Don’t Get Distracted by New Shiny-Object Syndrome

[Jason Malabute]

The prices of real estate are crazy-expensive these days, mainly because of the inflation that has been stimulated by the huge amount of dollars printed in 2020. Everyone has cash, and most people are trying to hedge inflation by investing in real assets such as real estate, stocks, or bitcoin.

Amidst this chaos, interest rates are all-time low and there is an utter housing shortage. Investors in more expensive cities are playing it so aggressive that they are even willing to pay double the actual worth of a property in smaller markets. The reason behind this is that they are comparing the dollar amount of lesser expensive properties in the market to the more expensive ones of their hometowns.

It has become excruciatingly difficult to invest in a property that has a high rate of return, which is why many investors have even lowered their Return on Investment from 10% (of past years) to 7% or even lower. This lack of profitable deals has also led some of the investors to switch from the acquisition market to new construction.

Despite all the fuss building up, I have chosen to adopt the middle path – I am still looking for deals and am acting super-conservative with my rent growth and exit cap rates projections. The motivation behind my median approach is a statement by Warren Buffet that goes:

“Be greedy when others are fearful, be fearful when others are greedy”.

This being said, I am still making offers and looking for good deals. However, I am also not being greedy about it; neither have I been thinking of switching to the construction business because that is a completely different business model and there is also an inherent risk lurking in diving into a new business model you have no experience in.