Investors have the Millennial Mindset

So you’ve heard about this real estate thing. You have some capital and think that you can put it to work in your own deals and retire in 5 years. Maybe, but unlikely. While some people are OK putting their hard-earned cash on the roulette wheel, I am not, and you shouldn’t be either. Yes, there have been a lot of people that have created substantial wealth in real estate over the last decade. Yes, you can experience cash windfalls if you choose the right property/project. And yes, for every success story you hear about, there are a dozen situations where people lost their shirts. This should not be viewed as a get rich quickly industry. The harsh reality is most people won’t listen to that, or don't want to hear it. The mentality of high returns has been ingrained in our society if you’ve been invested in virtually any asset class over the last 8 years.

Aside from appreciation since the Great Recession, the real estate industry has also evolved into a very transparent ecosystem. Everyone from my 14 year old niece to my grandpa can access pretty much anything by going to Zillow or with one email to a licensed broker. As the old adage goes, knowledge is power. But if everyone has the same information, is it really power? In this case, many investors become power drunk as they misconstrue this access to information as being a proverbial expert. Even worse, this inebriation extrapolates beyond the analyzation phase and across the entirety of the real estate investment process, primarily managing of the asset. They think, ‘if I can sit behind my computer and analyze all of these deals, everything should be this easy’.

The combination of high return expectations and the ‘ease of use’ mentality is a dangerous one as it leads to an unrealistic outcome, resulting in the investor wasting their time and never leaving the starting blocks or worse. High returns are achievable if you know what you’re doing and willing to put in the time and sweat equity. ‘Ease of use’ can also be accomplished by buying a less risky asset and putting property management in place. It’s like that middle school dance where no one is dancing and all the boys are on one side, girls on the other; rarely do you find these two in the same place.

One of two things happen from here:

1. 1) Investors don’t take action because they cant find that ‘perfect’ deal. They will claim that the market is too hot… I guarantee it (insert George Zimmer meme)
2. 2) They go outside their core market/ strategy and purchase a property that pencils out on paper and hire a property manager so they don’t have to deal with it.

So you choose option 2, right? That seems to be the logical choice, right? There’s one big hurdle that stands in the way of this perfect plan… people. People suck. They don’t pay their rent on time, if at all. They don’t manage the tenants the way they promise. They don’t show up to job sites and don’t get projects completed in the allotted time frame, oh, and without fail it’s going to be over budget. Not to mention that the deal they bought has a TON of hair on it and will just cause more problems than it’s worth down the road. No, option 2 is not the answer. The answer is C, none of the above. Answer C: go back to the drawing board and realign your mindset so you can actually invest intelligently in this market environment.

Where we are today in the real estate market is drastically different than 2009. In 2009, you could randomly choose a property in any market and have a decent chance of it being a successful asset a few years later. No one knows what inning we’re in, but one thing’s for sure, we’re farther along in the game than we were in 2009. That middle school dance floor has emptied out substantially and you can’t have it all. Don’t be a millennial and think that everything should just be easy and given to you on a silver platter. There’s nothing wrong with having high standards and you should invest in assets you’re comfortable with (price point, complexity, yield expectation, etc), but recognize the reality of your investment thesis. Deals today are not found, they’re made.