Too many investors?

Question

Hello BiggerPockets community!

I'm an aspiring real estate investor, but I am a bit alarmed with how many people are investing. Is there a problem or will there ever be a problem with too many RE investors? I also want to invest in commercial. Is there an excessive amount of investors in this area too?

Thank you,

Michael Schwob

Steve Vaughan · Answer

Rockefeller once said, "When my shoe shiner starts giving me stock tips, it's time to get out of the stock market."  I'm kind of seeing the same thing with REI. It's the cool thing to do again.  When 'everybody's in', I get a little nervous.  Good you are aware of that fact @Michael Schwob!

A lot of folks may have a different niche or different market or just not know what they are doing.  The educated and motivated will always succeed regardless of the quantity of 'investors' or the market dynamics.  Welcome to BP!

Jim C. · Answer

The more investors the better. Let them buy at the top of the market and price since most don't know what they are doing and I'll be there in a few years to buy 'em back from the Bank since they couldn't make it work with their faulty numbers! Just more for me to buy later on at the "right" price.

Jean Bolger · Answer

There are a lot of investors, but there are a lot more properties than investors. Most importantly, not all of investors are pursuing the same properties. There are plenty of deals at, say, a $100k price point that many wouldn't even look at because they work in a different price range. There are people that only buy multi-units, others that only buy SFRs. Others that only buy SFRs with foundation problems. Others that only buy mobile homes on land.... see what I'm getting at? And of course, timing: not everyone is trying to buy a property at the same time.Real estate is a mind-bogglingly large commodity. Try walking up and down a few blocks in a city and adding up the value of all the properties. All those properties eventually change hands, creating a constant exchange/flow of money. Also, the market is in constant flux, so what constitutes an opportunity is always changing.

Kerry Baird · Answer

Yes, that is true.  You've heard it said that real estate is local.  I'm of a mindset where it is better if there is demand.  Demographer Harry S Dent has warned of a time where dyers out-number buyers, such as in Japan.  I suspect that's why our gov't has encouraged immigration in the past few years.  I do look at demographics when I am buying houses.

Another poster about a year ago mentioned ESRI Tapestry, and that site is a great way of checking the major populations in your local ZIP codes.

Kerry Baird · Answer

Yes, that's what I am thinking, having seen this before.  Low-down payments are a way to get a certain tier of person into property.

CNBC has a series of videos on this topic, in their real estate section.  Short version:  First-time buyers and low-to moderate-income buyers have largely been sidelined by today's housing recovery.  Demographics favor entry-level homes.  Urban-concentration Millennials have peaked, and they are moving to the suburbs and will start to rent, and then to buy.  Home-buying, not refinancing drives mortgage applications up.  Inventory in starter homes is tight.  Interest rates are likely to move up, which will create a surge in "Must buy now" intensity.

My take:  YOU still need to choose wisely.  Your payments, by necessity, will be higher when there are lower down payments.  This is where 2-4 units can offset the costs to you the owner, as you rent out rooms or units to others.

Joel Owens · Answer

No matter the market there is ALWAYS competition. Any field you will always need to be at the top of your game to highly succeed.

You can make money in any market.

Nevada right now is ultra tough. In commercial nobody wants to sell the good stuff there for strip centers. It's either the dumpy part of town or single tenant properties at very low cap rates like a 5 to 6 cap. That market has over corrected. There is office at higher cap rates but I do not like that asset class.

The developers there and small owners want to hold. That is what I have seen at least. That market has cycled out for the most part.

Jay Hinrichs · Answer

@Michael Schwob   much of RE in the US is regionalized.. some areas are red hot with lots of money and buyers right now.. so competition is keen and dog tough.

Some areas there are still plenty of deals not quite as good as 8 years ago but you can get deals.

I do some work in Vegas and that is one of the hot markets on the lower end for sure.

I like Davids thought process of getting your license ... this gets you in the game and helps you in many ways.. most of the folks I fund around the US have one thing in common.. they are RE agents or brokers.. so they have instant access to MLS.. they know values very well and can't be BS by some wholesaler who is puffing numbers.. etc etc.

Also when deals get skinny your only paying a selling side on commish and you can capture a commish when you buy  those numbers many times add up to profit as opposed to breaking even or a loss.

Bill Devola · Answer

I guess I take a contrarian stance on this topic.  I'd say the market is a little overheated.  Low interest rates set by the Fed has sent institutional money scurrying and looking for yield.  If you think that doesn't filter down to the "little guys" looking to buy $80K SFRs, think again.

Hedge funds were (they've since taken their foot off the gas a bit) pouring big money into buying "tapes" direct from banks.  Banks themselves have seem to put a stop on the inventory by slowing the rate of foreclosures in some areas and getting more difficult and stubborn on price (at least in our area).   Add onto the that RE is at the point in recovery when everyone realizes its a "safe" investment again.

So I do think inventory has gotten tight.  But unlike 2004 when everyone was overpaying for everything and getting away with it because of all the price appreciation, I see people getting burned now and having to overprice their flips because they paid too much.   So I think we'll see people shaking out over the next year or two.  I also think interest rate increases will relieve some of the stress on the inventory.   Hopefully

Michael Schwob · Answer

@Kerry Baird Okay, thank you so much for your insight! It's great to hear from people that truly know the demographics and economics of the industry!

-Mike

Michael Schwob · Answer

@Kerry Baird From my understanding, there will always be areas of the nation where inventory is not tight, correct? Or does the entire industry nation-wide change together?

Also, is there a trend with people buying or renting? I've read multiple articles saying that either more people are renting or more people are buying.

Thanks,

Mike

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