“Widespread fear is your friend as an investor because it serves up bargain purchases.” — Warren Buffett
Multifamily is facing challenges right now.
Some are currently experiencing capital calls and struggling deals.
Investors are concerned.
You may be concerned yourself!
It’s my opinion that inflation is higher than is being reported.
Forget 3%! According to Shadow Stats, inflation is closer to 8%.
One of the greatest investors of all time, Warren Buffet, once said:
“Be fearful when others are greedy and greedy when others are fearful.”
What does that mean?
How do you be greedy in challenging times?
We’re gonna go over all of that in three simple steps.
Let’s jump in!
1. Investing is Psychology
Many investors lose their cool when something doesn’t go right in a deal.
They become like Chicken Little.
The sky is falling! The sky is falling!
If that’s how you react, it’s time to manage your psychology.
Warren Buffett says the best quality for investors is temperament.
You need to manage your own emotions and psychology.
I found this a little shocking when I first heard it.
But investing in psychology makes a lot of sense.
A lot of investing is psychological.
When things crash, you should rethink dumping everything you have.
If the deal is still good, it might be time to load up or buy from other investors.
This strategy is important to consider not only with stocks but also investments like real estate.
All the while, it’s important to manage your own psychology.
When you do this, you can go against the herd.
You can open up new avenues of investment.
There’s actually a phrase for this method: contrarian investing.
2. Contrarian Investing
If all the lemmings are going toward a cliff’s edge, would you follow them?
Or, would you stop and go the other way?
It’s easy to go with the flow.
We have a default setting in our brains that wants to do what everyone else is doing.
But it’s important to think for yourself.
You need to have your own process.
For example, multifamily was the beloved child of the investing world for a long time.
We were getting 30 offers on the table for some deals.
Buyers were putting $1 million dollars hard day one, which means the deal is non-refundable.
Multifamily Brokers are now chasing us down because there are less people wanting to invest in deals.
In the past, we’ve raised $8 million in 24 hours for some deals.
Looking back, though, that was probably not the best time to invest.
The best time to invest is when no one else is thinking about it.
That’s how people make big money.
The risk for multifamily is actually far less than it was a couple years ago when rates were lower.
Valuations are down, so your buying price is fixed.
You can always refinance later.
People make a lot of money that way.
I grew up very middle class.
Even as I’ve become wealthier, I still love getting a deal.
I love buying a property at a discount.
When you’re a contrarian, you’re looking for value.
Buffett also says: “Price is what you pay. Value is what you get.”
You don’t always get what you pay for.
You could pay less than something’s actual value.
Those are the investments I’m looking for.
3. Out-of-Favor Investing
We’ve already talked a bit about out-of-favor investing.
We’ve talked about how multifamily used to be in favor.
Now, I want to share a story of someone named John Templeton.
He started the Templeton Growth Fund, which was one of the best performing mutual funds of all time.
In the Great Depression, Templeton bought stocks at a price earnings ratio (PE) of less than 10.
PE, for those unaware, is a number that reflects how many dollars you pay for $1 of earnings per year.
For example: If a PE is 5, that means I pay $5 to buy a stock that produces $1 of earnings per year.
Today, the stock market is somewhere between 25 and 35.
You have to pay $25 to $35 for $1 of earnings.
Back in the Great Depression era, Templeton saw an opportunity.
He doubled down and bought small cap stocks at single-digit PEs.
This decision made him a ton of money both on the performance of those companies, but also the valuation.
What can we learn from this?
When things are hot, consider making your way to the exit.
When things are cold, consider investing.
I did this with oil shortly after the COVID pandemic began in 2020.
At the time, we were unsure how COVID was going to affect driving long term.
Oil ended up being minus-$37 a barrel.
That means you could get paid $37 to take oil off someone.
With my deal-hunting eyes, I saw an out-of-favor asset.
I was able to invest and 2.5x my money over the next year.
It was an incredible opportunity.
I encourage you to look for your own!
As a summary, you need to understand your psychology.
Don’t be driven by what’s happening in the market.
When you have a reaction about an investment, think about how you can go against the crowd.
If there is value there, the current valuation doesn’t matter.
Be a buyer and not a seller.
Remember: Price is what you pay, but value is what you get.
Now I want to hear from you!
What you’re finding of value now?
How are you managing your psychology?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Check out my new bestselling book on Amazon! Fire Yourself: Replace Your Working Income with Passive Income in 3 Years or Less.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.