The topic I’m covering today is important to me and should be important to most of us who invest in real estate today… so I’m glad you’re here.
Recently, I found myself on a rant discussing an issue that I believe significantly impacts all investors and the middle market more than we often realize. This topic has been a frequent point of conversation with my friends for years, though I rarely address it publicly…
(Stick around for the announcement I have at the end, it’s worth it.)
Inside The Trenches
Don’t Sell!
It's well-known that the primary wealth generator for middle-income America is real estate. Yet, we frequently hear in the news about hedge funds swooping in and buying up properties, seemingly outbidding families and middle Americans. This narrative creates the impression that these funds are directly competing with American families for homes.
However, the reality is quite different.
The majority of these large funds acquire their properties from real estate investors, wholesalers, auctions, and investor-friendly real estate agents. These Wall Street funds, often managed by Ivy League graduates, rely heavily on local investors to source and prepare the properties for them.
In fact, they cannot do their business without local investors, realtors and wholesalers helping them source these deals… They are not able to source ‘direct to seller’ deals without local investor help.
Contrary to popular belief, these hedge funds are not directly buying homes from middle-market families. Instead, investors do the legwork of sourcing the deals for them (i.e. auctions, assignments, off market, on market, etc) and some are even rehabbing properties for them. The funds then buy these ready-to-go properties, sometimes paying above market value.
While this might seem like a win for the investors, the long-term benefits heavily favor the hedge funds…
This cycle creates a significant issue in my opinion: the local investors, who play a crucial role in preparing these properties, often end up selling assets that will never see the market again…most of these funds have no plans of ever selling on the open market again.
Meanwhile, the hedge funds profit enormously with minimal effort, simply by holding onto these properties and renting them out until they decide to package the properties and sell to another REIT or Fund at a premium years from now (not individually on the MLS for families to buy).
This has profound implications for the middle market. Since most investment properties are owned by “small investors” (aka middle market), by selling their properties to hedge funds, investors inadvertently contribute to the growing divide between the wealthy and the middle class.
The process effectively removes one of the most accessible means of wealth generation for middle-income individuals.
Additionally I believe with the consolidation of real estate by large funds and the ongoing trend of bank collapses, followed by acquisitions by larger banks, this further compounds this issue.
This consolidation could be seen as a strategic move, potentially manipulating the market to scare investors into selling their properties, which are then snapped up by hedge funds and taken off the market for good.
This trend pushes the middle market further towards a have-and-have-not economy, reducing the independence of individual investors and increasing their dependence on larger financial entities.
…The situation appears almost perfectly designed to encourage investors to trade their valuable real estate for rapidly devaluing cash, leaving them at a disadvantage in the long run.
It's a complex issue that requires more awareness and discussion among investors. Understanding these market dynamics is crucial for anyone looking to secure their financial future through real estate.
Announcements
This is why Ken McElory, myself, along with many others will be discussing this topic and how to take advantage of the current market while we are at the Limitless Expo this year.
I want to make sure anyone in my sphere is prepared for what’s coming and Limitless Expo is the place where you can hear the conversations that guys like Ken are having behind closed doors every day about the market and how anyone can make smarter moves to set yourself, your family, and your legacy up for the future… but ticket prices are going up this Friday.
Because you are a subscriber to my newsletter, this week I am offering a one-time only 20% discount on your ticket for the event this week only... Use code Tarl20 to get your discount before prices increase this Friday night.
If you want to hear more about this, Ken and I will be discussing the warning signs and how to protect your wealth with Jeff Snider, a global monetary expert. Register with us here for Friday’s training.
Until next time,
Tarl
