Greatest Risk To Investors In Real Estate Markets Today

Q: Gerald, it seems like many investors always seem to miss some critical aspect of what’s happening in the real estate market.  What’s the biggest risk to investors now? Hank, Atlanta, GA

A: Real estate prices have been soaring in many real estate markets nationwide.  When real estate prices go up, people get restless and careless—investors, especially builders get sloppy on price and terms.  Speculators rush in to hot real estate markets driven by the foolish notion that they can’t lose if they invest in the right market at the right time.  This is dangerous thinking that leads to dangerous behavior.

The biggest risk to investors in the US today lies in not adhering to the fundamental rules of real estate investing.  Higher prices put pressure on investors to raise their offer prices.  Realtors often put pressure on investors to raise their offer prices when prices go up.  It’s important to understand however that realtors and investor are incentivized financially in different ways—realtors earn a commission when property sells at any price, whereas investors normally profit by being disciplined on the buy side by not paying too much when they buy.

Follow the herd at your own peril.  When you follow the herd, you end up scraping shit off the bottom of your shoes.

Thanks for your question, Hank.  For more real estate information and tips visit my blog at geraldlucas.com.