It is a truism in real estate investing that money is made when you purchase; the profit is realized when you sell. The problem for the investor is that everyone is trying to buy at a discount. The competition drives the price of any worthwhile property near or up to full market value. Even so called distress sales; foreclosure, bankruptcy, probate, divorce, can result in competitive bidding.
The internet has been a great friend to the seller of property. Fifteen years ago someone with property to sell either had to accept a discount for a quick sale from one of the all cash “we close quick” buyers or spend months waiting for an offer while his property was listed in the “MLS Book”. Now, information about a property for sale is instantaneously transmitted to potential buyers worldwide. We have sold Houston apartment buildings to California based investors, a Bryan, Texas office – warehouse to a Singaporean transportation company, and an Austin church building to a Dallas based ministry looking to expand.
In years previous, being an all cash buyer allowed me to purchase property at 70 – 80% of real value. However, for the reasons mentioned above being an all cash buyer no longer warrants a 25% discount (by the way we are talking about REAL current value here, not some inflated appraisal done one year ago before prices dropped 30%). Going to auctions, subscribing to foreclosure listings, contacting probate lawyers, were no longer generating the deal flow I needed.
The need for financing (and lack thereof) combined with the current sour economic environment have combined to provide a once in a lifetime opportunity for the investor with cash to purchase quality properties at 50% or less on the dollar. What I do and what any real estate investor with cash can do is make hard money loans on property you would be happy to own. The foreclosure rate on loans secured by commercial property has risen dramatically, from 5% to 30% of all loans made in the last two years. So it becomes a win – win for the investor/lender. If the borrower makes his interest payments and eventually pays off the loan the lender earns 14 – 18% interest annually, a great return especially in this low interest environment. And the great news is that demand for private mortgage loans is so great that not only can 14 – 18% interest be obtained, but the loan can be made at a loan to value (based on real current value) of 55% or less! If the borrower defaults the lender/investor ends up owning the property at 50 -60 cents on the dollar. Beats chasing foreclosures any day!