Back in January I wrote a 3 part blog post series on “How & Why Real Estate Investing Is Changing”.  If you missed it, you can read part I here.  In it, I talked about how real estate investing in 2013 and beyond really is changing.  Specifically, I talked about how big “Hedge Funds” are now looking beyond Wall Street, and buying good old fashioned real estate as a way of diversifying their portfolios.

Santa Claus & The Easter BunnyBut after I wrote that, between Facebook, Twitter, and emails directly back to me (although no one was brave enough to leave a comment on the actual blog post), I was told that you can’t flip a house to a hedge fund.

I was told that you’d be more likely to meet Santa Claus or the Easter Bunny than you would be able to flip a property to Hedge Fund.  While I didn’t appreciate all the negativity, when I got the email, I have to admit, I had personally yet to flip a house to a Hedge Fund, let alone even have a Hedge Fund contact to flip one to.  However that all changed last week…

Last week I went down to Seattle to look at a property that was a lead I had been “nurturing” since before Christmas.  The lead came from a test mailing I did on a direct mail campaign I did following criteria laid out by my friend Cris Chico in his “Virtual Wholesaling” course.

So last week I went down to meet with my realtor down there, to get an idea of the zip code where the deal was, and the competition, and inspect the subject property to see if I wanted to flip it, or keep it and rehab it myself.

This Is Where My Trip Became VERY Interesting

My agent told me that if I wanted to flip the home, their other “investor” might be interested.  When we started chatting about this other investor, I was shocked to learn that they were a Hedge Fund!  Yes, sitting right next to Santa and the Easter Bunny I was, getting all of the glorious details about this investor’s criteria.

Just so you know that this is real, below is their criteria for Seattle (please note that this is almost certainly different is every city across the country.  I’m just sharing this with you as a point of reference, and to hopefully inspire you):

  • They are looking at houses under $350,000 (again, this due to the high housing costs in Seattle.  If you’re in a more “normally” priced market, that number is probably much lower)
  • The maximum amount of renovation work they are willing to put into a property is $30,000
  • Their goals is to buy at 85% of FMV, but this is flexible
  • The agent even gave me a list of the areas that the Hedge Fund is most bullish on (can you say “targeted marketing!”?)
  • In King County, their desired gross yield is 8-8.5%.  In Snohomish County (suburbs) it’s 9-10%

Let’s take a look at that gross yield number for a second.  In Snohomish County, since I know that it’s 9-10%, that means that if I flip a house to a Hedge Fund for $200,000, the fund expects it to generate a gross rental income of $18,000-20,000 per year (or a monthly rental amount of $1,500-1,667).

So What Can I Now Do With This Powerful Iformation?

Well, there’s a few things:

  • I can “reverse engineer” from the rentals section of Craigslist and if the rent to cost ratio is even in the ballpark.
  • I can target certain parts of the county where I know the numbers make sense.
  • I can go ahead unlisted deals and FSBO’s because I know my numbers
  • It’s a heck of a lot easier to buy a home at 85% of FMV then it is to get it for 60% of FMV (the target price if you’re flipping to a traditional wholesaler)
  • If you’re a fix and flip person like me, you can take the skinnier deals and wholesale them to one of the best cash buyers around: a Hedge Fund!

Now one thing you have to realize is that I didn’t go out looking for a Hedge Fund buyer.  This literally fell into my lap.  But if you’ve ever been on any of my coaching calls, you know that one of my favorite expressions is “Real estate investing is a contact sport: the more contacts you make, the better you will do!”

So What Does This Mean For You?

Well, for one I can tell you that Hedge Funds buying real estate are absolutely, positively, happening right now, all over America.  This is your chance to get out there and there find them!  If you need more help in this area, you can always check out what my friends are doing over at Real Estate Mogul, a great learning place for cutting edge strategies like these.

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