Real Estate Investors — The Difference Between Pessimism And Reality

This post was inspired by Benn Rosales over at Agent Genius. He was talkin’ about agents, but I was moved to write about what I perceive the difference is between perceptions of regular folk.

No, this isn’t about the glass being full or empty, half or otherwise. It’s about dealing with what is, and making decisions based upon what is, not emotion.

Here’s a totally unrelated example of emotion based pessimism vs the ability to see reality, while effectively probing for avenues of potential success. What? Huh?

There was once a 13 year old playin’ centerfield in an all-star baseball tournament years ago. His team found itself in the position of no outs and bases loaded — in the top of the 1st inning. He was waved in by the manager to get them out of the dilemma. (A pitcher when not an outfielder.) What to do? Since he’d paid attention to the base runners while in the outfield, he’d noticed the runners on 1st and 2nd were both pretty cocky.

To make a long story short, in the next three ‘pitches’ he picked off the runner on 2nd, then the one on 1st. The next batter, lookin’ to make up for this in one swing, feebly popped up. Four pitches, three outs, no runs. The same exact scenario played out the next day. The results were the same, except for one run on a seeing eye 17 hopper through the infield. Six runners, no outs, one run scored.

The point?

How easy would it have been to arrive at the mound thinkin’ why me? Seriously, from a pitcher’s point of view, bases loaded with nobody out is as bad as it gets. The reality though was what this kid observed objectively. His goal was to allow no runs. His analysis was geared to that end. He searched for weak points ripe for exploitation.

Warning: Dangerously sharp segue ahead.

Isn’t a 3½ year real estate market correction with major lending hurdles the equivalent of bases loaded, no outs? Uh, yeah, it is. Though many of those on the sidelines waiting to see when the recovery begins, have well thought out reasons, the vast majority of fence sitters are simply afflicted with emotional pessimism. We can be pessimistic about the weather. We can be pessimistic about a lotta things. But much of what folks call pessimism isn’t about objective thinking.

It’s about the decision to redefine pessimism as reality.

Or, put more plainly, avoiding reality.

Are there times to sit on the real estate investment sidelines? You bet there are. I literally took two years off in the ’90′s. The ‘Gone Fishing’ sign was up so long it almost faded completely. This correction, in my opinion, is not one of those times. Not even close.

The big investment capital in the ’90′s disaster went one of two places — to the sidelines, or buying up relatively large commercial/retail properties from the government’s now infamous RTC. (Resolution Trust Corp.) Not true in today’s atmosphere. Not by a long shot.

Today there are a handful of growth regions, true growth regions, where developers and builders are getting into virtual fist fights over well located land for immediate development. Why on earth would that be the case? For the same reason it’s always been that way. The product is selling — in some cases at a fairly impressive rate. The financing you ask? How about a huge, very well known lender aggressively courting a builder to become the preferred lender for his project? That happened with me almost in the same room, virtually speaking, a couple weeks ago. After I heard from the builder I wished I’d been there.

The funny part is, the builder turned ‘em down. And he should of. What seemed to be a good marriage was really a kinda sorta good match. The terms were vanilla, and the only real enticement was a promise from the lender to pay the builder’s title policies. Big deal. Investors are the borrowers. What have ya got for them, Einstein?

Reality: Demand in bona fide growth regions has been, and remains demonstrably strong. Prices haven’t dropped. Vacancy rates have remained stable or even shrunk. Rents in some projects have actually increased this year significantly. (3-5%)

Reality: Lenders are now openly and sometimes mercilessly competing for business. Not for San Diego income property — but for income properties worthy of the name. And in areas benefitting in a big way from the public’s attraction to it. Remember — lenders lend. When they find a high quality product, well located, with a great bottom line, they run, not walk to make the loan.

Reality: (A ‘portfolio’ lender is one who lends their money, and keeps the loan, rather than selling to a secondary market entity such as Fannie Mae.) Portfolio lenders in these select areas are openly courting investors who are already over the Fannie/Freddie property limit. That would be 4, including primary residence. The latest lender with whom we spoke said the limit was $4.5 Million in loans per investor.

Works for me.

Reality: If you own income property in San Diego, Palo Alto, or markets similar in their insane price/rent ratios, your best move is Outa Dodge and into one of the growth areas. Where? You could head to Austin, Dallas/Fort Worth (MetroPlex), or Kansas City. Those aren’t the only areas, but you get the idea. You can own younger, well located investment real estate that beats areas like San Diego every way from Sunday. It’s not a fair fight — or a debate either — in my opinion.

Reality: By remaining on the sidelines you’re possibly endangering not only the timing of your retirement, but the ability to retire at all. Much like the results of Grandpa Economics, your retirement’s projected income will either be severely retarded, or retiring at all will be postponed.

Reality: If you’ve lost money on Wall Street, or are invested in San Diego income property (or areas like it), maybe the most important ‘reality’ with which you must come to grips, is this: Time is not your friend.

BawldGuy Axiom: Though pessimism has many meanings, most of the time, if we’re honest, it’s the disease that takes over when one decides reality is too tough for them to handle.

Since I first started sayin’ these things to local San Diego real estate investors, those who’ve remained frozen in time by indecision have lost an additional 20-30% of their properties’ value. If that describes you, don’t fret. No use beatin’ yourself up rehashing the past. Look to your future and decide to move your equity to regions in which lenders are battling to be.

Here’s tonight’s final reality. If you contact me I will be there. The window of opportunity is still open. The ‘hordes’ haven’t figured it out yet. They will though, and that’s when time will really become a disagreeable fellow. Let’s talk. Give me 15 minutes of your time. You’ll at least learn I’m real. Have a good one.

Related posts:

1. Subprime Resets AND The Real Estate Investor’s Dream Of A Perfect Storm Is Reality
2. Are You A Dealer? Are You A Real Estate Investor? There’s A Huge Difference
3. Understanding The Difference Between Flipping And Being A Real Estate Investor
4. The Difference a Lender Can Make — Real Estate Investment Savvy
5. Wishin’ & Hopin’ Ain’t Gonna Get It San Diego (California) Real Estate Investors