“How’s the market?”

IU Member asks: I have been following real estate for several years now and actively engage with real estate investors globally, both professional institutions and general portfolio managers. The common theme amongst those who buy and hold real estate is that the global real estate market – the U.K. in particular- has topped out and we are likely to see a market correction in the near future. Is this the case and if so, what are the key indicators and likely timeframe?

Charles says, Great question! As a commercial real estate developer and legislative advisor here in the United States, people often ask me, “How’s the market?” I hear it from journalists, business professors, and bartenders. I hear the same question everywhere. It’s pervasive, even insidious. They ask it on investment shows, they comment about it on the evening news, and they cite statistics that try to explain it, but they never bother to define what the market actually is. “How’s the market?” It’s a stock conversation starter, a cliché passed among so-called professionals, a nebulous blame-it-all to explain the shortcomings of real estate agents who aren’t able to deliver a buyer to a seller, and an excuse offered by greedy loan officers and bank presidents who oversold their products by hyper-inflating the value of their collateral. It’s an academic’s term that’s abused by businesspeople.

The better question is: What is the market?

Here’s a story for you: I was recently invited to address the topic Real Estate Strategies for Business Owners at a lecture hosted by Loyola University Maryland as part of a regular series of speakers. The audience included experienced and successful business owners, a few senior executives, and several professors from the university. After we were served fresh-squeezed orange juice and croissants, I was introduced by the head of the economics department, a Ph.D. who’s name I will not include in this story because he asked me the question, “How’s the real estate market?” — and because he’s an otherwise good guy.

I gave his question the requisite pause for reflection and effect. Then, I said this: “I’m not here to solve the world’s problems. There are smarter people than me over at the business school who are working on those. I only know how to solve my own problems. What matters to me as a real estate investor is not the macroeconomic monster called “the market.” I don’t care about sales statistics, median home values, government influences, or economic forecasts. What really matters is whether or not I can make money on the transaction right in front of me.”

I said, “There are dozens of real estate markets, just as there are dozens of markets in any industry. When they talk about the “real estate market,” people are usually referring to the Retail Home-Buyers Market. But there’s a wholesale market, there are geographical markets, there’s a market of owners with delinquent tenants, and there’s an expired listings market. There’s a market for properties owned by people out-of-state, properties with tax liens, properties with housing code violations. There’s a foreclosure market, a pre-foreclosure market, a notes market, a multi-family market, and a market for people who, well, only buy markets. And when you know how to look in the right market, you’re always going to find cash flow or equity opportunities. That’s how knowledgeable investors in every arena maintain their profits in any economy.”

After I answered, I looked around at the audience. The business owners were bobbing their heads with understanding. The academics wore quizzical expressions, and they were scribbling feverishly in their journals as if they were trying to apply complex economic formulas to my explanation. Academics always seem to over-think these things.

I wanted to advise, not discuss theory. Once that theme was established, the business leaders at the lecture were able to ask questions about their personal challenges and discuss specific solutions. What I found most interesting was how often a business leader’s question provoked a discussion that included everyone.

After the lecture, I had a chance to move through the room and observe the people who had just spent the last 90 minutes listening to me. I saw professors and business owners mixing and talking together in a way that they hadn’t been doing before I took to the podium. They were comparing notes; the experts in theory and the experts in practice had found common ground.

“How’s the market?” is the question that began this post, and it’s the question that most often ends the search for opportunity. It’s a faceless boogeyman, an excuse that appears in the minds of everyone who consider real estate investment and need to find a rationalization for why they keep putting it off. It’s the “no” you don’t have to explain because it calls for the common fear of the unknown.

While economics can be complex, making money in real estate doesn’t have to be, when you know how. Once an investor can push past the unfounded fear that there is an overarching market force equation that counteracts all the mathematics of profit, he or she can begin to focus on the individual opportunities that present themselves every day.

So, the next time someone asks you, “How’s the market?” Just smile and ask them, “Which one?” It won’t be long before you’re breaking new ground with experts in your own backyard.

Property Portfolio Management

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