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Depends on product type and location. Nothing is better than boots on the ground, knocking on doors
as in reaching out to owners directly, inquiring about 'their price'?
Yes, but again depends on product type. If you're looking to put together an assemblage in a gentrifying area of town then knock on doors. On the other hand if your goal is a core acquisition from a investment shop your best bet is an email.
I work for a large developer and half the time on the road we are knocking on doors/walking into buildings to inquire about the owner. Even with the hundreds of thousands of dollars worth of tech corporate throws in our face. No bene!
No real magic to our process. We have a boots on the ground component but it's mostly about network - brokers, owners, architects, etc. Granted, we tend to shy away from super complex/assemblage deals. Our opportunity cost is too high to chase them.
Don’t be afraid to look at higher risk opportunities. There are more of them out there waiting to be worked and there’s less competition for them. Everybody wants a slam dunk. Know your market and the products and learn where you can mitigate risks to maximize your yield. More often than not perceived risks on complex deals can be neutralized with controls and creative solutions. The value is at your entry point which you can recapture by knowing how to maneuver around bs your comp is afraid to touch.
Advice I’ve gotten from seasoned developers is lower your expectations and understand what “risks” are worth taking on and be prepared to make smaller margins if you have to. If it’s a ramen market your appetite needs to reflect that. You can grind out 15 points on 2 or 3 challenging deals a year or you can hold out for easy 25+ point deals and get in on zero.
I'm with you. In a low barrier to entry market, someone will always build inferior product for less allowing them to pay more for the dirt. We get beat on 99% of marketed deals we take a shot at for this reason. We have to source stuff in other ways to justify the quality we bring through the development process (which is recognized on exit val). This pays off nearly 100% of the time.
Given there is no risk in locking down land deals via option, do you focus more effort on this stage (locating areas of town you like, looking up assessor data, etc..)? Any tips you have from the start (i.e. I like this block in this town, lots of growth, now cool to millenials, etc.. pulls up google earth and looks up owner data), to negotiating next phase where you're either discussing land price or exchanging LOI drafts?
+SB
We’ll do in depth feasibility on a site we like before we even consider offering. We focus on walkable urban infill and fringe suburban sites in the path of growth. Ugly, irregular, challenged and impossible looking prospects are what we gravitate towards. We have parts of town we like and understand more than others and we just hawk those areas for tracts that aren’t moving and try to learn why no one is doing anything with them. We know what and how much we can make on a build/hold or flip before we ever contact the listing broker or seller.
I scout 4000 sq miles of Texas over the course of a year. You’ve got to have boots on the ground and network with the players in the places you want to be for off market deals.
What are risks that you guys take, that you would say scares the competition away? Are you talking entitlement risk, re-zoning, etc?
Pulling title on a really neglected property and see if the owner has more assets. If there looks like there is an angle I'll approach the owner directly.
What's the significance on the owner having more assets than the one you're interested in?
I'm always trying to build deal flow even if it's more than I can take down w my investors since it's so tough finding things right now, especially in LA. If you find a guy who is neglecting other properties in his portfolio, that could be all the deals one needs for the year.
It's fishing for sure, but beats bidding against all the institutional/ overseas money buying stuff on Loopnet especially if you are small fry like me.
Give you an example I was looking at a 100% vacant retail center in San Bernardino (yeh I know shitty area but the guy I was consulting is a total deal junkie). I chatted up the property manager and she mentioned the owner owned a bunch of properties. One of them happened to be a retail center in a much better area that was 50% vacant that the owner would be willing to sell. We never could come to terms on that one but was a decent lead.
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