What to Do if You Have Never Lost in Real Estate Until Now

In a recent article from Bloomberg, a reporter observed that “young” real estate investors, meaning those who entered the sector after the last housing crash, are getting their “first taste of losing.” The author went on to say basically that people who started flipping when the market was heading upward on one of the longest recovery trajectories in history got their feet wet at the wrong time in some ways because even their mistakes ended up making them money. Now, the author wrote, they are stuck holding the short end of the stick, unable to sell flips they started with optimistic budgets in hot markets. He blames hard-money loans, reality real estate television, real estate meetup groups, “get-rich gurus” (his words, not ours), and the general societal pressure to “pile into the market in recent years as rapid price gains helped the last property crash fade from memory” for flippers who are now stuck with properties that may not be selling for top dollar at top speed even in markets where home prices are still rising.

Yeah, OK. Maybe this is a problem, and maybe it’s not. Home flipping will always be a really attractive real estate investing strategy. In fact, in a lot of ways it is the most attractive strategy because it offers the relatively fast yields investors at all stages expect from real estate and it fully embodies that age-old investor maxim, “Buy low, and sell high.” What is happening right now is not that some population of investors got taken advantage of or that the market is heading for a meltdown. What is happening now is that the real estate market is changing – in a lot of ways that have nothing to do with the traditional market cycle, by the way – and a lot of investors who were getting by on luck are going to have to start actually investing by the numbers.

Here’s a hard truth for every investor out there who thinks they have been taken advantage of or caught by surprise in some inadvertent way that is leaving them in the red for the first time ever: Real estate investing is about flexibility.That means sometimes one strategy works, and sometimes another one is better. Sometimes, you just cut your losses and live to invest another day. There are a lot of factors contributing to permanent changes to the way flipping works:

  • ibuyers
  • Private money lenders
  • Hedge funds
  • Family offices with geographically motivated, “sustainable” investing goals
  • Wall Street
  • Single-family rental trends
  • International trade policy and tariffs
  • Generational housing preferences

Those factors will all permanently change the way your flipping process works outside of any market trends and cycles. This means you need to be prepared, more than ever, to roll with the punches your market delivers. In a lot of cases, you will need to be equipped to buy lower than ever (tax lien and tax deed investing may be a good route for this). You will need to be positioned to get the lowest prices available on materials and labor (possibly working with a group to acquire these necessities wholesale would be a workable option). You will need more guidance and professional monitoring than ever before if you are a new investor or if you are an experienced investor working in a new market.

The fact is that the investing sector is changing in unpredictable ways, and most investors, especially those currently caught by surprise and “hurting for the first time,” need an experienced partner to guide them through this market evolution. Make no mistake: This is not your predecessors’ real estate cycle. This is evolution, and it will be permanent. Don’t fall prey to Darwinian real estate principles. Make sure you are equipped with the right strategies and partnerships to make the most of this real estate revolution.

About the Author

Charles Sells is the founder and CEO of The PIP Group, a turnkey service provider that focuses on investments in distressed real estate assets including tax liens, tax deeds, traditional foreclosures, fix-and-flips and long-term cash flow acquisitions. He has been involved in tax lien investing for over 20 years, during which time The PIP Group has grown to become one of the largest agencies of its kind with nearly 1,000 individual and institutional investors worldwide.

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