Are We in a Real Estate Bubble? An Investor’s Analysis of Current Market Trends
I am a real estate investor. This is not an easy career path in many respects, not the least of which is that it requires an uncommon amount of discipline!
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Indeed, we have to define in great specificity our criteria for action, and we must have control over ourselves to stay within those self-imposed parameters.
It’s Not About Action
That’s right – as it relates to discipline, as hard as it may be to stay true to the pre-defined guidelines for action, it can be a lot more difficult to maintain the plan when it requires that you do nothing. I mean, when you are doing lots of deals, and therefore feel like you are moving ahead, it is not too difficult to turn things down that you don’t deem good enough.
But what about when you’ve found yourself sidelined for one month, two months, six months, or more? All you’re doing is following your criteria for action, which causes you to stay out – nothing is good enough to act upon in the marketplace, at least not at a price that makes sense to you. Everyone else is in a mad dash doing deals like there is no tomorrow, but you are sitting around wondering if you are stupid and missing out on a ton of opportunities, or if the masses of investors are lemmings marching toward their demise.
My Real Estate Situation
Last time I bought was in 2013; you can read about it here, and some more here. It took 2 years to reposition this project, which was hard work. It was certainly worth it, but as a result of this work, I’ve further tightened the screws on my underwriting. If I am going to work this hard, the margins have to be what they must be.
I am not at all infatuated with the privilege of being called a real estate investor. I was at one time; I thought, it’s cool to own property. Now, it either makes a great return safely, or it doesn’t – finita la comedia…
It’s not that I haven’t placed any offers; I have. But there is always someone willing to pay more. I know what I want, and I go for it. But I don’t need to do deals to feel accomplished anymore. I only need to do great deals.
A month ago I went after a building with 128 units. I was at $4.1 million; someone else came in at $4.4. I understand why they did, and some would say I could have paid more. But if I did that, I’d be working too hard for too little, and I don’t need that pain. I am sorta comfy, and I have other interests… you know what I’m saying. 🙂
By the time this article goes out, I will have an LOI in for 150 units. We’ll see what happens there…
Is This a Bubble?
After losing so many deals, no matter how sure I am of myself and my underwriting, I have to wonder, is this a bubble, or am I missing the boat and it’s time to adjust my methodology? Is it time to start working harder…?!
The economic fundamentals seem to be moving in somewhat of the right direction, though this of course depends on who you listen to. Ninety million people out of work in this country does put a moment of pause into those fundamentals for me, but the demographics are looking strong for a few more years I’d say. So, is all of this growth investing exuberance warranted, or are we in another bubble?
I don’t have one. However, I invite you to consider the following perspective: Let’s remember what causes bubbles. Bubbles are not about fundamentals. Bubbles are about behavior of market participants.
So, as you look around, are we in a bubble? You tell me. I log onto BP, and I see rampant amateurism. Everyone and their mother, father, and uncle is a real estate investor, and 90% of them are wholesalers, seeing as it’s the best way to get in… I don’t know whether to laugh or cry!
In a lot of ways, this market behavior is not unlike circa 2005, and I would certainly qualify this as a bubble. Real estate has once more turned into tulips. I do think, however, that while the behavior of investors looks to be same across the board in all asset classes, in reality there are more fundamentals to support further growth in some sectors than others.
Do You Zig or Do You Sit?
That’s the question, isn’t it? Do you zig when everyone zags, meaning that there is still opportunity, or is it time just to sit down at the dining room table and help kids with homework, and call it a day? I try to zig — with not much success to report.
What about you? Are you making deals in the current market, or holding off? Do you believe we’re in a real estate bubble?
Leave your thoughts, opinions and stories below!