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Consider for a moment the absolutely dismal performance of market strategists, economists and weather forecasters. On market strategists, I speak from personal experience as I worked at Lehman Brothers for one. Strategists like Abby Joseph Cohen at Goldman Sachs stayed raging bulls through the painful correction. Each correction - according to these strategists - was yet another buying opportunity and each continued to forecast a bull market around the corner even as the market plummeted. Market strategists happened to be the poster childs of the correction, along with the infamous Henry Blodget's $600 price forecast for Amazon.
Lesson: It was a great time to buy when stocks plummeted in 2002. Unfortunately, most individual investors were selling, swearing they would never own stocks again.
Similarly, I witnessed the director of the national weather center and others out of Colorado predicted 30+ major storms for 2006 and preyed on the fears of those living in coastal areas. It turned out their forecasts had no accuracy whatsoever. Actual major storms for 2006 – 1. Again, Max Mayfield and other so called “experts” based their forecasts on their expectations of a continuation of past events.
What can real estate investors learn from this and many similar blatant forecasting errors? Simply it is this.
The future is very different from the past and most things revert back to the mean or average over time. Most investors, however, commit the mistake of projecting current conditions into the foreseeable future.
During the bull market years, the prevailing sentiment was that real estate prices would rise 20% a year consistently for years. Today, the prevailing sentiment is that real estate is dead and the market will not recover anytime in the next 5 years.
The truth, we submit, is somewhere in between. That being said, we would agree that after 2 years of dismal real estate performance, price corrections, sub prime crisis, and entering into an environment of declining rates, it is a great time to buy, possibly the best time this decade.
The Key To Real Estate Sales Riches
The key to successful real estate sales lies in following some basic and fundamental principles:
- Make your money on the purchase.
- Never pay more for your investment than the present value of future cash flows your investment will generate. In other words, make sure you can earn a positive return over your investment horizon.
- Invest in areas with growing population, steady economic prospects and a pro-growth legislature
- Invest in the best location you can possibly afford as long as the financials make sense
- Invest non-emotionally, investment is always about the numbers
- Invest for the long term
The Most Important Lesson Of All for Real Estate Investors
Be contrarian. Realize that the media, and the average joe on the street is always wrong. If taxi drivers are investing in real estate or the Nasdaq, it is time to sell. If others are screaming to sell, it is time to buy.
Those that buy at the peak of the frenzy will almost always have to wait a long time before they can expect to make money.
The Best Time To Buy Investment Real Estate
The time to buy is always when others are looking to sell, screaming to sell, complaining about how terrible the real estate market is and how terrible prospects are for the foreseeable future.
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Do we think the market will be higher in 2012 than it is today? Depends on whether you believe in the rational expectations theory or are willing to be a contrarian.
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