Contrarian Investors Should Buy Real Estate
Investing is full of clichés and truisms…
One of my favorites comes from an 18th century British nobleman, Barron Rothschild. I guess it speaks to the contrarian investor in me…
“Buy when there’s blood in the streets, even if the blood is your own.”
In other words, the most profitable investments are often made when pessimism is at its peak.
But that’s the problem with contrarian investing. You have to move against the grain. Take a position opposite of the crowd.
In short, it takes guts to be a contrarian investor.
And the truth is most investors aren’t comfortable leaving the safety of the herd. You probably don’t have the guts to make the tough call. (Or you’re certainly in the minority if you do.)
More likely, you’d rather go along with the herd. You like to hear you’re doing the right thing from the talking heads on CNBC. And read all about how your investment is the greatest in the Wall Street Journal.
Who doesn’t like it? I know I do… But that doesn’t mean it’s the most profitable investment for your money.
The reality is, being a true contrarian is often lonely. And it may take awhile before your investments to pay off… But when they do, look out, the paydays can be huge.
I think real estate fits the contrarian bill to a “T”…
Right now, most people don’t want anything to do with real estate. And for good reason, new home sales are at record lows and housing prices have been trending lower for the last five years!
It’s certainly not the hot investments it was five years ago. Heck, I can’t remember the last time someone asked me about investing in real estate. Or for that matter, even bragged about how much they made on their last “flip”.
And to top it off, anyone who owned real estate before the bubble burst has “their own blood in the street”.
Clearly, investing in residential real estate right now is a contrarian investment. In fact, it may be the only contrarian investment left. Just about everything else has been in a bull market the last few years.
But that’s also why every bone in my contrarian body tells me now is the time to buy real estate.
Here’s the deal… You still need to buy real estate the right way.
You need to find properties in a good location. There needs to be lots of potential tenants (look for areas hardest hit by foreclosures and near college campuses).
But most importantly, you need solid rental income… AKA cash flow.
Remember, the value of a real estate investment comes from the income you generate from the rents. Property value appreciation should only be gravy.
In other words, if the rents cover the expenses and generate a profit, it’s time to start looking at residential real estate as a good investment.
And to add a little fuel to the fire, according to an article in the Wall Street Journal, rents are expected to climb from 3% to 10% higher nationwide this year. And that’s great news for landlords…
Look, I’m not going to tell you real estate prices are only going to go up from here. In fact, they may continue to move lower for another month, year, or decade. Nobody knows for sure. But it doesn’t matter…
What really matters with real estate is cash flow.
So if you’ve got the guts, now is the time to buy residential real estate. It’s the “buy when there’s blood in the streets” type of investment that contrarian investors live for.
Category: Real Estate
