Business as usual

I’ve had a number of conversations recently that prompted me to write a quick excerpt on how I’m approaching the current market. One in particular stood out to me when someone asked “Is land investing even feasible in the current market?”. This seems to be the question on many peoples’ minds regarding the real estate market as a whole. Hopefully, the following will provide a more sober outlook on the topic.

To put things in perspective, it’s January 2023 and the housing market is most definitely changing. Interest rates have doubled in the past year and after a long bull run prices are finally coming down. Houses take longer to sell, reasonably-priced debt is much harder to come by and there’s fear throughout the collective psyche of real estate investors. Everyone is waiting to see what The Fed is going to do with interest rates this year and whether or not their actions are in line with the market’s expectations will largely decide what mortgage rates do.

Given the above, there are plenty of people out there looking to capitalize on the fear and uncertainty. A quick search on YouTube or perusal of news articles mentioning real estate and you’ll be sure the end is near. Add in the ridiculous frenzy we’re coming off of in the RE market and it’s very easy to cite year-over-year statistics that paint a very dismal picture (look for statistics comparing 2019 to now for a reality check). Unfortunately, the current incentive system for reporting the news (in all mediums whether social media or major outlets) selects for “who can get the most clicks” as opposed to “who can share the facts in an unbiased manner”. This leads to these alarmist headlines which in turn causes people to ask questions like the one mentioned above! For this reason, it’s important to focus on the basics like supply and demand and talk to people who are in the business every day. If someone is talking as if the real estate apocalypse is here, be sure to ask them what they’re selling.

Fear mongering headlines aside, what does this all mean in practicality? Should we all close up shop and get out of real estate for good? Will housing no longer be built/bought/sold/rented in the coming year or two? Of course it will be! YET many of the headlines I’m seeing (and questions I’ve been asked) make it seem like the market has come to a complete halt and as if prices are falling precipitously across the entire country. Sure, the market is moving at a reduced volume/velocity but as an essential industry real estate will continue to trade as it always has.

Taking all of this into consideration, in my active business I’m focusing on land in the southeastern U.S. where demand remains strong and only buying deals that are steeply discounted from retail (see “Follow the Herd” below for more detail). There’s still a severe lack of housing supply in these areas so builders are continually putting up new homes and they need land to put the homes on! On the buy & hold side, I’m looking for B- or better properties, with strong cash flow, in supply-restricted areas in markets that I’m bullish on in the long term. For me, this means I’m buying in several Colorado markets where I know the area intimately and where the aforementioned boxes are checked.

Put simply, I’m buying discounted cash-flowing real estate in nice areas with strong fundamentals/demographic trends and limitations on supply. Yes, the market has changed but the fundamentals have not. After the longest bull run in U.S. history the market is declining (who would’ve thought?) yet people still need a place to live. As long as that fact remains true, there’s money to be made and I’ll continue doing just that. At the end of the day it’s just business as usual.