Adam Stern joins us to talk about acquiring properties in bulk that are already renovated.
Adam explains how you can get your hands on new inventory and build up your portfolio with multiple properties that don’t need a lot of work.
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons, to take your business to the next level. And now, let’s meet today’s expert host.
Adam: Hi, my name is Adam Stern. I am the President of OwnAmerica and currently the number one SFR portfolio salesperson in the country. I’m here as host of the REI Classroom to talk about something that is very near and dear to my heart, which is the bulk acquisition of SFR portfolios to a retail exit strategy.
Mike: This REI Classroom real estate lesson is sponsored by uglyopportunities.com.
Adam: And what I wanted to talk to you about today is how you as a turnkey provider or someone that buys, or is used to buying distressed real estate, renovating it, stabilizing it, tenanting it, and then selling it to a retail investor can actually change your business around by changing your model very slightly to actually purchase not distressed properties, but to purchase stabilized properties owned by institutional investors, mid-cap investors and even small mid-cap investors.
So I want to break this up into three segments. Acquisition strategy, which is number one. Number two, which is setting your buyers or readjusting your buyer’s expectations, and number three, your exit strategy, which is going to actually boost the number of properties that your property management company, if you have one, has under management.
So I will start with acquisition strategy. I know the turnkey business pretty well, I’ve never been a turnkey provider myself, but I have talked to a lot in my time. I know that your business model is pretty simple. You buy distressed properties, you renovate them, you tenant them, and then you sell them as turnkey properties under your rental management company to retail investors that are used to getting pretty high yields because the basic inventory that I think a lot of you focus on is distressed inventory that you can add some value to. You can renovate yourself, you could tenant yourself, and then make a spread.
So your model right now is basically high spread, high work, a lot of time into a very low volume of properties. The strategy that I am contemplating here, or asking that you contemplate, really, is going from buying distressed properties that you need to renovate yourself and you need to everything to in order to make a wide margin, is buying renovated, stabilized SFR portfolios, where instead of doing everything yourself, instead of going through the process of finding the inventory, taking it all the way through stabilization and then selling it to make your margin, buying a stabilized SFR portfolio and making a smaller margin.
Because what is happening right now in the SFR industry is there is a lot of mid-cap investors and even institutional investors that are sitting on massive piles of inventory that they are looking for an exit for. And that exit can very well be, and everyone agrees that the retail market is a really, really good exit for them. There is only one problem, no one wants to actually sell to retail investors. They come to OwnAmerica to sell portfolios and one of the things they like about us is the fact that they can sell 10, 15, 100 properties in one closing.
Now, what opportunity that represents for you as someone that is looking to get your hands in inventory is being able to take down properties in bulk as many sellers want to sell them, but having an exit for yourself that is to the retail investor, which is your business. Which will also add juice to your property management company at the end of the day because the key is you buy inventory, you stabilize it, you tenant it, and then you manage it for your clients. The opportunity to actually buy stabilized SFR at not so much of a discount, but being able to make something that’s paramount, not to a spread, but to a real estate commission.
And assuming you’re licensed real estate brokerage and are able to get commissions, that strategy of attracting the big fish by buying big portfolios with the intent to sell to a retail investor, knowing you are not going to make $20,000 or $25,000 or $30,000 on a deal for doing a lot of work, but you might make $3,000 or $5,000 or $6,000 per deal.
A good way to get your hands on new inventory, and set yourselves up for long term success in just being an exit option that mid-caps and large-caps need and want, they come to us all the time for it. We’d love to engage with people who are able to actually reach that retail investor. So that is number one. That is the acquisition strategy. Number two, set your buyer’s expectations. So your buyers have, very rightfully so, set a buy expectation with you.
Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all, but a burning passion to be successful in real estate investing, please visit flipnerd.com/ugly to learn more.
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