Buy what nobody wants
Am up to my neck in deals right now, which I’m not complaining about at all. So today’s post is going to be short and sweet.
I want to impart an idea about investing, in general, and real estate investing, in specific: Buy what nobody else wants right now.
By definition, if no one wants a parrticular type of asset, prices will be low. But banks will probably not want to lend. So it’s hard to make the deals work.
Try, though. Because if you are able to make them work in such a way that you can buy cheaply and get an acceptable yield while waiting for market conditions to improve, you will be a very, very happy investor indeed.
It worked for us on apartments in 2009-10.
At the same point, it is certainly not wise to buy when absolutely everyone else is like 05,06, and 07 and things got super crazy. A lot of people got wiped out because of this. Given that, it seems like things may be getting a bit frothy in the multifamily market as people are on to the rising rents and super low interest rates with few other options to park cash. Never thought I would be nostalgic for 2009 again…
Matt
06/08/2012 at 11:36 am
This is a fair point. It was definitely easier and less risky to buy stuff in 2009 than it is now. That being said, I think the rise in rents we’re seeing is going to continue, because employment will eventually come back. That’s the macro-view.
But the micro-view is that we all need to keep the fundamentals in mind and do smart deals. That comes down to spending the time to really understand the sources of downside risk and, to the extent possible, mitigate them through both the choice of the asset to buy and also the diligence process.
mjkagan
06/08/2012 at 11:45 am
On the upside, with the economy improving there will likely be more rapid gentrification coming up so it may be a matter of getting in on the right neighborhoods. It seems a lot of the gentrification kind of stopped in 2008, but we could see a resumption of it soon.
Matt
06/08/2012 at 4:23 pm
Already happening… check the rents in E. Hollywood
mjkagan
06/08/2012 at 5:18 pm