Why Are Hedge Funds Buying All the Real Estate in CA?

What does it mean for the wholesalers, fixer-uppers and buy & hold investors?

Not only are the hedge funds buying CA real estate, but also the foreign investors, particularly, the Chinese, are gobbling up all the SRFs they can get their hands on. Money is no object and neither is the negative cash flow. It appears they know something we don't or is it possible they are making a mistake? Or, could this be another scheme to make billions of dollars at the expense of the middle class by manipulating the market, much like what happened in 2008?

Although answers to these questions are not easy, it's clear we cannot afford to maintain the status quo. One way or another we need to get into the action, but this time, with total discernment. We must be careful not to repeat the past mistakes by getting caught up in the Euphoria.

I've been following up on both sides and notice they both make sense in their own ways. So, what's the best thing to do? Well, I wish I had a crystal ball to give you a definitive answer, but short of that, I can tell you with relative certainty that things are not as good as they appear to be or as bad as some would claim. I'm somewhere in the middle.

I say we should buy 2-4 units for buy and hold with positive cash flow now. In fact, whatever gives us positive cash flow is a good bet.

We could even buy condos in decent areas that well exceed the 1% Rule. We need to avoid heavy rehabs or more expensive fix & flips and we should stay as close to the major metro areas as possible.

The key is buying with our eyes on the long term but staying alert to sell at a profit if the situation changes. We cannot get speculative no matter how good the deal may look. Focus on cash flow. Will you be able to hold onto your investment if the market suddenly took a 180 degree turn? This might be a real possibility, given the election year stats are usually distorted.

Condos are also good. They may not appreciate as much as SFRs but they sure could give you a much better cash flow and easier to acquire. As you recall, the big boys are mostly after the SFRs, which means there is less competition for 2-4 units and condos, but the profit potential is still attractive.

So, go for it! Do something, but do it with prudence. It's very unlikely you would lose money when you invest in this market in Socal. But, you are losing your money every day it sits in the bank.

Posted in  Blog, Real Estate, Sam's Real Estate Club

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