Is real estate investing just like a new gold rush?

Question

It seems every 'financial freedom' or 'financial independence' podcast and blog recommends people to own real estate to attempt to get cash flow out of it.  But how long can this continue?  Property values have risen quite a bit over the past few years so anyone getting in the game at this point is going to have a harder time finding a property that will cash flow.

If more and more people attempt to house-hack and have roommates or air-bnb or buy multi-families then supply of housing options will expand so much for renters and travelers that prices will invariably come down.

In the gold rush the pioneers that arrived first and staked out the best spots made the best money.  Then when the news broke to everyone else there was a flood of newcomers most of which did not experience even close to the same level of success.  The people who were able to make money were the ones selling supplies and tools to the prospectors.  That's what bigger pockets is doing, they are  profiting off the process of getting more and more people into this game, but the more people that get in the less profitable the game will be.

Combine this with the fact that technology will continue to displace people out of careers and even more people will want in on the passive income action.

In the end the owners of bigger pockets will have made a boatload and won't care, but how does that shake out for people who are just trying to start out?

I'd love responses refuting my points so that we can get a good debate going.  Responses to the tune of 'well no one will get anywhere with that attitude' are not what I'm looking for.  I actually like the space currently and have recently invested, but I'm analytical and like to try and predict how things might play out.

Daniel S. · Answer

I've actually been wondering if this is what I have been experiencing, but I didn't have a name for it until I read this post.  Thank you for the information!

Jeff Wallace · Answer

@Daniel Smith

Think of your Gold Rush analogy but with the consideration of all those gold nuggets having babies who grow up and have little gold nuggets of their own... and before long there is Gold Nugget overcrowding

In real estate investing, we aren't dealing with a finite number of houses or tenants like there is a finite amount of gold to be mined --- long term, our population growth will generally keep pressure on housing demand and inflation - and therefore create future cashflow and profit for the LONG TERM investor.  Wouldn't it have been awesome to have taken advantage of all those great deals that were available a few years ago? -- of course... I don't know how many people I hear say-- "I wish I would have bought property five years ago," (or ten years ago, or twenty years ago etc.etc) --but the guy who buys at todays prices... even retail prices, will have a property in five or ten years that is worth more than he paid today- and generating more cashflow than it does today -

That is why my philosophy is to just go out and acquire property -- I know too many people who wait around looking for a deal - and tomorrows opportunity passes them by --- I buy tomorrow's bargain today!  When I have the money to buy... I buy.  If the returns aren't all that great today... I know they will be in a few years.  As long as my investment region has long term projected population growth and a good job outlook, I am confident that prices will continue to rise and I will be glad I paid retail today and acquired the property  ---- when looking back, today's retail will be a bargain in the future.

Chris T. · Answer

@Daniel Smith

You're probably experiencing the Baader-Meinhof phenomenon

http://science.howstuffworks.com/life/inside-the-m...

Since you're interested in real estate, all of a sudden almost every financial podcast is saying real estate is next big thing.

People have always invested in real estate, like many have pointed out. However, prices will not go up forever, and eventually will come down. Everything has a cycle.

Most people don't take action, and a website like BP is meant to educate everyone. If the owners want to make more $, they would have a guru section offering $9995 courses for the materials they have on this site.

Kevin Romines · Answer

Simple economics my friend. Supply and demand!!! If demand out paces supply, then prices rise. If supply out paces demand, then prices decline. Real estate is a very localized investment in how its is used, for the most part. What are the population demographics in the area your thinking of investing in? This will give you insight as to what prospects look like going forward.

If an area or state or even the US population continues to grow, well people need places to live and vacation, so to the extent that there is good demographics in an area and the sustainability of the income of the area, this will help dictate values and growth, or stability or decline. Get your head around it and it will be your friend.

To purport that BP is feeding all us fat kids the latest Unicorn Latte to our own demise is a rather uninformed, hilarious and way off the mark comment. But to each there own!!!

Jeff B. · Answer

GREAT insight imo :)

There are lots of players in the selling supplies and tools in REI, BP only being one.  Here on the West Coast, we have many TV programs soliciting "Here's how ..." stuff.  "Buy my program..., Flipping made easy..."

Those looking for large nuggets lying on the open ground will always be fooled.  The same applies to those "no money down deals" or the new fad Wholesaling(imo).

These folks seldom make a difference in the actual mining and refining (aka the transactional side of REI) as they fail after not 'hitting it rich' and just go back to Saint Joe.

Thomas S. · Answer

It is just like the gold rush. Many jump in believing they will easily get rich, the vast majority find out how difficult it is and end up with nothing.

Michael P. · Answer

Real estate is something we all know and are familiar with as we all live somewhere in a house or rental or apartment etc.  So it is easier for the average layman to understand.  Over time real estate has always appreciated, so from that stand point it is an amazing hedge against inflation.  I'm a true believer that if you want to secure your future owning a few rental properties is a dang good way to do it.  It doesn't take a rocket scientist to figure out how to purchase a few rental properties and manage them.

As far as your argument goes against BP that is just odd and not very well thought out, sorry to say.  Keep in mind 90%+ of people who visit BP will never take action.  The people who visit BP and take action would have taken action without BP, in most cases.  So thinking BP is all the sudden going to make millions more people become investors?  Nah that's rather silly thinking. I'm actually chuckling about your thought process and hatred of BP...

Goodluck...

Jonathan Farris · Answer

I think you missed something in your assessment. Land is not infinite. Habitable places are not infinite. I live outside of Boston. There is ZERO supply of starter homes within a 20 mile radius of the city. If you can find one, its off the market in 5 days for 120% of list. So I thought, "why don't I buy some land, build some starter homes, on the cheap side, and make a boatload of cash". This wont work, because the land is too damned expensive. So, like you said, property values/rents remain red hot, because people need a place to live, and the availability of places to live keeps getting smaller while the ability to create places to live, keeps getting more expensive (and thus less attractive). There are still plenty of deals to be had, you just cant expect to find them in the city. I am travelling often times to New Hampshire or other states around the New England area because Boston (and anywhere near it) is just a madhouse. Like anything else, there are corrections, but if you buy right and don't overextend, you should be ok (at least).

Will G. · Answer

agree with the theory, there is little to choose from when it comes to investing, hence the super low cap rates in major market multifamily, and a ton of multi fam projects in the pipeline, which will lead to oversupply and reduced rental rates at some point. Hence the cyclical nature of this industry.just try to figure where we are in the cycle and act accordingly

Daniel S. · Answer

I'm not saying just bigger pockets, but if you find other blogs that talk about financial freedom and independence the quantity of them citing real estate is astounding.

Is real estate investing just like a new gold rush?

Most Popular Reply