“Fortune favors the bold!” “Nothing ventured, nothing gained.” Really, there is no shortage of aphorisms and clichés meant to convey this simple truth: If you want to succeed, you must take risks. You must get into the arena and play. We live in a very fortunate moment in which credit is cheap, opportunities abound, and yet few people are intrepid enough to seek those opportunities out. This week’s show explained why you need to get into the arena, and how even a little risk goes a very long way.
There’s an old proverb (probably Chinese) that says: “The best time to plant a tree was 20 years ago. The second best time is now.” I think this is wise investing advice. An early start is always preferable, but those who have delayed their investing shouldn’t be discouraged from starting. Now is the second best time to get started, and in another twenty years you might be kicking yourself for not starting sooner.
I started investing in real estate in the early 2000’s, just after leaving the military. I saw the trajectory that house prices were on and knew early investments would see remarkable returns. I also saw the writing on the wall in 2007 and immediately started liquidating my real estate holdings. When you’ve seen and studied various bubbles—from oil to tech stocks to real estate—you get better at identifying ‘irrational exuberance’ and risky investments. I knew what was coming and managed to avoid the worst outcomes of the housing collapse. Many, however, are still shell-shocked from the real estate bubble bursting and believe it will happen again. In reality, the real estate bubble was just the latest in a never-ending series of manias and crashes. Real estate today is nowhere near bubble-levels, and with new restrictions on mortgage lending it’s unlikely we’ll experience another real estate bubble in our lifetimes.
Real estate is on a slow and steady growth trajectory. Last year, we witnessed double-digit gains because the price floor had been so low; real estate had a lot of ground to make up just to get back to the historic mean. Op-eds and talking heads lamenting a new ‘real estate bubble’ were speaking prematurely. We still live in a value-oriented real estate market, where real estate is generally commanding less-than-typical prices but is steadily appreciating. Naturally, the best deals have been claimed—most distressed and bank-owned properties have been purchased, flipped, and sold—but many great deals are still out there.
The professional flippers and real estate investors have slowed their purchases since they’re no longer able to realize 20-40% returns on their investments. But for beginning investors, it’s still possible to buy a distressed property, improve it, see an immediate 10-20% appreciation from repairs, 4-6% annual appreciation as the market improves, and net cash-flow from renting the property out. Those with a little foresight, initiative, and pluck are well positioned to take advantage of the great deals out there. And with programs like the FHA 203K, they can start investing with relatively little start-up capital.
It’s common to hear stories in person or on TV about investors who saw an opportunity, seized it, and are better off for it today. The best investors seem to have uncanny instincts for such opportunities. But it’s often less about knowing where to invest as actually getting up and doing it. Real estate has been a safe and attractive option for almost six years. It will remain an attractive option for decades. As of today, you cannot claim ignorance as an excuse for not pursuing the opportunities out there. You know what’s out there. Now you just have to get out there and act on your knowledge.
9-27-2014 Get Into The Arena