How To Crack The Hedge Fund Code...Selling Property

Question

I'm in the St. Louis market which has been a hot market for awhile now. We see hedge funds, corporate purchase, bulk packages, (you name it, however you want to label it) coming in and picking up various numbers of turn-key rentals. These properties are comps to some that we have put out for purchase but we typically have better rents and/or better prices. However, our properties tend to get passed on by these corporate/hedge fund groups. I'm curious why this is happening. I just saw a house that is slightly smaller and getting less in rent sell for 15k more than one I have available just 2 blocks away (same neighborhood) with a ROI of 18%. That smaller house was sold to a group who is still active in my market. I've done some research and can find no agent attached to the purchases. I even reached out to the company but cannot get a return call.

I see this happen time and again and I, along with some other investor colleagues of mine, just shake our heads stumped at why it happens. Is this an agent issue in that a buyer has an agent working for them and the agent is cherry picking the properties that will make them (the agent) the best money on the deal? I've been in the market for awhile now and I still don't get it.

Chuck Walker · Answer

Gentlemen, thank you for your feedback, insights. I thought the package purchase scenario was a likely culprit in a couple of cases. Any thoughts on how to get into that circle of influence and/or crack that code? Is it JV'ing with other sellers to create a package of properties? I have no issues with paying "finders fees" if the right deal comes into play.

This is the one area that eludes me.

Nick C. · Answer

Many of these institutional buyers are not necessarily looking for the best deals. When they were extremely active here, they would buy from people they had backdoor deals with. The decision makers would get kickbacks from the sellers and contractors, and that's how business was done.

For example they could buy a good deal at 80k, or buy a deal from a guy they know at 120k and get 10k back in their pocket. The repairs could be done for 20k, but the contractor they know could hit the fund up for 50k and give 10k back to the decision maker. Those guys were killing it, and it wasn't their money, so it made no difference to them.

This is not indicative of all of them, just some of the ones we dealt with.

Russell Brazil · Answer

More than likely it is part of a bulk purchase. They might buy 100 homes at once, and are just allocating a percent of the total dollar to each property.  When a large buyer is doing that...they simply can not go and purchase 100 individual properties, its just too hard. So they buy 100 properties from 1 person for a quick, easy sale.