The Most Difficult Aspects of Real Estate Acquisition
Every day, thousands of real estate companies and private individuals with the help of estate agents are buying many different forms of real estate. But as common as real estate acquisition might be, there are lots of frustrating aspects that goes from the initial phases to closing the deal.
Deal sourcing continues to be a relationship-driven process that doesn’t necessarily require any special method. However, networking and being active in the real estate industry tremendously helps in having a consistent deal flow.
However, while it’s rewarding for veterans, we found this a particularly difficult aspect for newcomers.
- Global market: The global marketplace is largely controlled by big brokers who often become the bridge between the company and the deals. They find a deal based on your profile and data and when they successfully find one, they’d incentivize it with a market-rate fee.
It does save you from the effort and time-consuming tasks of building relationships. But you won’t be able to get the best out of the deal since you have to offer a piece of your pie.
That can be a sad news for newcomers. But there isn’t any sign of times changing very soon. There are start-up companies trying to change the way of the system but there has been little traction.
- Data-driven process: There are many groups that don’t use data to come up with special and niche-oriented investment strategies. Instead, the industry focuses on finding mispriced opportunities in any market they might be familiar with.
The acquisition process might be the most challenging of all the phases. During this time, we are more prone to errors. There’s also less clarity with various procedures such as debt sourcing which is very relationship-driven. The deal basically goes to the group that is most aggressive.
Even PSA negotiations are rather unfair, especially with the opacity of “market-rates.”
But perhaps the most challenging procedure of all is property assessment. Almost every small step along the way is frustrating and there’s the uncertainty of covering everything. Property assessment includes:
- Due diligence – Due diligence requires reviewing every document from historical financials to property tax bills. Each document is often shared online but takes a lot of work to guarantee both sides were able to receive and read them.
- Third party and site visit – Just one real estate acquisition company is not enough when it comes to assessing the property. There needs to be several for environmental assessment, property condition, appraisal, and more. Site visits also tend to be hectic especially when the property is fully occupied while being assessed.
Closing and Legalities
Revisions are very common with the settlement statements. Wire cutoffs are also commonly missed, and signing every required paper can be tiring. There are also lots of rough patches during the closing phase and oftentimes, it can be expensive when you’re working on finalizing the papers.
The industry can be chaotic and competitive, but it’s also the place for opportunities. Understanding every process may not be enough to make things easier, but it does help. What you really need to focus on is knowing the nuances of the business and try going with the flow, instead of trying to change it.
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