Better be lucky than good

My former Senior Trader on a sell-side equity desk once told me, "It's better to be lucky than good." That all the fundamental and technical research are inferior to just pure luck. Investing in real estate calls for a different strategy. The biggest opportunity is about timing.

Data on real estate starts and permits are a lagging indicator. When the economy stalls or reverses growth, real estate investors must suspend existing builds or cancel plans altogether.

Just like the stock market, real estate prices are determined by supply and demand. Buoyed by low-interest rates and the pandemic you have the recipe for a robust real estate market for years to come.

Well, my broker said the time has passed to find good deals in New York. The city always bounces back for many different reasons. First, there really isn't any city in the US with diverse demographics, income levels, proximity to several continents, and convenience. Second, choices. Types of buildings - co-ops, condops, condos, single-family, brownstone, duplex - all play a role. Third, All-cash buyers abound are representing 50% of all deals in 2020.

With that in mind, how would I invest in real estate in 2021? I would look at home foreclosures. Families who lost their homes in 2020 are most likely going to rent (though foreclosing negatively impacts credit score and makes renting hard, a loan approval from a bank would be much harder). In some cases, a foreclosed home is still livable and repossessed by a bank that wants to offload bad debt even for a fraction of the value. However, some foreclosed homes need repair and depending on the potential rental income, there may be other better investments. It's not a hit-or-miss but rather a riskier proposition. Another idea is to buy in emerging cities. Thousands of Millennials moved to small cities like Boise and Denver. These homes are situated in less dense neighborhoods that offer more space for your buck. Though prices have increased year-over-year, they are still affordable than the sticker shock in San Francisco, New York or Miami.

So if an investment in a foreclosed home or an emerging small city works out for me next year, I would think of it as being lucky than good. Or maybe, it was just good timing.

For a list of foreclosed home:

https://www.hudhomesusa.org