How real estate investors win over the next 2 years

VIP Talk: How real estate investors should prepare for the next two years

Earlier this month, I attended the NW Action Summit in Vancouver, Washington. I spoke to a group of fellow real estate investors about how they should prepare for the next two years and make the most of a bottoming commercial real estate market.

For Zuber Letter readers, here are a few key points from my talk:

1. There are a lot of ways to make money in real estate: pick your lane

In the early years of my real estate journey, I laid out a very specific buy box for properties in Fresno, California. My hyper-specific criteria included:

• 93703 ZIP code

• Single-family homes

• Three or four bedrooms

• Two baths

• Two car garage

• Between 1,200 and 2,000 square feet

Every single day for three years, I looked at listings with only these characteristics. By the six-month mark, I was an expert in this property type—I could spot a good deal within seconds.

You make your money when you buy. Therefore, recognizing a good deal and being prepared to act on it ASAP will make all the difference.

2. No one is coming to save you

Anyone who’s been in the game long enough knows no one is going to fix your bad investment decisions or do the work for you. You have to do your own research, build your own network, and find your own opportunities. 

3. It is always hard

While different types of troubles arise, real estate investing is never easy. You have to have a mindset that every obstacle is just a bump in the road, but you will endure it. In the 20 years I’ve been doing this, every single year has been a challenge. Learning from your mistakes and from your peers is how you keep moving.

4. Higher rates are better for investors

If I had a magic wand, I’d make rates 10% today. As a real estate investor, you want less competition, and higher rates drive out the competition. Higher rates also create impatient and eager sellers, creating opportunities for creative deals and disrespectful offers. 

Again, you make your money when you buy, so the price and terms you work out will ultimately be what determines your success.

If there’s no flexibility on price, don’t underestimate how negotiating terms and the cost of capital with a seller can turn a bad deal into a great one. 

5. The pain is not coming to residential. The pain is coming to commercial, office, and multifamily

When you are in conversations about real estate today, there are a lot of newbies who want to paint everything like the Great Recession—it’s obviously not.

The debt structure of single-family homes is not the same. In 2006, the worst year of mortgage originations, 52% of mortgage originations were adjustable rate mortgages. Now, 96% of mortgage debt in the U.S. is fixed rate, and the average effective mortgage rate nationwide is 4%.

So, the pain is not coming to residential single-family housing this time around. Rather, it’s coming to commercial, office, and multifamily, which have taken on enormous amounts of debt in the past few years.

If you are a real estate investor, where there is great pain there can also be great opportunity. I suspect I will buy the largest stuff I’ve ever bought in the coming months. I will get opportunities to buy properties with between 10 and 40 units pretty routinely, as these properties tend to be too small for the big investors and too large for the little mom-and-pop. 

Preparing for this crash means making connections. Equity buyers are going to be harder to get in the coming months, so it is time to up your game to find capital. Additionally, now is the time to connect with the banks in your area. That way, they have you in mind as a potential buyer when they are looking to sell foreclosed properties.  

If you have the network and are willing to do the work, you will be able to buy these properties at a huge discount. And when the next boom comes—and I promise it will—you will win out in a big way. 

ResiClub chart of the week

Earlier this month, ResiClub’s Lance Lambert explained the current state of the “lock-in” effect on U.S. homeowners, describing the effect as eased but not vanished.

While it’s true that new listings are higher this year than they were last year, they are still well below pre-pandemic norms. That means the existing housing market remains constrained. 

It’s important to note that new listings are different from active listing counts. ResiClub uses new listings as an indicator of potential sales and the strength of the “lock-in effect.” Meanwhile, active listing and months of supply are used as indicators of the housing supply-demand equilibrium.

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