When it comes to investing, many markets survive because of the “greater fool.” Basically, people buy into markets they know are overvalued, because they believe the market will keep rising and they can sell to an even greater fool.
This kind of “investing” is just like gambling.
As professional card players say, “If you don’t know who the patsy at the table is, then you’re the patsy.” — In real estate investing, we call the patsy “the greater fool.”
After ten years of rallying, the real estate market is topping out. Even with lower interest rates, sales growth is leveling off. This phenomenon was explained really well in an article on investor psychology from Seeking Alpha. Markets top out when most investors are thinking the same thing. There are no more bears or neutral investors to convert to bulls. So there are no more people to join and keep things going.
No more new people to drink the Kool Aid. No more greater fools to buy your overvalued asset.
For a while, we’ve been hearing about how great C properties are right now. You need to rush right out and buy some. Yes, they are full, because the economic recovery has finally trickled down to the “renters by necessity,” as they’re called – the people who cannot afford to buy a home of their own.
You’re about to hear how great real estate (and C properties) are going to be, because the Fed will lower interest rates soon, and that will cause prices to rise for Multifamily. Here’s the reason the Fed is lowering rates: the underlying economic fundamentals are deteriorating.
Yes, on the surface, unemployment is low and more people are in a position to rent apartments… But employment at small businesses, especially in the retail sector, is deteriorating. In every recession, small business hiring is always the canary in the coal mine.
Make no mistake; it will probably take 12-18 months for the recession to hit. It will hit though. It’s going to crush renters who rent from necessity first.
Sure, you could rush right out and buy some C properties now, and see how it feels in 24 months when your vacancy spikes and you have trouble making the debt service on the asset you overpaid for.
Whoever sold you those properties will have a good laugh behind your back.
Why? Because they saw this coming and exited at the top, while you drank the Kool Aid and believed the rally would go on forever.
Listen. I’ve got some good news for you! Yes, I’m the Real Estate Curmudgeon, but I am not all gloom and doom.
The fact we still have a business cycle is great for people who are patient. People who are disciplined, not caught up in the hysteria, and can control their fear of missing out will thrive in the cycle, because they’re already prepared for their great opportunities.
Those people will get to buy when the bottom comes around again, as it always does.
No matter what people tell you, it will be easier to buy. Your profits will be fatter. Then, rather than being the greater fool, you can sell out to the greater fool.
You can be the one laughing behind the back of the guy who bought from you just before the correction.
Now is the best time in history to get ready for the bottom; those who are ready will be the ones who benefit.
So, how do you prepare for profit?
- You identify the markets that are best positioned to rebound fast from a recession and have strong occupancy and rent growth. (I teach you how to do this in Module 2 of Multifamily Launchpad.)
- You get yourself a good underwriting model and actually learn how to underwrite deals. (I provide an easy-to-understand model in Module 4, and show you in detail how to underwrite deals like a pro, so you don’t overpay for properties.)
- You build relationships with brokers, so you they will actually show you deals at the market bottom. (Module 3 shows you how to get brokers to show you their best deals from day 1, even if you’re brand new to the business.)
- You build relationships with investors, so rather than being scared at the bottom of the market, they will be greedy for your deals. (Getting investors greedy for your deals is the focus of Module 8.)
- You position yourself to get a commercial mortgage ahead of time, because the banks won’t lend to unknown newbies at the bottom. (You learn how to get bullet-proof qualified for mortgages in Module 7.)
Multifamily Launchpad reopens for new members this fall… Just in time for you to be free of the chaos and distractions you have in your life, whatever they are!
You’ll definitely want to get on the waiting list while the iron’s hot; this list comes with the exclusive opportunity of joining Multifamily Launchpad at a big discount. The program is already great — the discount just makes it even better!
Want to learn more about what’s included? Just go here! www.mflwaitlist.com
Sellers are Laughing Behind Your Back
by Jonathan Twombly
Last Updated: July 22, 2019