Top 3 Things To Do In A Shifting Real Estate Market?
By all accounts, 2020 has been an unprecedented year for Americans on many different levels — the pandemic, racial violence and climate change to name a few. All of these factors, among many others have made 2020 a very unique and challenging time not only to live through but also to invest in. My insights in this piece emerged from a consistent question that is asked of me “What should do I now?” Before directly answering, the question itself warrants further examination. What is unique about the present and why is there or isn’t there reason for concern?
Let’s start off with some facts — the U.S. unemployment rate as of August 2020 was 8.4% , nearly 13.6M Americans are currently unemployed, there is a presidential election two months away, interest rates are at record lows — the Fed Funds Rate is 0.00–0.25% and at the time of my writing ~198k Americans have died from COVID-19. I would expect the compilation of these factors to result in a pullback within the public markets but valuations have continued to climb (the NASDAQ 100 is up 30.7% YTD). With all of these factors in mind I can’t help but think of how the world’s largest and most skilled investors are taking advantage of current opportunities while also hedging risk.
Blackstone ($564B in AUM) comes to mind immediately as in a recent interview, Jon Gray (President and COO of The Blackstone Group), disclosed that his firm invested $11B in March and April of 2020 — the onset of the global pandemic. Similarly, it was also just announced that Blackstone closed on a $550M transaction to buy manufactured housing (mobile homes) from Summit Communities. While, I don’t want to get bogged down in the minutiae of the deal — the general theme here is one which can be applied to much smaller investors like myself (HINT: Affordable Housing).
Here are the Top 3 Things I am doing in this shifting real estate market -
Increasing Cash Position — This should come as no surprise as COVID-19 has stress tested my portfolio and thankfully, I have had reserves on hand to deal with late payments and a recent vacancy. Moreover, increasing my cash position will also allow me to invest in other opportunities as they become available in the near term.
Follow Your Markets Closer Than Ever — On a daily basis, I am studying the markets I am currently invested in as well as new potential markets. My daily routine consists of pulling listing and sold data, in addition to underwriting at least 5 deals per day. Underwriting 5 deals per day, may not make sense for you and your goals but broadly speaking, you need to have a pulse on what is going on in your market so you can capitalize on opportunity.
Be Patient and Be Decisive — Investing in real estate is a marathon, not a sprint. Patience and decisiveness are critical to the investment process. You need to be able to identify a great opportunity when you see one and you need to pull the trigger quickly. Great deals don’t last long. Have your deal criteria outlined and stick to it. For me, affordable housing has always been my niche — it doesn’t hurt that this particular niche is less susceptible to economic shocks compared to other property types such as retail or luxury residential. Now more than ever, I believe there is going to be a growing need for affordable housing for millions of Americans. Home prices outpace wage growth and the cost of living continues to rise.
“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation which is easiest; and third by experience which is the bitterest” — Confucius
Learn from my mistakes and the mistakes of others. I hope you found this valuable — for more of my commentary follow me on Instagram @black_diamond_properties
About The Author —
Kyle Webster is owner and CEO of Black Diamond Properties — a real estate investment group that specializes in acquiring 2–10 unit distressed properties in New Jersey. Prior to founding Black Diamond Properties, he spent four years on Wall Street in various sales and investment roles at Nasdaq and J.P. Morgan Asset Management. He is a graduate of the University of Pennsylvania.