Risks to Small Investors

9 Replies

"If you build to rent, be aware that many hedge funds are buying rental properties and that the rental market has gotten to be very competitive." - Harry Dent, The Demographic Cliff, 2014, page 97.

One of the things that I have wondered about as a small investor is risk. I have three properties and am working my way to ten. I am considering risk factors to be aware of as an investor.

How do hedge funds hold the ability to affect a local rental market? What would happen in a down market? Thoughts?

@James M.

I just recently got hold of that book and am about to start reading it. I find study of demographics interesting. Whats your take on it, useful, worth reading? It says 2014-2019 great deflation. 

@Hersh M.

I liked the book for the fact it was simple. One issue ties together all the others ... demographics, which should concern us as real estate investors as we need PEOPLE to buy or rent the homes we are providing. If we have mortgages out on rental properties (like me), we really need to be concerned about things like demographics as decreasing populations means lower rents.

That being said, the concern for Harry Dent and his bullish ilk are that the fears of deflation and a stock market crash is that it keeps people out of the market for many of the potential gains. As you saw in the original title of the books (it's been changed) that the great deflation was supposed to come between 2014-2019. I read his stuff every day and they always have a way to show why it didn't happen. I'm gathering that they have been saying the same things for the last few years and not a lot has happened since 2008. While demographics is important, economics are not simple.

Still, as for me, Dent's concerns line up with other real estate investor podcasts I've been listening to who advocate paying down the mortgages and owning the houses outright, rather than carrying many mortgages. When I started I thought I would aim for ten rentals, all with mortgages, and then start paying them down one by one. I am reconsidering that strategy for something smaller and more conservative.

All bubbles burst. It's just a matter of time. If Dent is right, we still have a few bubbles to burst. He says real estate is one of them. Small-time RE investors would do well to consider what a baby boomer sell-off will mean to their portfolio over the next 10-15 years, especially if you have a mortgage, and especially if your house is not nicely cashflowing. He is worth reading and considering for these things.

If you are interested in capitalizing on changing markets, he has a few subscription services that will help you invest and make money in a declining market. Then you can use those profits to buy more real estate. At least that is what I am doing.

I would think this is going to be a GREAT opportunity to pick up some potential rental homes in solid performing saturated markets where most of the boomers are.  

As a small investor I am looking forward to another bubble burst so competition lowers, prices lower, and more deals can be had!

I hope it works out that way for you, and anyone else reading this. I know that many people are fairly vulnerable to a bubble bursting and will not have the available capital to move ahead. In fact, they may be in a very bad situation. I've seen it and you've seen it. 

The reduced competition and lower prices may be because investors like you and I are out of the market. That's why we need to stay educated and smart in our investments. Reduced competition means that the majority of people in the market will be out and profitable deals may be harder than they have been since 2008. As the OP refers to, small investors may be in a vulnerable place if hedge fund managers decide to cut their rates or unload unprofitable homes.

@James M. What a coincidence. Just stumbled across this article from Dent - http://www.businessinsider.com/chinas-real-estate-...

"There will be no soft landing in China. It will bring down the entire world’s unprecedented debt and real estate bubble. And it’s only a matter of time, and likely only a month away at this point.

Now’s the time to get out of real estate ... and stocks ... and everything but the safest Treasury bonds and AAA corporates."

Lets see how accurate his latest predictions are. 

@James M. @Alexander Felice @Darren Sager

Looks like the opportunity is getting closer. Look at the damage to markets over last 3 weeks. 

Also looks like Dent has been on the money so far as per the article i shared above. Was it a guess or is he really that good? 

Depends how you look at things. His book and research seem like they work out well. Bulls tend to say that the Bears will inevitably get it right every once in a while. that being said, if you followed his advice over the past couple of months, you would have made money, not lost it.

We have to see what it means for real estate.

@James M.

Thanks for the link.

I am by nature a cautious dude and I am happy to find someone that may be able to educate me. I am gonna be looking more into this Harry Dent guy.

Wishing you success!

Sam Harris.

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