Well the Big Daddy’s have started moving into town and that my dear investor changes the whole real estate investment equation. Hi I’m Jeff Adams, another Real estate investor and enthusiast and Goliath – facing -David such as you. The Daddy’s A.K.A Goliaths A.K.A Hedge funds have got a sniff of some good money to be made and they are heading into town loaded with a lot of financial muscle, against which we really can’t hope to compete.
Things weren’t so alluring a few years back when the crisis hit. Foreclosures were skyrocketing and investors were sitting on time – bombs which could go off any second. This shook a lot of sentiments and the economic volatility just added more salt. But within these last few years with positive responses and greater stability, real estate is looking more bright. With expectations of a jump in the economy, all the attention is on underpriced prime assets such as property.
The Big Daddy
This hasn’t gone unnoticed by hedge funds and if one hedge fund enters a territory you can be sure that the others will also be in pursuit. Backed by voluminous funds, outbidding a hedge fund is not something probable in the least. Hedge funds on the whole have a number of capabilities at their disposal which grant them Alpha positioning
- Huge funds at disposal allow for unleveraged buys.
- Have widespread technological and information resources.
- Ability to buy multiple investments simultaneously to capitalize on opportunities
- Not bearing any debt, these hedge funds can earn clean profits.
You can easily tell just by glancing at the above strengths, that having a huge capital base does provide a lot of benefits. In fact your average mom – and – pop investors would be better of looking elsewhere for opportunities.
I can probably guess what’s going through your mind right now, investment opportunities frozen over! crowded out of the market! Shift investment to a different asset! Bleak Now What!! Well guys I’ve been there, done that and it won’t get you anywhere. Let’s try doing what the professionals do, the way they do it.
Analyzing the scenario
First up is plain old analysis and understanding these hedge funds. Now these real estate centric hedge funds are just like any other hedge fund, which means they have a set of limitations within which they can do pretty much whatever they want except cross.
Being driven by investor pooled money, they will always be looking to avoid risky investments. Also the more certain the return, the more they are willing to shell out. Given the numbered few opportunities which fit these requirements, all these unidirectional accumulated funds are just making other opportunities much more open. Moreover where we have the advantage of waiting for the right time and price for selling, Hedge funds have to answer to investors and as hence follow time bound investment cycles meaning a lot of these properties will be back in the market in the next 4 – 5 years.
The Possibilities
Now from what my instincts are telling me, there are a couple of good investment opportunities to capitalize upon.
Grabbing the bait – Classic circus tactic where you keep the lion well fed so you can use him to earn your pay. Although in this situation it will be more about research and quickness than bravery. Hedge fund targets are defined by their limitations and as such with a bit of effort are easily traced. As these are few in number hedge funds are hungry and will readily pay 10-15% more for a bite. Buying these properties beforehand and then selling them to the hedge funds themselves is a sure way to earn a hefty profit. Cirque Du ….
The Others – With hedge funds focusing elsewhere, other properties which are not in the radar of Hedge funds can prove to be a good long term option. These properties will not only be cheap due to lack of demand, but with a brighter future they are sure to gain value. When hedge funds find out that their current muse doesn’t have more to offer they are bound to look elsewhere and if you are in the right spot at the right time, JACKPOT!!
So maybe David can’t beat Goliath but there’s nothing wrong in riding on his back.
