After ten years of rallying, the real estate market is topping out. Even with lower interest rates, sales growth is leveling off.
This phenomenon was explained really well in a recent article about investor psychology, which you can find on Seeking Alpha. Markets top out when most investors are thinking the same thing – because great minds think alike, but fools rarely differ. And sellers sometimes make foolish mistakes. There are no more bears or neutral investors to convert to bulls. So there are no more people to join and keep things going.
No more new people to drink the Kool-Aid. No more fools to buy your overvalued asset.
For a while, we’ve been hearing about how great C properties are right now. “You need to rush right out and buy some.”
“C properties have high occupancy ratings! Great investments!”
“They’re getting great ROI!”
Right now, C properties are full because the economic recovery has finally trickled down to the “renters by necessity,” as they’re called – the people who cannot afford to buy a home of their own.
You’re about to hear how great real estate (and C properties) are going to be, because the Fed will lower interest rates soon, and that will cause prices to rise for Multifamily. Here’s the reason the Fed is lowering rates: the underlying economic fundamentals are deteriorating.
Yes, on the surface, unemployment is low; more people are in a position to rent apartments. Employment at small businesses, especially in the retail sector, is deteriorating. In every recession, small business hiring is always the canary in the coal mine.
Oh, it may take 12-18 months for the recession to hit. But it will hit. Who’s going to get hit first? “Renters by necessity” – those who need to rent. So, you can rush right out and buy some C properties now… And see how it feels in 24 months when your vacancy spikes and you have trouble making the debt service on the asset you overpaid for.
Whoever sold you those properties will have a good laugh behind your back.
They saw this coming and exited at the top, while you drank the Kool-Aid and believed the rally would go on forever.
But, listen. I do have some good news for you. Yes, I’m the Real Estate Curmudgeon, but I am not all gloom and doom.
The fact we still have a business cycle is great for certain types of people: those who are disciplined, who are not caught up in the hysteria, and who can control their fear of missing out.
Because those people will get to buy when the bottom comes around again.
…It always does. No matter what people tell you.
It will be easier to buy. The profits will be fatter. You, rather than being the greater fool, can sell out to the greater fool.
And you can be the one laughing behind the back of the guy who bought from you just before the correction.
Now is the best time in history to get ready for the bottom. Those who are ready will be the ones who benefit.
So, how do you prepare for profit?
- You identify the markets that are best positioned to rebound fast from a recession and have strong occupancy and rent growth. (I teach you how to do this in Module 2 of Multifamily Launchpad.)
- You get yourself a good underwriting model and actually learn how to underwrite deals. (I provide an easy-to-understand model in Module 4, and show you in detail how to underwrite deals like a pro, so you don’t overpay for properties.)
- You build relationships with brokers, so you they will actually show you deals at the market bottom. (Module 3 shows you how to get brokers to show you their best deals from day 1, even if you’re brand new to the business.)
- You build relationships with investors, so rather than being scared at the bottom of the market, they will be greedy for your deals. (Getting investors greedy for your deals is the focus of Module 8.)
- You position yourself to get a commercial mortgage ahead of time, because the banks won’t lend to unknown newbies at the bottom. (You learn how to get bullet-proof qualified for mortgages in Module 7.)
Multifamily Launchpad is currently closed to new members – when can you join?
November 29. Also known as ‘Black Friday’, the day of amazing deals for the holidays.
That’s the first day that MFL is permanently open for new members. If you join that day, you get a substantial discount off the already reasonable $157/month price. You lock in that price for life, no matter how much MFL memberships rise in the future.