Investors Show Increased Polarity in the 2020 Q4 Investor Sentiment Survey

It’s that time of the quarter: Investor Sentiment Survey results! Maybe I am the only one who gets really excited about this, but I find it really fascinating to learn how the BiggerPockets audience sees the real estate investing market and enjoy trying to make sense of the results.

Every quarter we send out a poll to active BiggerPockets users to understand their feelings about the real estate investing market, then publish the results. Most recently, we conducted a poll in early January that had 1,674 responses. We’ve only been doing this for a few months, so the data only goes back to July 2020. This is our third published survey.

I’ve spent some time looking through the data and trying to make sense of how people are feeling to provide some context to the numbers you see.

In order to make these results a bit easier to interpret, I have weighted the results, so we can adjust where consumer sentiment sits among the BiggerPockets audience. A score of 3 means that everyone who responded to the survey answered that they strongly agree, a score of 1 means the average response was an agree, 0 is neutral, -1 is disagree and -3 is strongly disagree. With that, let’s take a look at the highlights.

BP investor sentiment has remained largely unchanged from September to January in terms of buying opportunity. The weighted average ticked up, but only slightly, from .71 to .76.
The number of investors who feel that it’s a good time to sell dropped considerably since the last survey, from 1.1 to 0.67.
Investors are generally bullish on rent increases heading in 2021, with the weighted average increasing from .35 to 1.14—the largest increase of our three core metrics.

We’ll get into more details about these findings below, but keep in mind that despite the relative changes in the weighted averages, we’re not talking about anything crazy here. For the most part investors tend to agree with all three of these statements: it’s a good time to buy, it’s a good time to sell, and rents will increase. That is reflected in the weighted averages all sitting close to 1.

Buying opportunities

As we saw above, on average, investors are feeling roughly the same about buying opportunities as they did back in September. But averages never tell the whole story, so let’s take a look at the details of our survey results.

To make this easier to visualize, I have removed the July 2020 results, and am just showing here the contrast between our September 2020 results, and the January 2021 results.

What I see here is that our investor sentiment around this question is beginning to polarize. Where in September 59% of respondents either agreed or were neutral about their feelings, only 31% feel that way now. Instead, we have a dramatic uptick in both directions. The percentage of those who strongly agree went from 21% to 35%, and those who disagree went from 16% to 30%. People are running in both directions!

This is confusing, but we live in confusing times. I think there are likely two schools of thought, and investors seem to be split between them.

School 1: The world is unstable right now. We have unprecedented amounts of government money flooding the market, likely driving up prices across many asset classes. The stock market is going batshit crazy, and it makes me uncomfortable. Property prices have also risen, hitting all-time highs in many markets, but there could be a flood of evictions and foreclosures once government stimulus ends, sending the real estate market (and others) downward. I don’t want to buy at the peak of the market.

School 2: Money is cheap! Interest rates are at historic lows, so buy buy buy! The stock market again, is batshit crazy, and I need somewhere to invest this sweet cheap debt. Real estate is a great long-term investment, particularly with low interest rates and the prospect of inflation on the horizon. I’m sticking to what I know and not getting distracted.

Neither one is wrong, but I hear these two competing sentiments regularly from investors, and think this dichotomy is reflected in our survey results.

Selling opportunities

Investor sentiment around selling is a bit more straightforward. People are just less inclined to sell right now. Looking at the chart below, the bars for strongly agree, neutral, and strongly disagree are pretty much the same. The only change we see is a shift from agree to disagree.

While there is a change, remember that the weighted average is still positive—more people think it’s a good time to sell than not. This all seems pretty straightforward to me.

It is a good time to sell. As I mentioned above, many markets are seeing all-time highs. If you want to cash out right now, I don’t think anyone could fault you for selling. So why the shift?

Perhaps the shift reflects a lack of alternative investments. If you sell, what are you going to do with that money? With all the uncertainty right now, if you have a deal that is cash-flowing or appreciating, why would you sell it? Where would the money go?

You could make the argument to sell existing properties and buy back into the market for the long-term with low interest rates locked in. But it doesn’t seem like investors are buying that train of thought. Instead, people seem to want to hold on to what they’ve got despite being able to sell at a good price.

Rent growth

The last of our three major indicators, rent growth, is showing a dramatic increase. It seems that investors, overall, are feeling that rents have room to move up.

I find it hard to square these two results. Either rents are going to go up (which is typically driven by an increase in demand), or vacancy is going to increase (driven by a decrease in demand). I cannot really imagine a scenario where both rents and vacancy rates go up, but someone will probably make a great argument to the contrary in the comments section.

I, for one, will not raise rents during the pandemic. I want to keep good tenants, reduce vacancy risk, and to be conscious of the economic struggle that many people are facing. Perhaps other investors are seeing signs that the pandemic and corresponding economic hardship are waning, and we’ll return to more normal economic conditions in the next six months.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.