-This is the 3rd and final post in the “How & Why Real Estate Investing Is Changing” series.  If you haven’t already, you should go back and read part 1 and part 2 first.-

In our last post we established the fact that in 2013 and beyond, you’ll need to do a better job of finding your leads (and not using the MLS) because as we’ve already identified, hedge funds are coming to your city next (if they’re not already there) and starting to gobble up inventory.

We also agreed that instead of trying to compete with the hedge funds, you’d be wiser to actually work with them.  With that being said, a lot of you might be curious as to exactly how to do that, so let’s jump right into it.

What Exactly Are Hedge Funds Looking For & Buying?

 
The first thing you’ll need to do is to figure out if hedge funds are buying in your local market.  If they’re not, then this exercise will be good preparation for when they arrive.  However, if they’re already there, then you’ll need to figure out what they want.

You’ll want to start out by figuring out what they are buying.  You can do some quick and easy research by heading down to your local county’s foreclosure auction.  Hang out there for a few days.  Ask around as to who is buying what.  Track some properties: their address, and how much they sold for.  Pay close attention to who bought what, and how much they paid for it.  Chat up the investors and bidders at the auction.  You have to go and attend for a few days, but you’ll start to see some familiar faces who can give you some good intel.

For these hedge funds, their strategy is to buy and hold real estate to get a specific yield.  The yield is a specific ROI.  I’ve spoken to other investors who have told me that in their local area, hedge funds are looking for a yield of 9-11%.  That’s all they care about.

Now here’s where your opportunity is: the hedge funds are getting their inventory from a couple of primary sources: the MLS and the auctions.  In other words, if you want to flip a home to a hedge fund, DO NOT look for deals there.  Look for deals in places the hedge funds aren’t.  In other words, if you can bring them an off market deal, you are bringing something of VALUE to them, and they’ll be interested.

So what that means is to start busting your hump looking at FSBOs and on sites like Craigslist.  Remember, all you care about is the yield.  Let’s give a real world example.  Let’s take a yield of 10% on a $100,000 home.  That means the fund wants to get back $10,000 per year, or $833/month in rent.

So what you do is find homes, and then run the rental comps (you can use a site like RentoMeter) to determine your yield and see if you have a “deal”.  The great thing about this model is unlike flippers to rehabbers (like myself) who want to buy at 70% of ARV minus cost of repairs, you can find deals slightly below retail value, and sell them to the hedge funds.

Once you’ve found a deal that fits into the hedge fund’s yield criteria, set up an appointment with the seller, head out, and get the deal under contract.  The great part about this strategy is that you don’t need a massive spread.  You can easily make $10,000 per deal, and there’s a ton of them out there.

How The Heck Do I Flip A Home To A Hedge Fund?

 
At first this might sound like a daunting task, because you can’t just look up “hedge funds” in the yellow pages or Google and get the name of number of who to call.  It’s actually going to take a little bit of research.  As I mentioned above, I would start with your local foreclosure auction, which is a great spot.

Another place to look is on Linkedin.  Find out the funds, and find some key employees, and make some calls.  You’ll likely get rejected on the first call or two.  Don’t give up!  You have to be persistent, but yes, you can find them.  A friend of mine in Florida had his father, with no experience whatsoever, start doing this and he’s already closed two deals.  You just have to stay persistent.

Most likely when you first call into the hedge fund, the “gatekeeper” will turn you away.  Stay persistent!  You need to remind them that you have a source of “off market” properties (you do, in the eyes of the hedge fund acquisitions person) that you can sell to the hedge funds at a discount.

So What’s Next?

 
I’ve give you a VERY simplified version of what to do.  I myself am not personally doing this strategy.  Instead my goals for 2013 are to focus more on finding the off market properties that I talked about in part 2 of this blog post series.  The most important thing for you, however, it to decide what is going to be your main strategy in 2013.

If you’re looking for an “easier” way to flip houses (buy at higher prices and sell at higher prices) then this strategy could certainly be for you.  If you’re like me, and rehabbing homes, you’re going to need to get better at finding “off market” deals in 2013 because the number of “deals” on the MLS is rapidly shrinking.

To start, I would check out what’s being offered at Real Estate Mogul.  I’m not only a member, but also an educator there.  You’ll get killer lessons and insights into what’s really working RIGHT NOW, in different parts of the country, from all sorts of experts.

Plus, I’ve already seen over 20 deals comes to my inbox from being a member.  This is from other members looking for joint venture partners, funding, and much more!

The opportunity to sign up is closing tonight at midnight, so I’d love to see you there inside with me.  This video presentation will tell you how to get started.

Finally, I spoke to the head honchos over at Real Estate Mogul, and below is a quick run down of exactly what you get.  I’m looking forward to seeing you inside!

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