After determining that the United States was the best place in the world to invest my money, I began a search for my first acquisitions of 2013.  In February, I received a call from a broker who said there was a 12 unit building for sale in a “C” area of Orange County, California.  The property had been purchased in 2004 for $1,780,000 and the owner was suffering from some serious health problems.  His family decided to dump the building and because of the operational issues (5 current evictions), there was no way to finance the purchase.

To boot, the roof and decks were shot and in need of replacement and there was a shrine at the corner of the property for a gang member who was shot and killed nearby.  The price was over $500,000 less than it sold for 9 years ago (not the peak of the market) at $1,275,000.

The author in front of a shrine to a gang member who was killed in a nearby shooting

The sellers wanted to unload righ away and we were able to buy the property because we could close the purchase in 14 days.  We made an “all cash offer” which was very attractive since there were no hurdles from a bank and they had far more certainty that by choosing us, they had a done deal.

While this building is certainly not for everyone given the difficulties with cleaning up the management and dealing with the local gangs, there is a tremendous amount of upside when the property is put back on track.  In fact, we should be able to refinance it and take a large percentage of our cash off the table in about 1 year (for the best rates, most lenders want the deal to “season” and be owned for 12 months before loaning to a formerly troubled asset).

In the Inland Empire of California, many would be buyers are making offer after offer (all at full price or higher) to buy homes but are being continually rejected.  The reason they are losing out is because they are competing with investor groups who are buying “all cash” and can close quickly.  A lot of these deals are in need of repairs so there is upside for a buyer who can rehab the property in a cost effective way.

If you are like me and want to buy distressed assets, my suggestion is to line up cash prior to making an offer on a property for sale.  If you do not have the funds available, some banks will allow you to cross collateralize (pledge other assets) for a line of credit and there are hard money lenders who have money at the ready albeit at rates usually above 10%.  Lastly, you can find some partners who share your appetite for this type of risk / reward investing.

Currently I have two “all cash deals” in escrow and have cash ready along with partners who want to participate.  By choosing this option instead of borrowing the money myself, I am sharing the profits and the risks with others instead of keeping it all for myself.

Given the strength of the rental market in certain areas around the country, properties are trading at seemingly low cap rates so I favor the deals with hair and in need repositioning.  If you have the appetite and team to turn lemons into lemonade, I have found this type of investing to be very rewarding.  My advice is to have your money lined up before the opportunity comes knocking since cash is king.