I first started looking at investing in real estate in the early 2000s. I was an engineer earning a good W2 income, and applied my analytical engineering skills to study markets, asset classes, loan products, macroeconomics, etc.
I went to meetup groups, scoured the internet, and followed investment gurus in search for the perfect investment. I gathered the data in Excel tables and put together Pros and Cons lists. In the end, I never invested.
And I did this for years without ever investing. I was able to come up with many reasons why not to invest.
Today, I talk with dozens of investors going through the same thought process I went through over 20 years ago.
And in the end, most of them won’t invest either.
It didn’t matter that we had the greatest recession since the Great Depression; in my hypothetical investment period; if I would have invested then, I’d be much wealthier now.
As they say, the two best times to invest in real estate are 20 years ago and today.
Most of the current objections I hear from investors fall into the following 10 categories. Which objections do you have that are holding you back?
In 20 years, you’ll wish they hadn’t held you back.
1. “I can earn 5% in a money market account right now.”
While the current returns seem attractive, consider the broader economic context. With the Federal Reserve likely to make cuts this year, your returns may dwindle to match inflation. Additionally, you miss out on depreciation benefits and may face higher taxes. Real estate investment offers a more robust avenue for wealth accumulation.
2. “All my friends are facing cash calls and/or no cash flow for the last two years.”
The challenging circumstances faced by others create opportunities for savvy investors. Investments made last year or the year before were made when the market was flourishing. Then, as interest rates went up, and values decreased, the cashflow disappeared. Nobody could predict the future or predict interest rates would increase as they have, but as the famous saying goes, “Buy when there’s blood in the streets.” Your future self will thank you for it.
3. “Multifamily values are decreasing. Why should I invest?”
History shows that downturns often present lucrative opportunities. You’re much more likely to make money when you buy during a down cycle since it gives opportunity to make a profit in the future when the cycle goes up again.
4. “I read there’s a $1.4 trillion cliff coming for commercial real estate.”
While the impending challenge is acknowledged, it represents only a fraction of the multifamily market. Retail and office loans represent the bulk of this cliff. In fact, less than $100B of this is from multifamily. And even this $100B only represents about 3-4% of the multifamily market nationwide. Experts anticipate a bottoming out by 2024, making it an ideal time to invest in discounted properties.
5. “What if I invest and prices decline further?”
Attempting to time the market’s bottom is futile. Adopt a strategy of buying at attractive prices and gradually building your portfolio—a tactic endorsed by legendary investors like Warren Buffett.
6. “I’m anxious about cash calls.”
The risk of cash calls is lower now as most properties have fixed-rate loans. Investing when the likelihood of adverse events is reduced is a prudent strategy.
7. “What if interest rates remain high?”
Historical data shows that interest rates are likely to decrease when inflation falls. The Federal Reserve aims to reduce interest rates as inflation has already dropped from 9.1% to 3%.
8. “I’ll just buy single-family rentals instead of investing in multifamily.”
If you look from a bird’s eye view, single-family properties are potentially overvalued as shown by the delta between mortgage rates and rental rates. When it is wide, as it is now, people tend to lean towards renting, whereas when it is tight like it was in XXX, people tend to buy homes. The multifamily sector appears poised for a healthy rebound as families opt for renting over purchasing.
9. ” The federal debt is high, and the political climate is unstable. Why would I invest now?”
The U.S. has faced political and economic challenges for decades. Its current position as an energy leader and technological hub strengthens its global standing. Investing is about focusing on long-term trends, not short-term noise.
10. “What if inflation goes up again?”
With fixed-rate mortgages, rising inflation would benefit investors as rents increase. The fear of inflation should not deter you from investing in a market poised for growth.Invest with Confidence
I’m sure some of these objections resonate with you, but don’t let irrational fears hold you back from seizing the opportunities in today’s real estate market. I did this 20 years ago and wish I hadn’t.
Note: Excerpts used with permission from Neal Bawa.
To your future,
Chad and the CSQ Team
PS: If you’d like to hear more about what CSQ is doing to leverage the opportunities in this market, join our free Investor Club at www.CSQproperties.com/PassiveIncome/.
We are actively putting together our next investment group to invest in commercial real estate for passive income.
