Barriers to Entry Increasing for Rookie Real Estate Investors?

21 Replies

Over the the episodes from the past two weeks, David from the BiggerPockets podcast has brought up that real estate will be harder and harder to from the "small guy" to get into each year due to factors like: inflation, hedge funds being hyperactive in the market, the lack of supply and high demand causing an increasingly competitive market, real estate being a more attractive investment for our current economic condition, etc... 

I have just started to learn about real estate investing in the past three months. Most likely, I won't be buying real estate until three years down the road. However, I have a sense of FOMO after listening to these podcasts and am discouraged to hear that less opportunity will await in the future. 

What do you all think? Will finding a deal be more difficult every year for new investors? Of course, there's always a deal to be found, but I'm interested to hear overall thoughts on this idea. 

Originally posted by @Evan Swanson :

Over the the episodes from the past two weeks, David from the BiggerPockets podcast has brought up that real estate will be harder and harder to from the "small guy" to get into each year due to factors like: inflation, hedge funds being hyperactive in the market, the lack of supply and high demand causing an increasingly competitive market, real estate being a more attractive investment for our current economic condition, etc... 

I have just started to learn about real estate investing in the past three months. Most likely, I won't be buying real estate until three years down the road. However, I have a sense of FOMO after listening to these podcasts and am discouraged to hear that less opportunity will await in the future. 

What do you all think? Will finding a deal be more difficult every year for new investors? Of course, there's always a deal to be found, but I'm interested to hear overall thoughts on this idea. 

I haven't listened to the podcast in quite a while,  so didn't hear this episode, but I would say it is way simpler to buy properties as an informed person, just harder to find value. 

Education and data are available freely for anybody that wants to put in the time. REI is sexy again, so more people want to do it and we all have access to basically the same information, chasing the same limited inventory.

I see and hear a lot about acquiring doors and possibly adding value with upgrades or adding rooms, but not much about buying value.  

All of my purchases except a couple have been off-market,  directly with sellers.  Lean and quick, no extra mouths that have to be fed.

While you save and learn, drive for dollars (tired plexes are my favorite) and talk to garage sale holders and ask if they're planning to move.  40% or so are future sellers or tenants leaving.   Off-market is the main way I find value. 

On a makro level David is not wrong: we have seen this very clearly the last 2 years and above all it is the housing supply that is making it difficult. Number one competitor to a beginning investor are first time home buyers. They are highly motivated, can use low downpayment loans and will compete fiercly for every good listing. And they are often blissfully unaware of how much renovations will cost and therefor drive up the price even if the listing is in poor repair. "my dad will help, we can do it over time.." This makes it very difficult to get a sufficently large discount for a property that is in need of work: the market overpays for less than perfect condition.

So, what happened?

We have been caught in a conundrum: after 2008 we almost stopped new construction while the population kept growing, so the ratio of roofs to people in the US kept slipping. And then something dramatic happened: millennials almost suddenly started to think about buying thir first home. The oldest are now 39, married with kids - once said they would prefer to rent, uber instead of buy a car and work from a coffeeshop, now they are starting families and that changes everything. The combination of accumulated new construction deficit and sudden shift in millennisal thinking caught the housing industry by surprise, and with their pants down so to speak.

To give you an example: the Milwaukee metro area has about 1.6 million people, about 360,000 of them are millennials, theoreticlly that makes 180,000 couples who are or will be soon looking to buy. The problem is that our market only sells about 10,000 single family homes a year. To make matters worse, millennials also comepte with boomers who want to downsize.

A lot of things can impact a market, rising rates is probably the biggest risk right now to slow down price appreciation, but overall, neither the supply nor demand are going to change substantially - we just have more people than roofs. It's like musical chairs and this will keep driving prices until the market finds an equillibirium between supply and demand, which all free markets will do over time, but since supply and demand are not that flexible it has to be price that will reduce demand until we are balanced.

Milwaukee is also seeing a little bit of an increase in imigration due to climate change: smoke, fires, drought, hurricanes, floods, fresh water - in combination with remote work and low cost of housing compared to most of the country. Also a lot of people from Chicago are moving to Milwaukee, more for economic and political reasons.

Add all this up, this is why I am long term bullish for Milwaukee. And why it is going to remain difficult for new investors to get started and scale. But there are also things that work in favor of new investors: loans are much easier available as they were ten years ago and rates are crazy low. You can borrow a lot more principal with much less interest. And while it is expensive to buy, strong appreciation creates equity without having to BRRRR much. I guess in a way you can say, while it's never easy, if you are motivated enough you'll find a way!

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@Evan Swanson  

Although it may be overall harder to get into RE in 2011 or 2017 it’s still POSSIBLE. I started in 2017 when everyone on BP was saying the market was so hot and there were no deals. I found deals that worked and built up a portfolio. Each year I’ve bought and sold RE, transacting millions. This year I’ll buy 46 doors. Just because something is hard doesn’t mean it’s impossible. 
If you want and excuse never to do RE, you have one. But an excuse not to do it doesn’t get you all the benefits of being a real estate investor. Nothing worth doing is easy but it’s possible. Take action instead of finding excuses. 

There are always houses out there. Always. You may have to get more creative or look for fixers, but you'll be fine. There have always been times when 'the experts' said it was going to be bad But everything changes Inflation will make some of the big money folks look elsewhere. A market crash/readjustment will drive out the timid. Etc

You just have really want it, do an incredible amount of market research (most important) and be ready to move...

I refuse it's harder to get in to real estate investing for the little/new guy today. Try doing it when mortgage rates are 6-8%, NOBODY you know or have ever talked to is doing is, there are no books in the library, no such thing as Bigger pockets, no Zillow, no online MLS, heck maybe no internet. Now, tell those people they had it easier to get started. Maybe they had it easier once they got started with less competition. Almost everything gets easier the more people are doing it.

Originally posted by @Chris John :

@Evan Swanson

Most people aren't actually trying to get ahead, so it makes it pretty easy for those that are.  This world is yours if you're willing to go take it.

True words right there....I was just talking to some strangers in a line about all the jobs that can't find workers. Even at $25+ per hr....

With the prevailing attitude out there, you really can do anything you want. The RE world however has always been full of the movers and shakers of the country and still is, so a little more competition, but there are less players coming up from the younger generation now....

Originally posted by @Lee Ripma :

@Evan Swanson 

Although it may be overall harder to get into RE in 2011 or 2017 it’s still POSSIBLE. I started in 2017 when everyone on BP was saying the market was so hot and there were no deals. I found deals that worked and built up a portfolio. Each year I’ve bought and sold RE, transacting millions. This year I’ll buy 46 doors. Just because something is hard doesn’t mean it’s impossible. 
If you want and excuse never to do RE, you have one. But an excuse not to do it doesn’t get you all the benefits of being a real estate investor. Nothing worth doing is easy but it’s possible. Take action instead of finding excuses. 

@Lee Ripma Thanks for the inspiration. I've always been of the mindset "if there's a will, there's a way." I learn relentlessly when I set my mind on something. It's good to be in community with people that have a similar mindset and are still optimistic! Appreciate the input. 

Originally posted by @Bruce Woodruff :
Originally posted by @Chris John:

@Evan Swanson

Most people aren't actually trying to get ahead, so it makes it pretty easy for those that are.  This world is yours if you're willing to go take it.

True words right there....I was just talking to some strangers in a line about all the jobs that can't find workers. Even at $25+ per hr....

With the prevailing attitude out there, you really can do anything you want. The RE world however has always been full of the movers and shakers of the country and still is, so a little more competition, but there are less players coming up from the younger generation now....

Bruce, you make a good point when you say "there are less players coming up from the younger generation now..." I'd be interested in the see the data on the average age of homebuyers/investors per state. I live in CT which is not renowned as a destination state. In fact, I don't see many young professionals starting careers here unless they have family nearby or have roots here. New England is beautiful, but it's not usually on the top of the list for hot real estate markets, especially for young investors. 

In the podcast, David said most of the big players in real estate aren't looking at the north east, so maybe there's more opportunity here than in markets like Florida, Texas, Tennessee, etc.. for those starting out.
 

Originally posted by @Evan Swanson :

inflation, hedge funds being hyperactive in the market, the lack of supply and high demand causing an increasingly competitive market, real estate being a more attractive investment for our current economic condition, etc... 

The BP forums are the only place where these things are bad for investors (big and small).  And conditions don't keep the "small guy" from investing. 

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@Marcus Auerbach adding to Marcus’ analysis is the reality of downsizing boomers all along the economic spectrum. These retirees do not want and cannot maintain the larger houses that were built for them in their prime. They are close to millennials in terms of size of cohort and often well funded. 2-3 bedrooms 1-2 baths and up to 1700 square feet is now in great demand as both starter homes and downsize—the exact kind of housing they haven’t built in 40 years :)

@Evan Swanson Pick any subject in the world and it's the view point you have on the subject that will decide your outlook or outcome. People make all sorts of reasons to justify reasoning and outcomes. Is it true? Yes. Is it not true? Yes. Up to you.

Like Jim Rohn said "If you really want to do something, you'll find a way. If you don't, you'll find an excuse." 

Investing with an abundance mindset versus a lack mindset will always be much more productive. Nobody is trucking new real estate in from the outer planets yes, but then again, many people keep buying it and many people keep selling it. There is no shortage. 

This is the awesome thing about so much diversity, no two minds will think alike. There will be sellers and buyers, which means there will always be opportunity. Markets go up and markets go down. Strategies succeed and strategies fail. You simply have to pick the ones aligning with your goals and pivot when necessary.

@Evan Swanson

I think Mr. Green is spot on.  I am a little surprised that his sentiment is getting poopood here.  Housing is unaffordable for average people in my area.  For people who have an everyday job and know parents too cosign I believe they will find it very difficult to ever own a home let alone be a real estate investor.  Of coarse there will be exceptions to this and if a capable person focuses their life on acquiring real estate I believe they will acquire a significant amount of real estate.  However for young folks that have other priorities maybe starting a family or something I believe they will be cut out to a large degree.  I am sure glad I started investing when I did, it would be much more difficult to start today with no resources.  The point Green makes on the podcast and I concur a 100% the sooner you get in the better (assuming this trend continues).

@Eric Bilderback

Well, assuming the free market is allowed to work (which is a big "if" these days, imo), a lot of these issues should resolve themselves.  Incomes will rise to help offset inflation, competition will drive prices up to levels that make investors pull their money and head for greener pastures, migration to cheaper markets should occur to balance out the disparities, etc.

There seem to be a lot of hands on a lot of levers these days though, so who knows if any of this will actually transpire.

@Chris John

100% agree.  But I see no chance of the financial engineers letting asset price deflate no matter how much the market wants assets to deflate.  I would argue we are heading into a South American economic model.  That model has a few elite that own assets and the great unwashed masses that have nothing and for the most part never will. 

@Eric Bilderback

haha.  It's good to know that I'm not the only pessimist in the room!  Misery, does indeed, love company.  I'll be curious to see how things resolve themselves with this kerfuffle that we find ourselves in.  I hope you're (we're) wrong, but my money is certainly betting against that.  I'm borrowing as much money as I can and assuming that inflation will make me look like a genius in 5-10 years.  We shall see.

Finding good deals has been and always will be tough.  There will always be good deals out there (relative to market rate returns), just requires more work to find them. You have the right idea of starting the education process early.  If you are really motivated and anxious to get into it before 3 years, you can make it happen!

@Evan Swanson . It seems that the institutional players will be developing technology to allow them to scoop up deals in markets all over the US. This will make it even harder for the little guy. But that could also drive out a lot of other little guys which makes for an opportunity.

If you are willing to do the really hard work of driving for dollars, going door-to-door, digging through court records (like probate), and looking for deals that technology will not turn up, you could be the winner in the end.

Or you could partner with one of the big guys. They always need people on the ground. Good luck! 

Love this thread.The posts have really made it clear that opportunity always exists, its the individual that needs to skill up and capitalize

 Barriers aren't increasing , just the environment keeps changing  requiring a different approach