Successful Real Estate Investors are Like Roaches

“We’re like roaches; when it’s good we eat, when it’s bad we feast”. My long time friend Rob dropped that pearl a good 25 years ago. He successfully flipped homes around Atlanta before it was a “thing”, through the crash, and a good decade after. Flipping homes in Atlanta is for apex predators, it's the majors in every way. Rookies and HGTV Rangers are prey, few people understand just how difficult it is to be successful flipping homes. "Investors” are vilified, especially by the MSM who blame them for anything and everything that ails the housing market. It’s a disingenuous and lazy take, regularly taken out of context. As for "Wall Street", if they didn't gorge during the crash, we'd still be awash in listings and things would be much different. They cleaned up the calamity - and you could argue they caused it but that's another conversation.

For the most part, investors compete with other investors for inventory. The “normal” buyer isn’t chasing homes in need of major repair, subject to various obsolescence,  or those in “transitioning” areas. Reasons vary; most buyers don’t want / can't financially handle projects, but many lenders will not allow for that. FHA and VA have strict lending and appraisal requirements. Conventional lenders might be more lenient but “project” homes often fail to make the cut. Buyers with the cash and or gumption to do work are infrequent of late, "sweat equity" is out of style in the current, instant gratification society.

The vast majority of “investors” are not corporate giants, they are Mom and Pop owners. Most have fewer than ten homes, self manage, and must be very deliberate when selecting homes to chase. Math is the basis of every decision, there is no room for emotion. Most consider real estate investing for diversification and additional income. Those doing it for a living are the true professionals. There are three main options for investors.

Buy, Rehab & Sell 

• Math – is there adequate profit after purchase, repairs, holding, and selling costs?
• Labor and material – are these closely controlled, accurate estimates, issues known?
• Sellers market – target is retail buyer, low inventory, secure favorable contract terms
• Buyer confidence – best buyers are hungry, competitive, and emotionally driven

Think the 3-4% rate post pandemic craziness. That period was a golden run for "fix and flip" investors as buyers were frenzied in their approach. Sellers barely had to let the paint dry, but always had to be ready for the unexpected. Buyers were driven by emotion asFOMO was unchecked.

Buy & Sell "As Is"

• Math - is there adequate profit after purchase, holding, and selling costs?
• Sellers Market – investor buyers, cash buyers, are the target, can they move it. can they fix and flip?
• Buyer confidence – will investors consider buying "as is", is money available to them, does their math work?

The target here is buying a home and immediately flipping it to another investor. Often these homes are “trashed out” and buyers are expected to complete due diligence before or within a day or two of contract. The investor buyer must feel confident they can make repairs and still sell the home for profit - or add it to their rent roll. 

Buy & Hold 

• Math - is there adequate profit after purchase, holding costs, repair costs, and ongoing maintenance costs?
• Rental Market – will it remain rented, is demand adequate, are rents rising, are management fees considered?
• Rising prices – the home will be eventually sold, are sale prices rising?

Many investors buy and hold property for rental income. Variables here are many, but math is again, front and center. Market trends, maintenance, management, carrying costs, tax implications, and more come into play. All the "get rich" wizards preach this - while they get rich from fleecing people into buying their nonsensical "systems". 

Bottom Line

Institutional investors are not in direct competition with "normal" home buyers. Nationally, they own less that 1% of housing stock - but in Atlanta, they own 4.4%. Atlanta is the national leader, but buyers and investors tend to fish different ponds with little crossover. As mentioned earlier, Atlanta is the major leagues; a graveyard for many. Real estate is not liquid; it’s as hard as a rock and it can take months of analysis to accurately time buying and selling. It’s not a few keystrokes when money is unexpectedly needed. Unexpected issues are the norm, financial agility is a must to cover repairs, vacancies, market shifts and a hundred other things.

There are obvious upsides, but never – ever – forget that every single piece of real estate is unique. Every single purchase and sale is unique. Values, tax laws, benefits are always changing. This is a full time job and the second it isn’t given full attention, you'll feel the cockroach pulling at your wallet...the big ones always eat. Don't be their main course.

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