The real estate market, especially for commercial real estate has a scary outlook right now. Many people are on the sideline and not sure what to do next. Naysayers want there to be an apocalyptic collapse of real estate like the great financial crisis. While this level of collapse will likely not occur, there are definitely some investors and asset classes that will face near term distress. This may be due to the asset class itself or due to the decisions of the operators managing the investment property.
Either way whatever happens, there is a level of uncertainty that can be scary for a new investor. There is a famous warren buffet quote that says, “be fearful when others are greedy and to be greedy only when others are fearful.” It looks like right now, people are fearful. That means it would be a good time to start getting greedy.
If you are looking to get started investing in today’s real estate market and not sure what to do, we are going to cover a few ways you can get started.
Partner Up With Someone
It’s an inevitable cliché moment you always see in horror movies. You know what I am talking about. When the bad guy is chasing the main characters and then one person gets the bright idea “lets split up!” Typically, someone dies after that.
Being successful in real estate investing is not much different than this horror movie cliché. Well, maybe the part about someone losing their life is a bit of a stretch.
Thinking like a lone wolf and choosing to “split up” may not end in a literal loss of life but it could sure set you up for a significant financial loss. When investing in real estate it is very much a team sport where you are able to do more when you partner with and are in contact with other investors. You are able to do more together with a partner than you would be able to do by yourself.
The benefits of partnering up are even more evident if you are a new investor that lacks skill and experience. You can leverage the experience of a more seasoned investor to help fill the gap in what you lack. Maybe you are on the other end of the spectrum where you have skill but not the money. You could partner up with someone that doesn’t have the skill or time to invest but they have the money to help fund the investment venture.
Pursue A Smaller Deal
If you are on the lower end of the spectrum when it comes to skill, time and finances then going out and pursuing a 300-unit apartment complex may not be the best route for your first real estate deal. While many people will say bigger is better that is not always true. As an investor one of your main focuses is on what type of return you will get from your investment. If you compare two investment opportunities you may see that in relation to return, the smaller deal may be the better asset to invest in at the moment.
Sometimes smaller deals can qualify for advantageous financing which may help you better weather the storm of market changes. A 300-unit apartment complex likely will not be able to qualify for a 30-year fixed rate loan but a 2 unit or 20 unit may. Depending on what your goals are, the latter may be the better choice for you. This smaller investment size may also be a good start to help you build your track record and experience before jumping to the larger deals. You will be able to establish yourself as a successful investor and those that you invite to invest with you in the future will be more confident in your ability to perform. Additionally, if you do not plan to hold the smaller deal for the long term you could use it as a starting point to get profits which you can invest in a larger deal.
Adjust Your Investing Goals
Ok you may not be afraid. You are the character in the horror movie that fights the villain at the end and turns out to be victorious. You are ready to go but you just can’t find any deals that work for you. One solution is that you could find a partner that is good at sourcing investment opportunities and your problem is solved!
If this is a problem that have already tried to fix by partnering with someone and you still can’t find a deal, then perhaps the issue isn’t that there are no deals but rather your expectations are too stringent. Take a step back and look at the market. There are other investors who are doing deals and finding success, speak with them to get insights. After that discussion you may be able to gauge whether or not your expectations are realistic. Assuming your expectations are reasonable for the current market then stay committed and disciplined until you find the right deal. If your expectations are not in line with market averages, then you should consider lowering your expectations to the reality of what you can get in the current market.
The three ways to get started investing during a scary market are as follows:
Partner Up With Someone
Pursue A Smaller Deal
Adjust Your Investing Goals
Interested in learning more about investing in multifamily apartments? Give us a call or check out some of the other free resources we have available at Investupmultifamily.com.
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