Real Estate is dead?

Question

Many "Guru's" will say real estate will be dead by all the big/private firms buying into the real estate market , eventually flooding it where they hold all the inventory and control the market.  Many topics are discussed on Wall Street and articles online.  This does discourage me as a young an aspiring real estate student.  What is some helpful advice to banish these thoughts?

It does make sense what they point out.  How everyone hops on the bandwagon.  How everyone catches on and then suddenly real estate becomes a trend.

Most of the books I read seem to have transactions happening in the early 2000's .  BEFORE the bubble crash.

Is there any important information I need to know that is "up to date" that will assist me on my venture?

Joshua Dorkin · Answer

Ryan - Stop listening to that guru nonsense.  Seriously.  All the talk of the end of real estate is just some line used to rope people in.

Remember Chicken Little?

Look -- markets go up and down.  It has happened since the beginning of commerce. The hedge funds and large buyers are making moves now, but they can't buy everything, and eventually they will leave the market.  There are deals to be found everywhere -- you just need to know how to find them.

If you learn the fundamentals of real estate, put together a plan, and stick to it, you'll be fine.  Can the market crash -- yep.  But, again, if you understand the fundamentals, you'll know what good deals are and what bad deals are.  You'll know how to identify changes in the market, and you'll be a step ahead of the game.

I know that I'm a little biased, but if you want information that is up to date, start reading our forums, BiggerPockets Blog, and the other content here.  The information here isn't just some self-proclaimed guru telling you what you want to hear -- it is the shared knowledge of over 110,000 members.

Get reading and ask questions -- we've got your back, and it won't cost you $47, $97, or $997.

Joshua Dorkin · Answer

Ned - I believe that the gurus that are pitching the death of real estate are trying to make people think that they will never be able to get deals again, unless they sign up for the everyday low price of $xx7 today to learn the secrets to surviving and thriving...

Dell Schlabach · Answer

Reminds me of the professor at an intro to bussiness class, more years ago then I care to remember.

His statement to the class, as he read us another newspaper article of the latest merger, the big players are buying up all the small companies, in another five to ten years its going to be impossible for small businesses and startups to succeed, because the big guys are going to control the market, and due to their size there willbe no way for the smaller businesses to compete.

Its funny now, looking back twenty five years over one of the greatest entreprenurial growth periods in history.

I had a friend invite me to his house to watch the webinar about the death of the small investor.

There interesting trends that are being described accurately, but the conclusions are incredibly self serving for the guru and totally misleading, and just full of wrong conclusions. I doubled my rehab volume in 2012 over the previous year, just started two more crews and plan to double our volume again this

Find the guys who are doing what you want do do and learn from them, (bp is a good place to find them)  ignore the guys who say it cant be done, let them sell their program to someone else.

Best wishes in your new venture.

Rick H. · Answer

As my friend Ward Hanigan would remind me, when it comes to real estate, "What's bad is good and what's good is bad."

The thing to remember about the big boy "fat cat" investors, is that they really aren't real estate investors, a least not single family residential homes.  Hedge funds must move money.  Velocity is essential to their business model.  Also, the cash flow yield to an institutionally-managed real estate portfolio of SFR's can't be very impressive.  Lastly,in the long run, SFR's just don't fit the corporate model.  The efficiencies that exist in the institutional income products like large apartment complexes and regional shopping centers with onsite management don't exist in the SFR's market.  Hedge fund investors will eventually pick up on the fact that renal homes are better left to more agile landlords with better approaches to management adapted to small geographic markets.

The big guys can't respond to sub-niches they don't understand, don't have the volume, let alone fit through the door.

I prefer niche markets.  New investors typically don't require a high volume of deals and the small niche categories can offer higher margins.  There's no doubt in my mind that the passing parade of hedge fund-level investors will lose interest in the smaller real estate market and perhaps will offer opportunities for independent investors to buy these properties as big guys retreat back to Wall Street.

Ben Leybovich · Answer

Ryan Nguyen  Of the trillions of dollars in the investment universe only a sliver are in RE.  Why?  If you answered because RE is cash intensive – you are wrong.  Mostly this is because to play real estate requires knowledge, and lots of it.

Few people are aware that at its origin, “Real” in real estate stands for Royal – French;  in other words the domain of the chosen few, as represented by the nobility of the time.

Real estate is still very much the domain of few and select, but today  the limiting factor is no longer the bloodline, but the intellectual worth of the player.  Hedge Funds came in quickly, and will be out quickly as well.  They are numbers-driven, but RE investments are not.  RE investments are management-driven, which is unlike anything those fools ever dealt with.  They will loose, and they will get out – patience my friend.  I’d like to leave you with a thought:

RE is the only game in which having lots of money does not guarantee success, and having no money does not prescribe failure.  Happy studying…

Brandon Turner · Answer

Hey Ryan Nguyen I think Joshua Dorkin said it perfectly. I get so frustrated seeing the online ads everywhere that say "real estate is dead" because clearly I didn't get that memo - nor did the thousands of BP users who are growing their wealth.

But I guess, maybe it's a good thing - because it's making people fearful of investing, and thus they are staying out of the game and leaving more for us :)

It's true, most of the books were written during good times - because that's when investing in real estate gets popular - and smart investors begin slowing down.  It's a cycle, and it comes and goes. If the Hedge Funds start buying stuff up. prices will go up, and we'll have another peak, then another drop, and then we'll be able to buy again.

Thanks for the Forum thread- this should start a good conversation!

William Williams · Answer

Ryan Nguyen Welcome to BP! You've come to the right place! I too am just starting out. I introduced myself to BP yesterday.

I often told my children (all Adults now...) "I do not believe in luck…" “What I do believe in, is preparation meeting opportunity, which gives the appearance of luck..” William W.

I appreciate your question since the comments from those that are currently doing what I want to do have even further encouraged me to keep preparing…

Ben Leybovich's comments “If you answered because RE is cash intensive - you are wrong. Mostly this is because to play real estate requires knowledge, and lots of it.”
“RE is the only game in which having lots of money does not guarantee success, and having no money does not prescribe failure. Happy studying...”

Brandon Turner's comments “'’The Unofficial Guide to Real Estate Investing" - which I wrote a review on here which taught me a lot about making a plan, and then following that plan”
““Rich Dad Poor Dad””
“I think it's important to just begin with reading a lot, discovering what you like/don't like, reading more on the stuff you do like, building a plan around that, and then working your plan.”

It gave me information on more books to buy and study in order to build a plan I am comfortable with and then go and work that plan. It speaks of knowledge and patience and of formulating a plan then implementing the plan.

Solid advise as far as I am concerned.

Joshua Dorkin's comments gave me search phrases to look at in the forums: what are good deals; how to identify changes in market; what are the fundamentals of a good deal; etc…
I too am interested in wholesaling. I have been reading for a couple days now and I am already beginning to formulate a plan. However, I am going to test this plan at local bars with my new found friends from REIA..

I am certain that guaranteed success requires knowledge, preparation, a plan, and then implement the plan.

GOOD STUFF everyone!

I got tip from Tom A. (I modified it some…) I took the Guru references out of it…
- Join your local REIA, attend regularly and talk to the people there (~$150 - $200/year) 
- Take some friendly local buyers, attorneys, realtors, wholesalers out to lunch/dinner/drinks ($50 per "date") 
- Buy some good RE investing books (can find references on this site) ($5 - $20 each, used or new on Amazon)
"Seek and

Craig Kucera · Answer

I think the real change will be that the large PE firms and hedge funds will be able to act faster on deals when they hit the market because they are accustomed to using sophisticated trading systems to determine the value of other investments (including commercial RE) and have tons of cash ready to put to work.

The real test will be their ability to manage the lack of fungibility in individual assets - i.e. they may find it more challenging to own and manage the asset scalably as opposed to investing in pools of mortgage backed securities.

Ryan Nguyen · Answer

Thank you all for the feedback,   I am starting out by reading all the wholesaling forums.  You guys have motivated me to keep my head up and keep trying.  Much appreciated.

John Thedford · Answer

Interesting. I like that: RE is the only game in which having lots of money does not guarantee success, and having no money does not prescribe failure. 
I agree with almost all of these posts. I have gotten the emails selling the info how to survive now that the hedge funds are buying. I do wonder if they will help stabilize the market. As for the beginning books, I am reading "Think And Grow Rich" which is not as much about real estate investing as it is ...you might say investing in yourself.
I haven't read Rich Dad Poor Dad but I have met one of the part owners of that franchise. We started talking real estate investing, hard money lending, etc and it was quite intersting. 
If I want'ed to do something I wouldn't let anyone scare me away from it.  I can tell you all about learning from mistakes!
Best of luck to you!
MGJohn

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