Because of Institutional Competition
I remember feeling somewhat uncomfortable at the announcement earlier this year that Fannie Mae and Freddie Mac would be packaging large portfolios of foreclosed properties and selling them to the highest bidder. As a smaller investor, I did not like the idea of larger buyers having an unfair advantage over the smaller guys like myself. Truthfully, with such a high level of competition acquiring foreclosed properties and so many distressed properties selling within days of being listed, it seemed like a solution to a non-existent problem.
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Luckily, it appears this pilot program is taking longer than expected and may not materialize to the extent many had anticipated. Thus far, the largest pending bulk sale is just under 2,500 properties and Fannie Mae is still in the process of reviewing bids that were placed back in February. Additionally, future bulk sales are being held up while the initial pilot bulk sales are in process so that the system can be monitored and reviewed before moving forward with additional sales. While this may be disappointing to larger investment groups, it’s great for the smaller investors like us who want a fair shake at acquiring foreclosed and distressed properties.
Even with the slow start-up to the bulk sales, money is being raised at an unbelievable pace right now to take advantage of these historically low real estate prices. A recent article in Bloomberg estimates that 6.4 billion dollars has been raised through multiple investment funds for the sole purpose of investing in distressed residential properties. Interestingly, most of this money has yet to be invested. Why? I would venture to guess it’s because there simply isn’t a good mechanism for acquiring large numbers of residential properties at one time. With few bulk sales happening right now, acquiring inventory still requires a “boots on the ground” approach to real estate. Most of these funds simply don’t have the infrastructure in place to find the properties, make the bids, handle the renovations, lease and manage the properties. As any investor knows, stabilizing a distressed property takes a lot of time and effort … especially when you are talking about spending millions of dollars in a short period of time.
I know for a fact that many of the properties we bid on in Atlanta are also being bid up by larger institutional buyers. While it’s frustrating to frequently get outbid by these hungry entities, it is interesting to consider that while they are much larger, they still have to stand in line and submit their offers like the rest of us. Yes, these large pools of investment funds have made our industry more competitive, but I don’t believe that they’ve figured out how to monopolize a market. So don’t lose heart! Individual investors still have the ability to build relationships with local REO agents, make quicker offers, advertise locally and find opportunities that the competition missed.