We often hear advice from friends that admonishes us, "Don't buy that piece of real estate; you're just buying someone else's problem." I was reminded recently by an investment banker that buying someone's problem might be exactly what you do want to do.
While attending THE Newport Show, a wonderful audio show held in Irvine each year for those who love high-end audio equipment, I met an investment banker. I asked him what he does for a living. That question lead to a discussion of how he invests, as an investment banker, in real estate.
He looks for bankrupted or foreclosed commercial properties, aggregates a group of investors, buys the loan on the property at a huge discount (which with a little work gives him ownership of the property). Then his group invests money to update the property, lowers rents to attract renters (these properties are often near vacant). He sucks tenants out of surrounding commercial properties and gradually raises rents as well as increasing the property's value. The surrounding properties, which are usually debt laden, become insolvent because of a loss of tenants which leads to an inability to service the debt. He can then pick them up for a fraction of their original cost as well. This is part of the process of resetting pricing in bubble markets that are overinflated by too much debt.
His efforts produced astonishing returns for his partners and for him. For example, recently he bought what was once a $36 million building for only $7 million. He put another $3 million into it to renovate and update the property. The property is now, a few years after his purchase, worth twice what his group put into it. It is cash flowing nicely. It helps that he can get 4% fixed rate loans that are good for 10 years, but amortize at a 15-year amortization. This low interests improves his cash flow tremendously.
Buying someone else's problem for the right price, with the right interest rates, may be just the thing to do. Then ride the price back up as you acquire tenants, and finally, sell near the top of the next bubble or keep it as an appreciating cash cow. Be patient in waiting to buy at bargain prices at the bottom of the next crash, also be patient in waiting to buy until interest rates also come down to encourage economic growth. Then be patient in waiting for the next real estate bubble to re-inflate before selling near the top. This is how the rich get richer. You can do this on a small scale, just as the investment banker does it on a larger scale. Weak hands sell to strong hands. Buy into weakness; sell into strength.
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Investing in stocks, real estate, and precious metals is risky and could result in losing money. I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence. I am not an investment adviser. You should do your own due diligence when making investment decisions of any kind. You should consult your own financial advisers before making any investment decision. I make no guarantees that by following any advice or suggestion I might make that you will realize any return. Beware, all commodity markets and other markets carry risk of loss.