Finding a property for LPs to invest in is perhaps the most fundamental role of any syndicator. Before you gather your management team to formulate a capital budget, before you approach lenders, before you pay out investors, you must identify a property that checks the right boxes and is worthy of your time and investment. No matter your value proposition, your investment criteria, your promised returns, your operational strengths, etc., every syndicate must first face the challenges associated with deal sourcing. The goal of this post is to provide a thorough list of strategies employed by GPs to successfully and consistently uncover ideal acquisition targets, regardless of one’s investment thesis.
So, how do successful sponsors find investment properties and real estate deals?
There are a number of strategies used to find deals for investing in real estate. The priority is expanding your reach by leveraging outside resources to your benefit. All while employing both progressive tech-based support and tried-and-true methods. Commercial brokers are one source that can help, but investors also rely on online marketplaces, industry organizations, networking, and prospecting. Property databases like RCA can play an important role in providing property-level information as well as illustrating prevailing market trends.
Brokers are the lifeblood of deal sourcing for real estate investment. A good broker should be viewed as an extension of your investment team, an integral team member who not only brings the ability to find real estate deals in real-time but valuable market data as well. Furthermore, outsourcing directly to a third-party, allows you to focus on improving your bottom line elsewhere. Whether your niche finds you investing locally or out-of-market, a strong broker network, when leveraged effectively, can prove a massive resource to any sponsor, no matter the size.
Let’s break it down further based on market focus. Say your investment niche is hyper-focused on a specific market and you may have a strong pulse on basic market data. You may even have a strong network of local professionals. However, it’s nearly impossible to have a consistently accurate knowledge of off-market and soon-to-be-listed investment properties. Your time is valuable and better spent elsewhere to duplicating the efforts of an effective “team member” who is not even enrolled on your payroll.
On the contrary, if you find yourself looking out-of-market to find real estate deals that match your investment criteria, local brokers specific to each market can serve as your boots on the ground. With zero physical presence in a given market, you can easily attain professional, localized expertise with instant feedback straight from the frontlines.
Perhaps most importantly, the professional network coupled with access to upcoming inventory, brokers offer tangible, actionable information not found elsewhere. There are no apps or websites to find investment properties that are not yet on-market. Even as the proptech sector continues its growth, there is no true replacement for long-term interpersonal relationships. For that reason, brokers will continue to provide value for sponsors looking to find real estate deals and should not be overlooked.
Potentially the most visible contribution seen with the emergence of the proptech sector has come in the form of online sales platforms. Simply, these are websites to find investment properties that are actively soliciting buyers. Online marketplaces allow you to skip the networking, prospecting, and everything else that comes along with ensuring you have access to current listings and jump straight to underwriting and due diligence. With access to building specific physical and financial information, as well as a direct line of communication with the owner’s representation, you can identify, research, underwrite and make an offer all with a click of the mouse.
In what has become an incredibly competitive industry, several market leaders have distanced themselves and help provide real-time, direct-to-market acquisition opportunities that most likely would not have otherwise been exposed to a national/international buyer pool. A handful of the most commonly used websites to find investment properties include LoopNet, Ten-X, CREXi, Auction.com, and Real Capital Markets (RCM). Of course, with the benefit of the proliferation of live market data comes increased competition. Nonetheless, these online marketplaces function as close to a stock ticker as you’ll find.
Online Property Databases
Rather than a virtual marketplace, these online platforms offer a more data-centric collection of individual property details. Coupled with market metrics and ownership information, these databases assist in the research and prospecting required in deal sourcing for real estate investment. Be current with market trends, know each markets top owners, uncover active newcomers, and track useful comparables all from your desk. Platforms that offer such services include CoStar, Real Capital Analytics (RCA), CompStak, Reconomy, etc.
One obvious disadvantage of actively listed properties is increased competition. Most investors do not wish to pay more than they have to, and in turn, they prefer to limit their exposure to widely marketed properties. Without a formal listing and access to the oftentimes accompanying offering materials, the availability of property-level information can be scarce. Because of this, research-based databases become a vital resource for those looking to find real estate deals or target off-market properties.
Deal sourcing for real estate investment is oftentimes about finding inefficiencies in the market, exploiting opportunities not available to the general market, seeking opportunity not yet uncovered by others. Finding the low-hanging fruit within your given criteria can be the difference between hitting your preferred returns and not. One proactive strategy in finding off-market deals primed to trade would be seeking out maturing loans. If you can find financing data, great. If not, look at deals that traded 4, 6, 9 years ago and reach out to ownership. If your timing is correct, perhaps a disposition would be advantageous to ownership opposed to refinancing or paying off any remaining debt. With persistence and perhaps some luck, you may find yourself in bilateral negotiations directly with ownership while they stare at a diminishing shot clock.
Formalized trade organizations offer a structured congregation for like-minded and disciplined professionals to educate, collaborate, and succeed. Some organizations are local, others national. Each offers unique perks. Just a couple examples of notable entities include ICSC, CCIM, BOMA, CREPE, NAIOP, SIOR, IREM, NAREIT, etc. The resources contained within each of these can easily be leveraged into an effective way into deal sourcing for real estate investment. Take advantage.
These organizations often sponsor industry events. Whether it’s merely a cocktail hour or an annual conference, these events can provide invaluable opportunities to rub shoulders with the true movers and shakers of the industry.
From a groupthink perspective, what other setting can you imagine possessing as much industry knowledge all in one place? A massive wealth of knowledge, access to professionally operated properties, with a formalized structure to promote the sharing of this information…. what better of an environment to find suitable investment property than in a concentrated peer-to-peer setting.
While industry organizations provide a more formalized professional network, the next step is leveraging both your own personal and professional relationships, both qualitatively and quantitatively. The beauty of a powerful network is the ability to gain indirect access to the entirety of knowledge, market info, and relationships of everyone within your network. Real estate, at its core, will remain a relationship-driven industry and to consistently find investment property, it is essential to master your network. Build. Grow. Share. Utilize. Reciprocate.
How do you start? They say you are an aggregate of your 5 closest friends or the 5 individuals you spend the most time with. Therefore, approximately half of your closest associates, have access a higher tier of contacts. Let’s apply this further. Think of your own personal relationships and the resources available to your closest friends. Now think about all the other professionals in your network. Lenders, owners, wholesalers, accountants, attorneys, etc. It is safe to assume they all have friends and colleagues that could prove a valuable resource to you. When leveraged most effectively, networking cut years off of prospecting.
Lenders with Foreclosures
Aside from getting deals done with favorable financing terms, lenders can also be sources of deals. It may be less effective in today’s current market (Summer 2019) as we find ourselves in an expansionary cycle but foreclosures have long provided unmatched buying opportunities for those who can perform where others falter. Forging a relationship with lending institutions or hard money lenders, and establishing yourself as a reliable operator will put yourself top of mind and potentially in pole-position as lenders inevitably repossess various properties. Familiarize yourself with foreclosure processes within your niche to explore listings on the residential side and receivership on the commercial. It’s easier to look like a genius when you buy right.
Wholesalers are real estate professionals whose core business is finding off-market properties, putting them into contract for a limited period, and then flipping those contracts to investors. The deals they offer are typically small, single or multi-family housing targeted at fix and flippers. However some wholesalers do have slightly more attractive deal sizes, especially in highly valued urban areas like New York City. If you target acquisitions in the $100K to $4M range, wholesalers may be a great source of extremely attractive deals. Find the wholesalers in your area, get on their mailing lists and establish a relationship with them. Note that it is not uncommon to get an attractive deal on a wholesaler’s email newsletter and then receive a follow up email two weeks later with a further discount on the offer.
When all else fails, how do you find real estate deals? Good, old fashioned prospecting remains a useful skill that is too often marginalized by the modernization of the real estate industry.
Think of prospecting as a form of outbound marketing. Perhaps you know the specific property that you’d like to acquire (you can find them in the databases mentioned above), or more generally the type of property your investors desire, or simply the market you wish to operate in. This is an opportunity to methodically contact the owner/operators which you’ve targeted. With this opportunity, you can educate owners on what value you provide. Focus your energy on a particular market and sector. Get to know everything going on, who all the big owners are and cultivate relationships. Maybe it’s not time to sell but you want to be top of mind when it is. Cold calling, cold knocking…these tactics have been around for decades and remain true and tested ways to find real estate deals. These tactics may also be the most effective in uncovering the truly exceptional investing opportunities.