Bad Times Make for Good Real Estate Buys

October 19th 2023

Good #mornin' Team

In this week’s insight we’d like to dive deeper into y(our) diversification potential and attempt to illustrate a parallel between “contrarian investing” and “smart real estate buys”. This will not only help you and your team ride out the storm but in time this will help you become more sustainable.

Let’s dive right into it with a shortened version of what “contrarian investors” look for.?

The worse off the market is, the better the opportunities are to profit. That's seemingly the credo for contrarian investing. Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that "the time to buy is when there's blood in the streets." He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own."

KEY TAKEAWAYS

• Contrarian investing is a strategy of going against prevailing market trends or sentiment.
• The idea is that markets are subject to herding behavior augmented by fear and greed, making markets periodically over- and under-priced.
• "Be fearful when others are greedy, and greedy when others are fearful," said Warren Buffett, a phrase that encapsulates the contrarian philosophy.
• Being a contrarian can be rewarding, but it is often a risky strategy that may take a long period of time to pay off.

Most people only want winners in their portfolios, but as Warren Buffett warned: "You pay a very high price in the stock market for a cheery consensus." In other words, if everyone agrees with your investment decision, then it's probably not a good one.

Going Against the Crowd

Contrarians, as the name implies, try to do the opposite of the crowd. They swim against the current and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be.

Now that we’ve briefly covered what contrarian investing means let’s look at similarities with this theory in the real estate market.?I won’t lie, these next few paragraphs are taken out of my very own playbook thanks in big part by consulting with a few key cdrg founding members who have been successful in marrying disaster restoration and real estate to form a union of strength, sustainability and cash flow (profitability) even during down times.??

The Risks of Real Estate Investing

Swimming against the current of common opinion and coming out on top is risky business.?That’s why it’s imperative to do your homework to ensure that the crowd is indeed wrong. So, when a distressed property or plot of land takes a nosedive, this doesn't prompt a contrarian real estate investor to put in an immediate offer, but to find out what has driven the property value down, and whether the drop in price is justified.

Figuring out which distressed property or plot of land to buy and developing \ selling them once the economy recovers at a profit are the major play for smart real estate investors.?

While each successful real estate investor has their own strategy for valuing potential real estate investments, they all have the one strategy in common, they patiently wait for the right purchase price.?If a seller is non negotiable and sticks to his price you need to move on to the next deal and not let your emotions get the best of you.?Remember, smart real estate investing is a numbers game.?If the numbers don’t jive on day 1, chances are you will be chasing your target profit margin throughout the project and inevitably begin to cut corners and this is where you will get caught in the eye of the storm.?Trust me, I know,?I’ve done it and it sucks.??

Own the Narrative?

In Conclusion, contrarian investing is choosing to put your money into assets that go against the grain of market sentiment. When everyone is in panic mode and selling off, contrarian investors are calm, cool and collected-#collecting

During these challenging times, it’s always better to get in front of it, by taking control.?

Pivot better.

Pivoting isn’t easy, but it’s necessary in the face of a challenge and often forces you to make necessary changes to your business model or portfolio.?

SsF