More educated populace or irrational exuberance?

Question

I just found out that two people from my high school graduating class are both entering REI - one renovating a property to rent out, and one doing their first flip. Neither of these people have any background in real estate (as far as I'm aware). We're in our early-mid 30's.

Obviously these are just two cases, but they seem representative of an increasing interest in interest in real estate in society more generally. I can't decide whether this is an indication of a positive trend of more people understanding the value of real estate investing, whether we're just getting to an age where a lot of people are starting to consider retirement planning, or if it is an indication of the "every man and his dog" mentality and a sign of irrational exuberance?

What do you all think? Does this remind anyone of 2006?

My husband and I started investing in 2011. We want to keep buying but I'm getting a bit concerned about the state of the market...

Corby Goade · Answer

People were concerned about the state of the market in 2016, and here we are. I'm not advocating for you to blindly buy anything you can get your hands on, but a deal is a deal, regardless of the market, and they are out there. Decide what buying criteria works for you and find deals that work. No one knows where the market will be in a week or a decade, but if you buy smart and have at least two reasonable exit strategies, over time you will be fine.

Bill F. · Answer

@Heather H.

Why worry about what others are doing in the market?

Find a niche that suits your knowledge, skills, and abilities, plan out/test your investment thesis, and work your plan.

As another BP poster told me once, "Easier to stand out in a sea of idiots than a sea of geniuses"

Heather H. · Answer

Hi @Holly Williams, @Corby Goade, thanks for your input!

I completely agree the money can be made in any market, and of course I do have a very strict set of criteria and am conservative in running my numbers for exactly the reason you said, Holly - to make sure I don't get into a position where I have to sell at the wrong time and can afford a slump in rental demand. That said though, it would be a shame to buy at a peak then get stuck with little or negative equity, even with tenants covering the expenses and generating a bit of cash flow. But you make a good point - as long as we're not over-leveraged or dependent on appreciation, holding on through a downturn wouldn't be such a problem (assuming prices rise again eventually).

Corby, I like your reminder that we can't time the market, and your suggestion to have at least two exit strategies - although of course those depend on a certain property value, and would necessarily change if values were to tank badly enough.

Holly Williams · Answer

Great thread.  I'm afraid of buying for appreciation and/or being over-leveraged in this market.  Right now I think that multifamily is a safer bet if done super-conservatively.  For me, I have to be in a position where I don't have to sell at the wrong time, and can afford for rents/occupancy, and ultimately NOI to go down and I'll be ok.

Heather H. · Answer

Hi @Alina Trigub, that's a great post - thanks for sharing it! Based on the descriptions, it seems to me that we might be approaching the top of the Expansion Market Cycle, which is where my concern comes from. Although we can insulate ourselves from a downturn by doing our best to get properties that will cash flow regardless of hard times, it would still be a shame to buy at the top.

Alina Trigub · Answer

@Heather H.

Every market is different, most of the happenings are hyper-local. So you need to look at your market to decide where it's going and whether you should consider switching to another one. If you look back at 2007-08, even at that time, not every single market and/or asset class was under water. Look for the markets with consistent cash flow, avoid betting on appreciation, and concentrate on the "bread and butter" properties. There're community serving working class. People will always need to have places to live, so stick to such places.

Here's a post to help guide you further:

https://www.biggerpockets.com/member-blogs/10850/81214-what-goes-up-must-come-down-or-market-cycles-fluctuation

More educated populace or irrational exuberance?

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