Not Investing Right Now? Here are the 4 reasons why

[Dan Handford]

For those of you trying to raise capital right now in the middle of the coronavirus pandemic, you will likely face challenges from your investors that are normally faithful in investing with your group. 

Here are four reasons why some investors are sitting out right now: 

1. Lost Money in Stock Market

This investor has lost money in the stock market recently and either doesn't have the cash to invest right now or they are not pulling out in hopes that they will get their money back when the market recovers. 

2. Putting Money Into The Stock Market

This investor is looking to invest their capital into the stock market while it is at a low point in hopes of riding it up over the next couple of years to rake in some solid returns.

3. Sitting on Cash to Get Discounted Deals in 6-12 months

This investor is sitting on their cash in hopes of getting amazingly discounted deals over the next 6-12 months when properties begin defaulting.

4. Lost Income and Need Cash Reserves

This investor has either lost their job, been furloughed, or income has been impacted. Our group has many professionals, such as physicians and dentists, that have had their income completely halted since they are unable to perform any procedures. They don't know when they will be able to return to work and in turn need to preserve their capital in case they need it for personal expenses. 

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All 4 points above are valid but #3 I think is going to disappoint many investors. The difference between the 2008 financial crisis and now is that back in 2008 there was not a lot of capital in the market. Today, on the other hand, there is a ton of capital in the market. Many people are sitting on the sidelines waiting for those potential "amazing deals" and I don't think we are doing to see too many this time around. 

There is such much capital in the market right now that will be going after these deals that the prices will still get bid up to a point where the deal doesn't have that much of a discount. Sure, you are still going to see some discounts but nothing like 20-30-40% like we saw in 2008. 

I predict that prices will see a 5-7% discount overall over the next 6-12 months but it will quickly rebound to where it was pre-covid. 

What about you? 

Are you investing right now?

Or are you in one of these categories above?

[Melissa Uppelschoten]

Thanks for those insights. I am seeking my first small multifamily in Atlanta right now. And realize there is no crystal ball as to what is to come. Will do my best to trust my number crunching and base my decision on that instead of emotion or fear of what is to come. Good luck everyone!