“You want to be greedy when others are fearful.”
Warren Buffett said that in an interview with Charlie Rose. Warren knows a thing or two about investing. He bought low risk cash flow when it was on sale. Tech heroes have created enterprises that sell for bigger multiples. People who buy tech stocks are paying now for what they hope will be gigantic cash flow in a decade. Buffett deals with the real, the tangible. He owns See’s candy, Coca-Cola, railroads, and a national real estate brokerage company.
Warren Buffett thinks recessions are a great time to buy. After four recessions, I think so, too.
Many worthwhile things are hard. Building wealth is hard. So is being a great spouse or great parent or super fit or becoming well educated. They’re all difficult. In contrast becoming poor is not hard. Being poor is hard.
Pick your hard.
Lazy people, part-timers, or folks without grit don’t create wealth. Instead, exceptional returns are earned by showing courage when others are afraid, by being decisive when others are drifting.
The most successful investors are not giant risk takers. Instead they are prudent risk takers. The most successful investors assess and minimize risk. If you want to compete against other millionaires to buy an income stream, expect to have a part-time research job that will take time and attention for weeks.
The state of California has imposed eviction restrictions. If you believe that rental owners will never be able to collect rent again, then avoid rentals. Alternately, if you think the government will stop penalizing rental owners after a vaccine is available, perhaps this historically low risk cash flow will appeal to you.
For more than a generation I’ve helped investors buy and sell San Diego County apartments. In most years there are more than 10 want-to-be buyers for every real seller. Now there may be three or four capable buyers for every realistic seller. That means less competition.
California government policies have created San Diego County’s 100,000-apartment shortage over the last generation. Owning San Diego rentals is a low risk escalator to wealth. Government policies stacked the deck in favor of rental owners. Forty states and most major cities encounter a rental oversupply once a decade. San Diego has not had a rental oversupply in a generation. Buffet would recognize a low-risk market.
To buy income property wisely, you need capital, information, and the courage, to write offers and close. San Diego County has 15,000 real estate agents. Most have access to the multiple listing service. Maybe 125 listings of four units and up are for sale now. Perhaps 100 agents have closed more than a dozen apartment escrows; maybe there’s a dozen of us who have closed more than 100.
Competent agents can show you the available options. A superior broker will understand your capacity and goals then offer a candid assessment of what you need to do to be serious contender. For those who proceed, a great broker can help prioritize your options and suggest offering prices for the best ones.
But take note, if the planet’s best broker gives you a great list but you don’t look at the opportunities or write any offers, both of you are wasting your time. If you’re not going to write offers, go play golf, take a nap, watch a soap opera, or visit the casino.
Building wealth is an intense, competitive adventure. Maybe 10% of our homeowners have income property. The odds are that many of your unseen competitors have higher net worth and more apartment experience than you.
Now we’re in our only pandemic. Uncertainty means risk and opportunity. There are no assurances as to when pandemic will subside, or when there will be multiple highly effective vaccines. When the pandemic is over prices will be higher. Less risk will bring scores of wealthy buyers off the sidelines.
Buyers within the next six months could purchase at 2019 prices. When most uncertainty is gone Buyer will be paying 2021 or 2022 prices.
Each recession is unique. Lenders are providing enough financing for the current sales volume. The uncertainty will require an extra 5% down. Lenders are insisting on more cushion, more capital, than last year. Normalcy will bring lower risk, lower down payments, more buyers, and higher prices.
If investing in apartments is too great a risk for you, you might buy high dividend stocks in companies that are not politically correct like tobacco or oil or coal. Another option is to put the funds in the bank and measure your return with an electron microscope.
Others are fearful. It’s time to buy.
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.”