How to Deal with Hedge Funds – A Jeff Adams Guide for Small Investors

Hedge funds have come to the forefront in the recent years by investing heavily in real estates. They are investing like never before and are claiming to have most of your mortgages in their hands. There are dozens of hedge fund companies that are eager to profit heavily from the beaten-down market of mortgages in the recent times and they are posing a definitive threat to the small investors who cannot afford to put large amount of money on these investments.

These hedge funds are concentrating more on purchasing thousands of foreclosed properties and distressed loans all around United States and eyeing for a profit in the future by selling these properties at higher rates when the prices go up. They are clearly benefiting from the anguish of the many banks and investors in the falling market.

I am Jeff Adams and with the years of experience behind me in this field I am here to offer you some valuable advice about the hedge funds investments, the various strategies they adopt for investing in real estate and how as a small investor you can not only survive but even thrive in their presence without competing with them.

A little about the structure of hedge funds

The idea behind a hedge fund may seem a little bit new to many investors, whether they are new or even to some experienced ones but it is a fairly simple and straightforward concept. So understanding a little about the hedge funds working styles in general will be helpful before we can move on the details of dealing with them in a smarter way.

The structure of a hedge fund is not complex at all. There is a general manager who manages these companies in partnership with his investors. Unlike a mutual fund though, these are largely unregulated companies and they are basically free to invest in anything. If you are a small investor, you can choose to invest in a hedge fund provided you meet certain criteria determined by the Investment Company Act in the United States of America according to which:

  • You should have a net worth of around $1,000,000.
  • Your annual income is not less than $200,000.

The working strategies behind hedge funds companies

My experience and understanding in the field of real estate tells that a small investor cannot really compete with these big players head-on in real estate investment while they are rapidly investing capital into all sorts of real estate markets. Following are a few points to remember about the working strategies of hedge fund companies.

  • A hedge fund is a profitable investment option available for sophisticated investors including organizations, institutions and individual investors having significant assets.
  • The hedge funds are commonly known for their more ‘risky’ investment potential and a bit out of the box investment techniques. Their primary technique is to target those markets that are ordinarily neglected by small or individual investors and those that are considered ‘high risk’. Buying foreclosed houses is one of their major fields of influence.
  • Needlessly to say, with things taking the right turn, these can be highly profitable investments compared to the ordinary ones. But if things go the other way, it can spell disaster to an investor.
  • Hedge funds normally flock to those assets that show promise to one of them and capture most of the market overnight. They tend to buy a large pool of properties in a short amount of time thus almost removing a small player out of the equation.

Tips for a small real estate investor to deal with the hedge fund phenomenon

  • Remember that hedge fund companies do not live where they invest. They may send a team of researchers but hardly ever believe the locals trust their huge money. So if you can build a quality relationship with local agents and other investors you stand a good insider knowledge and access to many profitable deals.
  • Instead of competing the properties a hedge fund company is vying for, buy around them. For example, most hedge funds invest in properties newer than 5 years or so. You can use this strategy to your advantage and go for older homes.
  • Also don’t forget that by overpaying for properties, hedge funds are actually adding to your net worth in the market.

Using these simple strategies will surely help you stay afloat in the real estate investing alongside the hedge fund companies.

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