Spain Is All The Rage - For Small-Ball R...

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

I got started in real estate investing before the sub-prime crash.

Back then, you had to dig and fight for deals. Prices were high, and so the people that were the best at finding "motivated sellers" got the best deals and either made the most money on flips or got the best properties for their rental portfolios.

It was interesting though when prices started to fall as foreclosure activity ramped up.

I continued to focus on and buy in my area as prices declined. Because that’s what I had done for a couple of years and I didn't know any better.

Then I got a call from a motivated seller in a much nicer city right next to the one where I had been buying. I didn't have any interest initially, because that area had always been out of my reach price wise. Then the seller told me what they wanted for the house.

I was shocked – and I went to look at it.

We didn't make a deal on that house, in fact the sellers lost the house to foreclosure just a couple of months later and walked away with nothing, but the experience did open my eyes to that area.

A New Strategy

To cut to the chase, I changed my focus to that new area. But I didn't stay there – because I decided that I would keep going to nicer and nicer areas as the prices dropped and I could keep buying for roughly the same prices as my first houses.

I kept doing that until I was buying rentals in the best school district in the state.

globally Needless to say, I had stumbled upon a great strategy by accident. I know, you're probably rolling your eyes about how obvious it was to do that. But it wasn't for me at that time.

I read an article recently that made me think back to that experience – and how we might do the same thing now that prices have started to go up again and bargains are getting nearly impossible to find.

The article was titled: "Global Investors Looking for Real Estate Bargains Flock to Spain."

And it made me think – if we can chase deals from city to city as prices change, then why can't we chase them internationally for the same reason?

I mean, we've already been through it here. We know how it works. And we know that the opportunity won't last forever. Right?

The first part of the article says:

"Real estate prices are down as much as 50 percent from their peak during a housing bubble..."

Sound familiar?

I thought so too.

The piece went on to say that:

"The real estate market started to revive in 2013. Government reforms, including a relaxation of labor laws and stricter rules for banks related to accounting for bad real estate, meant that banks could no longer ignore the assets on their balance sheets. … Once the banks had to hold more capital — in some cases drastically more — they started to think it was better to sell."

And sell they did, which burst the real estate bubble there just last year, which in turn kicked off the buying frenzy.

For example:

"British Airways flights to Madrid are packed with London-based real estate executives. The hedge fund Baupost is buying shopping centers, Goldman Sachs and Blackstone are buying apartments in Madrid, and Paulson & Company and George Soros’s fund are anchor investors in a publicly listed Spanish real estate investment vehicle. Kohlberg Kravis Roberts just bought a stake in a Spanish amusement park complex. Big-name private equity firms and banks are teaming up with and competing against one another on huge loan portfolios with names like Project Hercules and Project Octopus."

But, “People are starting to overpay on certain assets,” said one investment banker who spoke on the condition of anonymity because he works with many of the funds active in the market. “There’s pressure from investment committees in London to do deals.”

And one private equity executive said a recent auction for a mediocre office building attracted 30 bids. His company’s bid — which he said was fully priced — did not even make it past the first round.

Chug Along

So as you might expect, the commercial property train has already left the station.

train But guess what?

Everyone is ignoring residential property over there as they continue to over bid for the commercial stuff.

Let them fight over it.

I like playing small ball in real estate.

Why?

You can fly under the radar.
You can generate HUGE ROIs.
You can take care of your family.
And you can do it all yourself - without all the competition from the guys chasing the commercial stuff.

So if you're at all like me and you like to play real estate small ball – you need to give Spain a look.