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How To Find Undervalued Real Estate For Investing

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By Lisa Song Sutton, a Las Vegas-based entrepreneur, real estate investor and former Miss Nevada. Co-Founder of Sin City Cupcakes.

Every smart person I know is sitting on cash right now, waiting for a “catastrophic” recession that will result in real estate windfalls that would put the 2008 global financial crisis to shame. Not surprisingly, we may be waiting for a while. And that windfall of real estate deals, may not be such a windfall after all, since everyone seems to have the same playbook. As a real estate investor with a growing $50 million+ portfolio, here’s what I’m doing to take advantage of opportunities now.

Decide on your investing nexus.

Are you more versed in residential or commercial? If it’s residential, is it single-family homes with long-term tenants, vacation condos with short-term tenants or some combination of the two? If it’s commercial, are you looking for warehouse space, retail shopping centers or land? There is a plethora of options and no shortage of diversification when it comes to types of real estate for the savvy investor.

My recommendation is to find your niche and stick to it. Only branch out with an experienced (in that type of real estate) partner. Over the past decade, I have seen friends and colleagues lose money by chasing the next hot investment vertical. One of my real estate mentors always reminds me, “grow in what you know.”

Obtain off-market inventory through relationship building.

The best way to find off-market deals is by working on your relationship with a licensed real estate agent. I know, it seems after the pandemic that everyone and their mother has their real estate license. While that’s kind of true, you just have to ask the right questions to figure out who can actually be of value and help you make money in real estate. When you meet a licensed agent (or if you already work with one) make sure you ask them:

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  • How much real estate do you own?
  • What areas of town do you invest in?
  • What types of property do you prefer? Why?

If they can’t answer these questions or they don’t have satisfactory answers, find an agent who not only talks the talk but can walk the walk. If you’re an investor and the agent handling your deals is not, you’re leaving money on the table. Every good agent has a short list of investor clients they consistently work with. Maintaining the relationship is a two-way street. Every investor wants a deal. The best way to obtain them is to have them brought to you by a professional you trust.

Make friends with an attorney.

You can skip over the personal injury guys. I’m talking about probate and bankruptcy. The pandemic sadly brought a multitude of unexpected deaths—unexpected deaths that resulted in estates without any wills or trusts. Without any directions for how assets are to be bequeathed, probate courts are inundated with cases.

This backup has created some interesting real estate opportunities. Of note, probate court still requires an appraisal of value, but in general, the appraisals I’ve seen are not coming in at the top of the market. They’ve been very reasonable, if not slightly below value. Courts are incentivized to work with a cash or quick-close investor so that the estate can be liquidated in a fast, efficient manner.

Reach out to your local probate attorneys, bankruptcy attorneys and bankruptcy trustees. Introduce yourself as an investor, share your investing criteria and ask them to keep you on their shortlist of reliable, quick-close, easy-to-work-with investors.

Buy businesses that also own their real estate.

One of my real estate mentors focuses on an interesting niche. He buys small businesses that also own the real estate where the business is operated. He then either improves the business or lets the business go and then sells the real estate at a gain. I believe this works at this particular time due to the Baby Boomer wealth transfer that we’re in.

People born in the 1950s are now coming up on retirement age. Some have built a “mom and pop” type business, like a small RV park, video arcade, shipping store or neighborhood restaurant, and they smartly bought the real estate on which their business operates. Now, as they wish to retire, they are selling the business, which also happens to come along with real estate.

Each situation is different; some real estate is owned outright and others have a low mortgage on them. The common denominator is that 100% of the transactions my mentor has purchased were circumstances where the real estate was undervalued or there was an opportunity to make the real estate more valuable via improvements or changing zoning.

Real estate is a great hedge against inflation, and it’s one of the best ways to build long-term wealth. Even when there’s uncertainty in the market, you can still find ways to take advantage of sources for undervalued real estate.