Today’s REI Classroom Lesson

Today, Adam Stern elaborates on the differences between buying rental properties in bulk vs. hand selecting them one at a time.

REI Classroom Summary

Buying each property separately can allow you to hand pick the property that fits best. On the other hand, buying in bulk can some with discounts but you don’t have a say in which properties are part of the bulk transaction.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

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. Now, let’s meet today’s expert host.

Adam: Hi. This is Adam Stern, President of OwnAmerica. Welcome to the REI Classroom. I’ll be your host for the next few minutes. Today, we’re going to be talking about bulk buying versus individual purchases.

Mike: This show is sponsored by PassiveRental.com.

Adam: It’s something that OwnAmerica knows well. We’ve been an acquisition service for buyers both big and small. We’re now a disposition service for sellers both big and small. When it comes to buying, depending on how much capital you have to work with, you’re going to have a choice to make. Whether or not to buy and build your portfolio of rental properties through individual purchases that you do through either on-market and/or off-market channels, or to look for portfolios of either vacant or occupied properties. There are pros and cons to both.

So the old-fashioned way, the way most investors do it, both large and small, is by buying on-market, MLS-listed, vacant properties. It’s one of the harder and more arduous ways to apply your properties because it’s very time-consuming. You need to have a high level of clarity and understanding of the real estate in the local market that you’re buying in. But it’s not brain surgery. You basically can work with a real estate agent or get access to the MLS yourself, as long as you know what your metrics are, in terms of your buy box, and you have a good sense of how you’re going to estimate CapEx, or the amount of money you’ll have to put into properties to get it rent ready.

Buying properties one-off has a lot of advantages, including being able to buy exactly where you want to buy, in exactly the neighborhood you want to buy, and buying the product that is exactly in your box. Buying properties that are off-market is a little bit less of a sure thing.

Off-market basically means that they’re not listed on the MLS. You’re depending on finding the inventory through brokers and intermediaries, or sellers that are trying to sell their properties directly to buyers. What you get in that respect is a little less clarity, a little less transparency, and you have to pull the information out of the sellers a lot of times, or the intermediaries.

But it’s a good opportunity since they’re not widely marketed to be one of the only people that look at the properties and hopefully get a bit more of a discount, because they’re not being marketed widely through a ubiquitous channel like the MLS. So the two main benefits, I guess, of buying a one-off is the ability to buy and build the portfolio exactly what you want, exactly where you want it, and being able to go through a channel where the purchase of the properties is not a massive commitment. You’re basically buying one property and you don’t have to buy a whole lot.

On the other hand, bulk buying is a different story. Right now, as of now, there is no on-market methodology of buying bulk properties. At OwnAmerica, we know this is our business. We sell and package portfolios of single family rentals, and there’s not a hard invest platform out there, a single platform like the MLS on the individual side that you can go to, to buy single-family rental portfolios. There’s us, and to tell you the truth, there’s not a whole lot of others that are going after the bulk side of this business.

The advantages of buying bulk are you can buy lots of properties, deploy a lot of capital into a market in a relatively short amount of time, and buy properties that are already cash-flowing, in that they’re already renovated. The research on what to buy and where to buy has already been done by the previous owner.

So as long as [inaudible 00:04:04] previous owner and what his strategy was and agree with it, you can deploy a lot of capital in a very short period of time, and from day one they’re cash-flowing. So you buy it, and a tenant is already in place. You have an operating history, and the ease of entry into the market if you have the capital is pretty doable.

The flip side of that coin is you’re buying things that have been renovated by somebody else and that have been tenanted by somebody else. You’re trusting that the work they’ve done on their end to find the tenants, to do the renovations, is on par with what you look at to be favorable conditions. The one drawback to buying a stabilized property portfolio is properties can be renovated incorrectly. Tenants can be screened incorrectly. That’s why due diligence is such an important part of buying a bulk portfolio, even more so on the one-off side.

Because you being able to ask the right questions, know how to really kind of drag the information out that’s going to give you a comfort level that you’re buying something that’s going to cash-flow correctly and that’s renovated correctly, that’s the challenge of buying bulk portfolios.

So if you want to know more about buying bulk portfolios, you can go to OwnAmerica.com, or if you have a portfolio to sell you can come to us. Check out some of the resources online. There are plenty of those. There are conferences you can check out if you are in the IMN Network, the Five-Star Network, or your local REIA. It was good talking to you. Thanks a lot.

Mike: PassiveRental.com is your source for turnkey, done-for-you, rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com to learn how to purchase cash-flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today, and get started by visiting PassiveRental.com.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Adam Stern
Adam is President of OwnAmerica, a National Real Estate Investment Brokerage offering disposition, acquisition and real estate consulting services to investors from small mom and pop, to large institutions. Through OA, buyers and sellers can connect to real estate service providers to execute on plans requiring both a high level of strategic vision, and boots on the ground execution.