A Change Is Afoot On The Steps

Posted on November 5, 2012 by

Something new and bizarre is happening at the foreclosure auction in Bartow County.  It seems to be a seismic event that marks an increase in the price properties are selling for on the steps.

A few months ago, a different kind of investor showed up at the Bartow County auction.  Their mission is to buy around 200 properties a month in the Atlanta area.  One company buying two hundred properties a month is unheard of in Georgia!

The buyer is some sort of investment company that controls a conglomerate of money.  Here’s how it seems to work: The investment company has a good number of folks pool their money into one pot.  I understand – but have not confirmed – that these money-partners are promised a return of around 8%.  This is a much higher yield than they can get at a bank.  The investment company uses these funds to purchase property at foreclosure auctions.  Once a property is bought, the exit strategy is to find a tenant for the property and manage it as a rental.  One day, when property values return, I’m guessing the company will sell these rentals for a nice profit.  It’s an interesting business model.

I understand these types of investment companies have been buying in counties like Fulton, Cobb and Cherokee for the past year.  Now Bartow has been added as a target. 

Because these investment companies have a lot of money to spend and are willing to pay top-dollar for a property, they are driving many mom-and-pop investors – who only know how to buy on the steps – out of the areas where they normally invest.  For example: Last month there was a new face on the steps.  When we talked, I learned this bidder represented an investor out of Cobb County.  Because the Cobb investor was being regularly outbid at the Cobb auction, he decided to migrate north to Bartow in hopes of finding less competition on the steps.  (Good luck with that!)

This takes us to last month’s auction.  Attending were the folks who regularly bid at the auction in Bartow.  Also, there was the guy representing the Cobb investor.  Finally, in all their glory, were representatives from the conglomerate investment company.  Needless to say, it made for some crowded steps.

Each month, there are usually between four and eight really good deals that get cried.  The rest are either marginal deals or outright stinkers.  Two years ago, there were two or three of us bidding on these properties.  Last year, the number of bidders grew to around five.  This year, it’s increased to about ten bidders at each auction.  Problem is, the number of really good deals has remained constant. 

So what happens to prices when the number of bidders increases but the number of deals remains unchanged?  Prices go up, right?  To compound the issue, the big investment company is planning to hold, not sell, their properties – this means they’re willing to pay a higher purchase price than flippers.

So does this mean it’s the end of the line for mom-and-pop investors?  Hardly.  It just means we need to become masters of creative deal structuring and financing.  Kim and I have being buying foreclosures since 1995.  They represent less than 10% of our business.  Buying properties pre-foreclosure has always been the better way to do solid, win-win deals!

Bill & Kim CookBill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.

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  1. Robbie Hewitt says:

    Bill is right, some very large players are buying rentals around the nation, most of them started last year around the time Warren Buffet made his comments on SF rental homes becoming a real asset class and the FHFA announced it’s REO to Rental sales program. Some of them include:
    Waypoint RE Group, Oakland, Ca in Sept I read they had acquired just over 2000 so far. They have over $200mm to invest and a partner willing to give them another $200mm.
    Colony Capital, Santa Monica, CA, same article stated they have $350mm to spend and hope to acquire 5000 rentals by 12/12 and hopefully 10,000 rentals by 12/13. They recently made a deal with Chase and bought another large portfolio. As well, they just joint ventured with FNMA to the tune of about $30mm for an interest in a portfolio.
    GTIS Partners, NY has $500mm to spend.
    Silver Bay Realty Trust, Minnetonka, MN is an IPO hoping to raise $285mm for rentals. Two Harbors Investment, NY has partnered with Silver Bay contributing some 700 rentals to the venture. At the time Silver Bay stated they were trying to buy another 800 from Provident RE Advisors.
    Maynada Investment Group of Miami has raised about $26mmto invest.
    Pacifica Companies has bought interest in 699 FNMA properties in a joint venture with them paying $12.33mm.
    American Homes for Rent, Wayne Hughs of Public Storage has stated he intends to America’s largest landlord.
    Blackstone Group has acquired so 2000 so far.
    The Gould Brothers of London have made a competing statement that they will be the largest landlord in the US soon.
    Two Harbors and Oak Tree Capital and OCH- Ziff are also major players.
    Then we have our big local guy, Key Properties who’s trying to compete with them.
    All this activity makes for stiff competition at every purchasing opportunity. When they find 8%-10% top be acceptable returns they will drive the prices way up over what has produced 18% + returns in the past for the local players.
    Key for all of them will be management. They can buy these anticipated returns but management will determine what they actually achieve. If they can’t manage well they could be our next big motivated sellers in a year or two.
    Robbie
    Hewitt Realty Services

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