Could Contrarian Investing Boost Your Portfolio in 2023?

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Just about every day I hear someone saying how weird this current market is. Housing prices are going down, interest rates are going up, the price of materials continues to increase, yet the economy is thriving. Just last week the latest job report showed the economy added 517,000 jobs, while Feds raised rates by another quarter point.

Some rehabbers are finding themselves breaking even on their flips, and in the notes space, discounts on non-performing notes are much higher than in the past. I am receiving calls from hard money lenders trying to liquidate portfolios of loans that are currently active. This causes an issue because some of the loans originated when the market was hot. Now, the market has pulled back, decreasing profit margins, causing a higher rate of default.

So what is a real estate investor to do?

Take a note from the veterans. Most investors who have been in this business for 20 or more years aren’t panicking and they aren’t taking cover. They’ve been here before and are still finding and making deals. They simply shifted their approach and are finding more creative ways to do deals.

Consider Contrarian Investing

This made me think of two famous quotes I usually hear from veteran investors.
“The time to buy is when there’s blood in the streets.” – Baron Rothschild.
“Be fearful when others are greedy, and greedy when others are fearful.” – Warren Buffet

Both of these quotes encapsulate contrarian investing. Those who go against market trends, buying when others are selling and selling when others are buying. The masses are moved by fear and greed, creating periodic swings in the market, making them overpriced and underpriced.

Both of those quotes were referencing the stock market but ultimately the underlying concept is that investors find opportunity in any market.

Serious investors don’t run when the market cools down. Instead, they cash in on the opportunity by pivoting and adjusting to various situations.

Positives of Investing When the Market is Down

  1. Lower Asset Prices: When the market goes down, the home and property values also go down. It increases buying opportunities for investors as they can buy on sale.
  2. High Returns: When you buy in the down market, you have the potential for higher returns when the market recovers.
  3. Reduced competition: In times of panic, when the prices go down, and everyone tries to sell, there are very few people who buy. Hence, the competition is also low.
  4. Rebalance a Portfolio: Finally, an investor gets the opportunity to rebalance their portfolio by selling overvalued assets and buying undervalued ones.

Risks of Investing When the Market is Down

Along with opportunities, a down market also brings risks with it.

  1. Uncertainty: Uncertainty is the biggest fear of an investor. When the market crashes, no one can judge the length and severity of the market downturn. Thus, the decision to buy becomes very risky, but risk is involved with all assets.
  2. Potential for Further Price Declines: A downturn market possesses the possibility of hitting rock bottom. So, if you are buying at a certain point, know that it can go down further. 
  3. Risk of Deteriorating Financials: Investing in a time of economic uncertainty and downturn can put your financials at risk.

Should You Invest When the Market Cools Down?

It’s your personal risk tolerance that determines what you invest in and whether or not you should invest. Investing when the market cools down depends on individual financial goals, risk tolerance, and investment time horizon. A market downturn can provide buying opportunities and the potential for higher long-term returns. However, it also involves added risk and uncertainty.

But running out of the market and waiting for it to get hot again is not investing. It’s timing the market and it doesn’t work. If you are unfamiliar with ways to pivot and find deals or how to creatively structure new deals, begin showing up to real estate investing events and webinars. Get connected to those who have been through this before and gain the experience needed to weather the cycle.

Here are some great groups to consider (even if they aren’t in your area, the concepts and principles you learn can be used anywhere).

CashFlow Expo 2023
NYC Real Estate Expo
Mid-Atlantic Real Estate Investing Association
Central Ohio REIA
DMV Note Network Mastermind
DMV Note Network Online Meetup

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