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Getting Over the “Market Crash” Hurdle

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    I have been investing in single-family rental housing for nearly a decade and own properties across two states. My real estate investments are an entrepreneurial outlet and a path toward financial freedom via consistent cash flows, equity growth, and debt paydown. As you can imagine, I spend a lot of my personal time looking to expand my portfolio and have purchased houses during both up and down markets.

    Talking with your friends about investing in Real Estate

    Naturally, when meeting new people or catching up with old friends, my investments are a frequent topic of conversation. This is not because I am begging to tell people, but when something plays a significant role in life, it is bound to come up. The ensuing discussion almost inevitably takes on the following structure:

    Friend: “It is so cool that you invest in real estate.”

    Me: “Thanks, have you ever thought about investing yourself?”

    Friend: “Not yet, but I want to.”

    Me: “What is holding you back?”

    Friend: “I am waiting for the market to crash. Then I will start!”

    Me: “Okay, well are you following the markets closely in the meantime?”

    Friend: “Not really.”

    Sound familiar?

    Perhaps there are people in your life who express the same reservations about investing in stocks, real estate, or bitcoin – they are sitting on the sidelines waiting for the market to crash. Sometimes they mention the further justification of “saving money to make it big when the market does crash.”

    Part of this response makes perfect sense. After all, it echoes one of the most basic rules of investing – buy low, sell high. However, in this case, it is simply an excuse for why people remain in their comfort zone. It is code for “investing is competitive and difficult, so I’d rather  not participate.”

    Not to “burst your bubble” (pun intended), but I propose listening to one of Warren Buffett’s most famous pieces of investment advice: “get greedy when others are fearful.” In other words, get in when everybody else sits on the sidelines.

    Why You Should Not Wait:

    • The world is a messy place, and investing is a messy business
      •  If you wait for the stars to align before investing, then you simply will never do so. Spoiler Alert: The market’s stars are never aligned.
    • Developing your investor toolkit requires action
      •  you never learn as much when you do not have skin in the game. Thinking back to my own experiences, I have never paid remotely the same attention to things that I did not care about, and investing even a small amount forced me to start caring and watching. I do not just mean an investment of money either, as it could be time, conversation space, or even a bet over beers with friends. 
    • Current participants will still be invested when the market crashes – only with more experience, access to capital, discipline, and know-how than you (see point #2). Those who succeed in “hard markets” will find it easy to succeed in “easy markets,” and there is little reason to think that any new entrant could outfox veteran investors without wasting time or money on a subpar deal. Everybody else not in the game already is doing the same thing as you – sitting with cash on the sidelines. You should not be surprised at the amount of capital chasing the same deals if / when you all decide to enter.
    • The market is impossible to time – we generally cannot identify the bottom until the market is rising again. Moreover, why would any of us think we could time the market more brilliantly or precisely than the next person?
    • You will never have perfect information – in fact, even when we have the same information, we almost always disagree on what it means.
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    For those in whom this waiting behavior is fully engrained, please allow me to offer some simple advice to ease your way into investing.

    My Simple Advice:

    1. Develop the skills and tools to succeed in any market by learning as much as you can. Follow your target industry actively by reading investor reports, building your own analysis / model templates, comparing deals, and talking to professionals and other investors. At some point, after many repetitions, you will develop an intuition for what questions to ask and the relative attractiveness of different investment opportunities. An easy place to start would be the Silicon Valley Investors Club and similar social media groups. For real estate, I recommend the Bigger Pockets community.
    2. Do your basic research before talking to someone. Since time is precious, investors and professionals get irritated when asked questions easily found through a Google search.
    3. After basic research, however, there is no such thing as a dumb question. Sometimes, the simplest questions of “how does your strategy actually work?” or “does that actually make money?” are the most important to ask, especially when something sounds too good to be true.
    4. Determine the minimum amount of information on which you would be okay with acting. Stick to that threshold. Do not develop analysis paralysis – as mentioned before, you will never have perfect information (and if you did, there would be no opportunity to make money through investing).
    5. Jump in! Take comfort in the knowledge that if you invest in a cash flowing asset, even if the market crashes, you will already have had months or even years of cash flow built up to take advantage of new opportunities.

    Recap:

    Overall, I suggest investing consistently in all markets. In doing so, you will be creating the tools and discipline needed for when markets correct, all while building your nest egg. When the market is high, you often can apply strategies and use easy access to capital to develop relationships. When it is low, you can find undervalued deals, whereas the access to capital will be much more difficult to come by. Although there are advantages and disadvantages to both market conditions, those who invest during both the ups and downs build up tremendous amounts of capital.

    Why wait? Just start, and what better time to start than the beginning of a new year?

    The content here is for informational purposes only, and should not be taken as investment advice. All views contained herein are my own and do not represent the views of any other organization.

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