Real Estate Investing Tip: Temper Your Expectations (Especially In Tough Times)

2023 has been a tough year for all of us, so it’s important to temper our expectations for how the next year is going to go. We’ve been dealing with inflation, the cost of getting things fixed, getting things turned around to rent to new tenants, material costs, and borrowing money. 

Truly, everything has gone up. Our costs have gone up, too, and we have had to pass that along to our owners. As a result, investors feel like they’re getting hit from all sides. I try to do this regularly, but last spring, we had an open house where about half a dozen owners came in just to visit with us. 

I asked them all individually, “What are the dangers that you’re dealing with?” They said all the things I just mentioned were the major pain points in their existing businesses.

In terms of the dangers, these were pretty obvious focal points – and every property owner is struggling with them, regardless of their other strengths or experience in the business. At this meeting, each person I spoke to had different strengths. 

These were some of our best investors. And, even better, these are all people who like to be involved, whether this involves doing some of the maintenance, doing the turns, or managing some other aspect of the business. 

We also work with other folks who have full-time careers, and they trust us to take care of business for them so they can focus on earning more capital to buy more real estate. The strengths are there, but the key strength that every one of these people had, was resources. 

Let’s face it, if somebody’s upset or unhappy with us or unhappy about a bad year, they’re less likely to come and have cheese chunks and fruit punch with us at an open house. The people who spoke to me at this open house were people who are in the business for the long term; they have resources, and they have cash. 

What was missing in that scenario? Every person I spoke to this year who was doing okay, and less than overly stressed, cited their number one issue as being that they could not find anything to buy. 

This is the other wild thing about this year: When it comes time to expand your portfolio, there are fewer and fewer houses on the market. 

That is going to change as people have to refinance some of the loans they have or get out of hard money and realize they can’t. So, I think they are going to have to sell into next year.

However, even though these folks had cash and were not beholden to any bank or arbitrary interest rates, finding a property where the numbers made sense this year was virtually impossible. 

These days, the act of expanding your portfolio isn’t as simple as going through the MLS to see what’s for sale and making a purchase. 

Many of these properties are so overpriced that there is almost no way to make an operating profit. Simply put, the cash flow is not there. 

Now, in some situations – especially if somebody has cash and you go in with your eyes open –  you may decide it’s okay to break even or maybe be a little upside down on a month-to-month basis because you know the appreciation on that property, or the bet you want to make on appreciation, is solid.

For example, we’ve got areas of Columbus where Intel is building a chip factory. It may make sense to buy property in that area of Columbus right now, even if it looks like a high price and doesn’t quite play out on paper because it’s a good bet that in the next five to 10 years, those properties are going to go up dramatically in value. 

Perhaps the most interesting thing about 2023 was the fact that our most successful investors were telling us that what they want is to expand their empire, but they’re struggling with finding anything to buy. You have to temper your expectations when times are tough – and in general – to ensure that your hopes and dreams can hold up to the reality of the situation. 

How to Start Investing in Real Estate

Being a first-time investor in a market is a little bit different than being someone who is searching for their second or third house in a given market. That’s different if it’s your first rental property anywhere, but it is sort of a “the chicken or the egg” conundrum. 

Here’s what I think is the number one strategy to consider when you’re figuring out how to grow a real estate portfolio. 

You have to determine whether your first relationship should be with your potential property manager or an agent. There is a commonly held belief that you will get a better deal by purchasing a property through the listing agent versus through a buyer’s agent. I want you to just put that entire idea to rest. 

If you’re dealing with a listing agent who is somehow going to cut their commission to put you into a property, I can tell you this: If they can’t negotiate on their behalf, they certainly can’t negotiate on your behalf.

There is zero benefit to you trying to save a few dollars by making a deal with a listing agent who plans to cut their commission versus making a deal through an agent that has your best interests at heart. It’s a tough decision, but if you’re fortunate enough to meet somebody who does both – like we do at ROOST – I think that’s great. 

But, if I had to hazard a guess as to which is the better option for first-time property investors, I would want you to be looking for a property manager first. 

You may find somebody you like and not be ready to buy a property until six months down the road or even a year – and that’s fine, too. However, whether it’s your realtor or your property manager, you want to know that the person you choose to be in your corner, your closest ally, is somebody who wants to work with you as your partner. This person should succeed when you succeed in the long term. 

Final Thoughts

I would say, as a rule, make sure that you find a property manager first. However, that doesn’t mean that you won’t get lucky and find that perfect unicorn agent who will refer you to a property manager who has your best interest at heart. Keep your eyes and options open. 

When you’re faced with difficult times, especially when your career and livelihood are on the line, it’s important to be realistic about your options and ask questions as needed. A good property manager will be able to help you weather the storm and redirect you toward the path that is going to ultimately result in the best outcome. 

It may not be everything you hoped it would be – especially at first – but it’ll prevent you from making costly mistakes or being reckless with your investment. 

Tough times pass; the storm always runs its course. You, too, will prevail… just be smart, trust your property manager, and remember that you’re making the right decision to invest in residential real estate.