Many people have some misconceptions about real estate investing and create limitations for themselves that can actually be completely bypassed. In short, all limitations are self-limitations and there is always a solution. Understanding that is key to being successful in real estate. Here are four key points that can help shift any limiting mindset when it comes to real estate investing.
Not Everyone is Cut Out for Commercial Real Estate–And That’s Okay.
It comes down to who you are. Some people are wired for real estate and will feel drawn to it no matter what. Other people are drawn to real estate because they are aware of the money they can make in the field. Personally, no matter if I get kicked in the teeth and drug through the trenches, I will return to real estate. Many people don’t realize that there are other options for being involved and making money in real estate that doesn’t include owning. For example, being a limited partner and investing in other people’s deals allows you to invest equity without having to spend the time to do all of the work, making connections, and ensuring that certain work gets done. You can reap similar benefits without being in the trenches and owning properties. Don’t be afraid to invest in multifamily operators and see what they do.
Good Deals Are Game-Changers.
Someone I know was on the hunt for a good deal and researched every person that owned an apartment building in their area. Since there wasn’t a Zillow for multifamily buildings, they went ahead and did some research on Reonomy to find information on around 3000 multifamily property owners. They then texted every apartment owner asking how much they would sell their real estate for. This allowed them to conduct market research as well as connect with someone who was willing to sell them their apartment complex for $800,000. This owner had inherited this complex, had crappy tenants, and wanted nothing to do with the building anymore. The building was worth $1.6 million dollars and was put into escrow. When they took it to the bank, the bank recognized the building’s worth and offered to give them $1 million dollars, enough to buy it with extra money to renovate and fix up. So, this person started with no money and no real track record but was able to get in the game with a good deal. It’s also easy to transition from residential to small-scale multifamily units, as well. At the end of the day, if you do the work to find good deals, you will reap the benefits of that.
You Don’t Need to Start With Connections.
Truthfully, connections will always give you an edge. But, don’t let a lack of connections be the reason why you don’t invest. As I mentioned above, all you need is a good deal. You don’t need to know rich people to make money. Once you have a good deal, you can bring it before a bank or other investors. The internet is a great resource for finding investors, as well. You can put together a 506C and crowdfund capital for a deal. You can even spend a couple thousand on Facebook ads to generate investors for a deal. Don’t let this limitation define how you invest and move forward with deals. If you know the ins and outs of what you are doing, you can find people. Many people don’t realize that brokers don’t actually want to own real estate, but prefer being sponsors.
Pay Attention to Demand.
We’re currently sitting at somewhere around 5 million residential units too short for the demand that exists. This is not evenly dispersed across the United States. The West Coast and New York, they’re doing fantastic jobs of driving people out of California and the Northeast and to places like Boise, Salt Lake, Phoenix, Texas, Tennessee, Florida, and the Carolinas. Those are the places that will experience the shortage the most. Even if interest rates go up, prices will still go up because there is a built-up demand. However, consumer sentiment is another factor to consider in demand. If people don’t feel like buying or feel uncomfortable buying, they will push it off. Your investment thesis will depend on how long you are willing to hold the assets that you have to find when the demand will increase and drive up your asset’s value.
Curious to learn more about finding good deals in this market? Check out my episode with The Labcoat Agents here: https://labcoatagentspodcast.libsyn.com/you-should-consider-investing-in-commercial-real-estate-with-jake-harris-ep-159