Real Estate Investors Go to the Sidelines. WHY? ??

I met with a number of  commercial real estate investors over the past few weeks and heard a variety of terms which I haven’t heard for quite some time, “I’m out for now”, “going to sit on the sidelines for a bit”, or “holding for now”.

I inquired about the reason for sitting on the sidelines or “holding for now”. Was it the disasters occurring in the US? The bump in interest rates? The softening of the residential real estate market? Although all were a concern, the answers were generally no to any one of those specific items. There was just a general agreement that the market is changing. One investor even told me he was holding on real estate while turning to the stock market. Really!! I mean REALLY??? Yeah, there are no obstacles or hurdles over there right?

Frankly, I don’t even know what holding really means. You’re holding for what exactly? Better options, lower interest rates, higher rental rates, more return, better conditions overall? In a recent class I was giving I asked the group directly what is “better”? I suggested, “better” is a relative term, “better” than what? Better than today, better than yesterday, better than what you bought a property for a year ago, maybe five years ago? When you bought that property five years ago, were the conditions better than three years ago, better than one year ago, better than today? “We’re not really sure” was the eventual answer and I don’t think the average investor really knows what “better” is either.

The one thing I do know, is we must learn to operate and be successful in the present, not the past nor the future. A good investment five years ago may have been a bad investment three years ago or two years from now. You simply cannot go into hold mode waiting for something “better” particularly if you are judging “better” by the past or what you are hoping for in the future. You will find yourself forever in a holding pattern.
I guess it must be a luxury to be able to put your real estate business on hold in anticipation of “something”, although we’re really not sure what that “something” looks like.

Unfortunately it’s a luxury I can’t afford. I personally make my living from real estate investing and like most, I have a mortgage, kids in university, Widgetsbills to pay, and I don’t have the option to put everything on hold waiting for “better” conditions. It would be like the owner of a manufacturing business making widgets, getting up one morning and saying I’m uneasy with the changing market so tomorrow I’m going to stop making widgets.

I’m not sure how I’m going to pay my bills or what I’m to do with my employees but I’m just going to go on hold and sit on the sidelines until it gets better.

I can’t help but wonder how much money has been sitting on the sidelines for 20+ years waiting for that inevitable real estate bubble to burst. I have reams of newspaper headlines since the fall of the late 80’s, for years claiming the burst is coming soon. My point here is the market is ever-changing. Sure it’s been on a long incline and we may be on a long decline next, but nevertheless, no matter what’s happening we have to learn to operate within the conditions that surround us at any given point.

In my humble opinion there is no good market or bad market, holding or not holding; only seeing and adapting to find new or different opportunities that will work today. Let’s be honest: most of us freeze when we see an obstacle or uncertainty ahead. I wish it weren’t true but it is. We have no trouble identifying the obstacles: the market is too high, the market is too low, I’m too stressed, I don’t have access to financing, I have no confidence. Bla bla bla… How skilled we are at cataloging what holds us back!

I recently finished a book containing the memoirs of Ulysses S Grant, of US Civil War fame. He is perhaps the most under rated general in US history. As you may recall, he was given command of the entire Union forces when they were near collapse and in a relatively short time turned the tides and eventually defeated the Confederate Army. I can’t help but think of him as I write this piece because the common theme throughout his career was he never held, at least for any length of time. He was always on the advance. He knew that if the enemy was strong in one area he had to be weak somewhere else. When he found himself up against heavy artillery, sure it would bring him to a stop, but he knew the enemy could not move or react quickly so he would attack with light and quick cavalry. His obstacles were significant. The conditions surrounding him were ever changing but again he never held. He adapted continually, he invoked many virtues we all think we have, courage, reason, creativity, work ethic and continually moved ahead. Not always forward, but always ahead to the next obstacle.

I can’t help but think as we engage in our real estate endeavours, albeit somewhat less momentous, there could be great benefit in emulating the characteristics of Gen. Grant.

If you’re in the real estate business in even the smallest way, you know directly or at the very least have heard that arguably the single biggest challenge in real estate investing is finding quality product to invest in. Believe me I know, I hear and experience it all the time , but we can’t simply close the “widget factory” because it’s hard finding product, nor can the majority of us put our livelihood on hold because interest rates are on the increase or average home prices on the decrease.

Consider this: declining values may create buying opportunities; increasing loan rates may slow the home buyers’ market but in turn may increase the rental market. With the limited supply of rental units does this drive rental rates up? If land prices are declining does that increase the opportunity to build new inventory for sale to investors? Does an ever increasing population allow us to broaden our geographic targets further from the major urban centres?

Each day when I’m in the market, I consider the universal constant; every push has a pull, for every black there’s a white, every hurdle on one side creates an opportunity on the other. It’s a fundamental law of nature and cannot be otherwise.

I am not suggesting we blunder ahead no matter what, or force rash, imprudent decisions for the sake of moving. In fact, I can think of no better advice than to pull up when change is occurring. But do your reconnaissance on the new landscape, and don’t let yourself be pulled to the sidelines or frozen for an extended period of inaction. Once you see a mountain ahead, start selling properties with a view. If there is a desert ahead, sell shade. If the market is slow, look for hurried sellers. If there is a lack of investment product, find a way to create more. These are the actions of a true investor.

So, when you or your client are considering going into hold mode or sitting on the sidelines to wait things out, I have an idea. Let’s alter our perspective and not hold when change or uncertainty is a head of us. Let’s attack! Let’s be bold, let’s work a little harder, and be more resourceful, let’s be creative, let’s reach out to our colleagues and competitors for help, but most importantly let’s find a way to continue on.

Do most of us really have a choice?

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