How Small Investors are Making Deals in an Over-priced Market

By Vena Jones-Cox

I was having a discussion this week with leaders of 12 real estate associations about why:

1. “Small investor sentiment” is way down right now. Surveys are showing that nearly half of small rental owners and rehabbers think that this is a bad time to acquire properties, find deals, invest etc.

• But at the same time, COREE members are finding, buying, holding, and flipping deals that are PROFITABLE ones, even when viewed in the light of a possible downturn

When I’m hearing one thing but seeing another, I get curious. So I asked this mastermind of 30 or so very experienced, long-term investors what THEY thought the difference was. See if you agree.

Most small investors, like 99%+, have a single end-to-end strategy for ‘doing” real estate that looks like this:

1. Find deals “On MLS”
2. Finance them with conventional, DSCR, or Hard Money loans
3. (a) Rent them at market OR
   
   (b) Rehab them and sell on the open market OR
   
   (c) Assign the contract to another investor in a wholesale transaction

In the current market, with low inventory, high demand, stagnant rents, and high interest rates/real estate taxes/insurance (relative to what they were 3 years ago), THIS STRATEGY IS GOING TO BREAK DOWN IN STEPS 1 or 2.

Finding a deal, whether for rental, wholesale, or retail, on the open market that ‘pencils out’ is like finding an amoeba on a needle in a haystack.

And current interest rates are a big reason why. Properties that would have made money in 2021, at 3% interest, lose it in 2024, at 8% interest.

So yes, I imagine that for the 99% who do things this way, the market looks so bleak that it’s best to just sit it out for right now. And if that’s you, no judgement. The market will, inevitably, change in good ways and bad in the coming years.

But I think the interesting thing about this discussion was “Ok, so why are we, and why are OUR members still making money in real estate?”  It broke down to a fairly short list of behaviors:

1. Finding deals OFF market
2. Financing them at better-than-market terms, primarily via subject to, seller financing, and partners
3. Tweaking the cash flow strategies—for instance, doing much higher-profit short- or mid-term rentals or shared housing instead of traditional rentals.
4. Moving into new asset CLASSES—commercial properties, land, mobile homes—where the ‘seller expectations’ are more in line with the needs of the investor to actually make a profit

Sitting out of the market until your preferred cookie cutter strategy works again might be the right choice for you.

If you have a long timeline to retirement, or have a great job with plenty of income that you don’t want to quit and aren’t worried about losing, you’re not ‘risking’ anything significant by not doing deals right now. Anything you’re losing in terms of current income and tax benefits or delaying in terms of long-term appreciation and mortgage paydown by not being in the market now can easily be put off until later, because you have ample time and no financial pressure.

If you’re just not interested in the process of learning and implementing other ways to “do” real estate, none of these ‘alternative’ methods are for you. (I hesitate to call them ‘alternative’, because our members have been doing them for decades, in hot markets and cold, and they’re pretty ‘tried and true’). And that’s Ok, too.

But if you really want to be active NOW, you need to be an engaged member, now.

The reason our members are bringing the deals when everyone else is complaining that there aren’t any is that we train CONSTANTLY on creative deal structures, off-market buying, alternative exit strategies like short term rentals and shared housing, and alternative asset classes like commercial real estate.

You’ll find lots of colleagues here who are actively doing these things, and who can both inspire and help you to do them too. You’ll find people with deals who want partners, and people who want to partner on your deals.

The bottom line is, our community is more successful than the real estate investing world in general at the moment because everything about COREE is planned and executed for the purpose of giving you ALL the tools you need to succeed in today’s market, no matter what ‘today’s market’ looks like.