“Good enough” is often better than “maximizing” for San Diego County apartment investors.
Over the last 30+ years, thousands of financially qualified people have told me they wanted and expected to buy apartments in San Diego County. These are people who passed my first screening. They are interested in apartment investing and have sufficient resources to invest successfully.
I send these people an efficient bundle of material and a stack of superior opportunities. Usually, they receive ongoing updates when new opportunities in their target area come to market. Many investors see 25 or more opportunities in a week. The shocking truth is that most vetted and qualified buyers don’t write an offers.
Why don’t these people buy?
Are they qualified? Yes, the investors who routinely receive new opportunities say they will transact based on market prices and interest rates in the economy. They have sufficient resources to invest successfully.
Are the properties junk listings? No, our system excludes inferior listings and focuses on the best opportunities available that match their criteria. Our periodic sampling indicates that about half of our recommended properties enter escrow within six weeks. In our county, about 60% of the listings fail to close.
Is it risky to make an offer? No. There is no big money cost to submit an offer. Once a buyer gets a property into escrow, they have the option to buy for the contract price. The owner must sell for that price. T
The people I’m discussing should be making offers. They have sufficient assets and an expressed interest in investing in apartments. They receive information about high-quality possibilities. There is no big money risk to making an offer.
How can that be? I wondered about that for more than a generation. Here is my best guess.
A possible explanation
Herbert Simon, a Nobel laureate in Economics, introduced the concept of” satisficing” in 1956. Satisficing is a term derived from the combination of “satisfy” and “suffice,” reflecting a decision-making approach that aims for satisfactory or adequate outcomes rather than optimal ones. I was reminded about satisficing by Adam Grant’s “Re-Thinking” podcast.
It turns out that satisficing is what many of my most successful investors do. They make offers on the best properties currently available on the market that will help them move towards their goals and meets their threshold investment criteria. In other words, they make offers on properties that are good enough. Then, they fix them up, sell them, and move on to the next investment.
I think many of those who never make an offer are those who Simon calls “optimizers.” I prefer the term “maximizers.”
Maximizers wait for the perfect property to come along before they invest. Unfortunately, the perfect property, like the risk-free investment, doesn’t exist. While the maximizers wait for perfection, the satisficers move ahead with “good enough.”
An opportunity is a terrible thing to waste.
When is the best time to plant a tree? 20 years ago. When is the next best time? Today. Years ago may have been a better time to plant a tree or buy an income property, but you and I can only act today.
Some smart people didn’t buy twenty years ago because prices were “too high.” Those opportunities weren’t perfect, but other investors bought them at “too high” prices. In those twenty years, most local rental owners quadrupled their equity. Several people who did not buy twenty years ago never bought rentals. They know they didn’t pay too much, but most regret that they missed buying at what now seems like unbelievably low prices.
In the real world of San Diego rental investors, there are far more people who don’t buy rental property than those who do. Some years, there are ten times as many who say they plan to buy but don’t. You must get in the game if you desire to build legacy wealth.
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What do you think? What might make it easier for an investor to be pleased and content with “good enough”?
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Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”
3 caps turn me off.
Hi Terry, I enjoy reading your articles and appreciate your insight. Very often, individuals ask me how I got to where I am today. I usually say that I started out with a small investment in a duplex and kept exchanging up in the San Diego market for 50 years.
The most common comment I get is “I would like to buy some investment property but everything is so expensive now”.
My normal reply is usually “So you think property will be less expensive next year? If so, that almost never happens.”