Written by David Lowrey, Owner of Stress Free Property Management
I don’t know about you, but hot real estate markets are boring. It’s great when you want to sell a property, but horrible when you want to buy. As the owner of a Tampa property management company
The challenge is the normal, smaller investors tends to want to invest in real estate market because it is hot. They see their friends making money flipping properties or watch the countless show on TV about flipping your way to millions.
During my career in property management in Tampa, I’ve noticed that when people start getting hyper interested in real estate is when a recession is soon to follow. The challenge is just sitting on the sideline “sucking your thumbs.” That’s hard…really hard!
Warren Buffett once said, “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”
I get calls all the time from potential investors wanting to buy real estate, right now. There is a human tendency to feel like good times are just going to last and last, and the same things goes for recessions. People want to put their money to work now before they miss out on the opportunities. I’ve finally stop advising potential clients on the phone not to buy, because they really don’t want to hear it.
Now, I just advise myself (and my current clients) because I’ve got the same bug. Investing when things are hot is exhilarating. Prices just look like they are going up, up, up, and I don’t want to miss out. A week doesn’t go buy where I don’t remind myself to say “No” to an investment opportunity.
I get daily emails from the Multiple Listing Service showing what properties are being listed and sold for. Over the last 8 months, prices have jumped for investment properties to levels that just make no sense as compared to what they were selling for one or two years ago.
For example, mobile homes built after 2000 on their own land are one of my favorite investments. Well prices jumped 25%-40% on these properties, and I was only looking at foreclosures that need work. To make matters worse, the properties are selling quickly at those inflated prices.
Now here comes the trap!...I started questioning my assumptions. Maybe times are different. Maybe I don’t understand something. And maybe I should loosen up a bit because prices are rising.
When I start having those thoughts, I refer back to what is my criteria for a good deal. That is where I think newer investors get caught. They don’t have one.
What makes a good deal is different for every investor. One of my keys are cashflow and how much is my return, if I paid all cash for the property, after all expenses are paid. Another is do I like the property type I’m currently thinking of buying? I’ve committed to not buying any more property in low income neighborhoods except during severe recessions, or mobile homes built before 1995.
So, I look around and see virtually nothing that meets my criteria of being a good deal. That sucks!
As I get more and more frustrated, I usually start reading about Warren Buffett. Here is a quote that helps me: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
I also start thinking about how can I improve my business more and give better service? What areas of my life could use some effort or improvement? How is my marriage? How can I improve my relationship with my daughter? How can I help others?
This eventually brings me back to a more stable outlook, and I stop worrying about the lack of real estate opportunities and focus on the opportunities currently in my life. I’m by no means preaching, just sharing with how I deal with hot real estate markets. Hope these thoughts help you in some way if you are dealing with the same problem.
Perhaps we should form a support group: Addicted Real Estate Investors Anonymous. ????
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