Why More Isn’t Always Better When Purchasing Rental Portfolios
Rental portfolio purchases are, at times, the absolute best and worst way to invest in Detroit properties.
The attraction is always the efficiency and speed of acquiring 50 or 100 properties at a time to kick off a Metro Detroit rental portfolio.
However, a few huge pitfalls may ruin what was intended to be an excellent acquisition of bulk property:
Pitfall #1: Assuming All of the Properties are Worthwhile Investments
A natural and usual assumption is that when people are purchasing a large amount of properties at once, they must all be similar in condition and cash flow. The reality is that even though you may be purchasing several properties at once, each still has to be evaluated individually.
Large hedge funds and equity funds lost millions of dollars over the past few years by not carefully evaluating (at least on paper) each property in a rental portfolio.
Unscrupulous sellers love to hide the terrible properties among the great ones, so it’s important to have a system to quickly catalog and eventually classify each property that comes in.
Pitfall #2: All or Nothing Sellers
In the early to mid-2000s, property prices were so cheap that an investor could easily buy 20, 30, or 500 properties and take the entire portfolio. Prices have gone up significantly, so that practice has to be eliminated.
If a seller isn’t willing to consider removing the requirement to buy all of the properties in a portfolio, regardless of condition, you may not want to reconsider purchasing it.
Pitfall #3: Paying More Just Because It’s a Portfolio
The practice of over-pricing a portfolio of properties is the latest weird market shift that we’re seeing quite a bit.
Just because a large number of properties are being sold at once, it still doesn’t mean that an investor should ignore the average market price. Yes, there is convenience in this type of purchase, but it doesn’t automatically equate to a steep price increase based on those factors alone!
Properties purchased individually should be priced higher, but in a package, there should be market pricing or even a discount for a volume buy.
We’ve sold tons of properties in and out of portfolios and we’d love to help you find these as well. Please feel free to contact us with any questions or inquiries.
Detroit Investment Property Pros
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Good luck and Happy Investing!