Creating A Real Estate Investment Opportunity "Funnel"

How do you make a "real estate investment opportunity" find you instead of the other way around? Simple.

Get into the game!

(The real estate investing game that is.)

Let me explain.

Once you begin to make contacts within commercial real estate investment circles - and perhaps more importantly, show people that you are professional and not just a "tire-kicker" - you will be amazed at how many great investment opportunities will start to fall into your lap. Realtors, property managers, mortgage brokers, they will all be bringing real estate deals to you. Will they all be great deals? No. But, you will certainly see the "cream of the crop" deals before much of your competition.

Here are two personal examples of how a real estate investment opportunity was brought to me simply because I was "in the game", and the right people knew it. In one instance I closed on the deal, while the other I left on the table. Here they are...

Real Estate Investment Opportunity Example #1

Over the years I have used several mortgage brokers to finance my commercial property deals. When it comes to financing apartment properties and the like, I have decided that in most cases this is the way to go.

A little over ten years ago now, I had just finished closing on an apartment building investment that I had formed a limited partnership (or syndication if you will) to purchase. About three weeks after the closing, the mortgage broker I had worked with called me up. (I had only worked with him on this one deal to date.) He had an extremely interesting "deal" to tell me about.

A woman had purchased a "package" of commercial real estate (made up of several properties ranging from apartment buildings to large retail buildings) about one year prior to the broker calling me. He (the broker) had helped to put the financing in place for the purchase. However, now there was a problem.

Actually, there were two problems and one very big real estate investment opportunity.

The first problem was this. The woman who had purchased the commercial real estate portfolio had lied to the mortgage broker about her financial position prior to purchase, thus putting all of the financing in question. The lenders were preparing to call in the loans.

The second problem was a structural one. Some of the buildings, it was just discovered, needed some major structural repair.

Aside: There is a real estate investing lesson within a lesson here. When looking for real estate investment opportunities, the two most common problems that create the opportunities are problems with "people" and problems with "the building itself". The above deal had both!

So what made this a promising real estate investment opportunity?

The portfolio of properties was located in a city that had just recently boomed, and had further upside. But the real opportunity arose from the fact that I could potentially get into this deal at the "pre-boom" prices. I knew this would equal instant equity, which is one of the things you should always be looking for in a commercial real estate investment.

The lenders were ideally looking for someone to step in and take over the loans and the properties. (The original purchaser was going to be out of luck, and out of her equity. The lesson here: Don't lie (or fudge numbers) to make a deal work. If you do, you will eventually find yourself in a world of trouble. Both financially and legally.

From our conversations the mortgage broker new I was interested in that particular city. And more importantly, he knew I was "in the game". The loans totaled about $10,000,000, which the broker new I could qualify for based on our past relationship. The after repaired value of the portfolio was likely in the $15 million range.

In the end I passed on this deal. The estimated cost of the structural repairs was going to be somewhere in the $2 million range, most of which would have to come up with myself. It was early in my commercial property investment career and I simply did not have the resources to close the deal, and I was also afraid to bite off more than I could chew.

What would that portfolio be worth today? It brings a tear to my eye to even think about it, but likely somewhere in the $30 to $40 million range.

As the French would say. Ce a vie!

Real Estate Investment Opportunity Example #2

The second investment opportunity that came my way I did take advantage of. I closed the deal within 3 weeks of it hitting my desk, had it 100% financed within 8 months of closing, and I still own that commercial property today. The current value is in the $1.3 million range which is over twice the value that I paid for it.

And this real estate investment property came to me from a realtor I didn't even know! Again, I was in the game and my name was out there. And not only was my name "out there", I had built a solid reputation for myself amongst my peers. That is why this deal came to me first.

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