How Real Estate Investing Helps You Think Long Term
Almost everything we do in today’s world conditions us to think about the short term. We have to-do lists for what has to be accomplished today, advertisements that push us to “buy now” before it’s too late, and social media that gives us FOMO and triggers us to do something to avoid missing out on the next thing. This is especially true when it comes to investing.
We are constantly inundated with news hyping up new investment opportunities like NFT’s, crypto currencies, and even individual stocks that are easier than ever to buy through platforms like Robinhood. It does not mean these vehicles are inherently “bad” investments, but they do encourage you to think short term instead of long term because you have to get in or out at the right time. This constant riding of the highs and lows can also contribute to your anxiety as an investor because you are preoccupied with constantly monitoring the market to ensure you are making the right decisions.
Real estate investors, specifically those that invest in multifamily syndications, are actually conditioned to think differently because of the nature of their investment. While many other investments focus the investor on the “right timing”, apartment syndications focus the investor on creating a plan that can be carried out regardless of the market conditions, and executing that plan over the course of several years. When you’ve built a plan that accounts for less favorable conditions and the return you will receive is controlled by you (or your syndication team), you don’t have to worry as much about timing and uncontrollable external factors.
As we’ve stated in other articles, mindset is a key factor when it comes to successfully reaching your financial goals. The narrative streaming in your head, whether consciously or subconsciously, will influence your actions. Let’s take an example of someone investing passively in the stock market vs investing passively in real estate. While both investors may be thinking about the long term (let’s say they are investing in an index fund for retirement), there is constant hype around what the stock market is doing today, and a large focus on highs and lows. This kind of narrative can lead to constant checking of your portfolio, wondering what you should do differently, and when you should pull your money out. They are influenced to think short term and get distracted from the long term plan.
The investor who has put their money into an apartment syndication on the other hand, knows that they are investing for at least 3 years and that they will not have the option to simply pull their money out. They know there is a clear business plan and less than ideal scenarios have been analyzed so their expectations of returns are clearly set. Every investor always hopes that the return is higher than expected, regardless of the investment vehicle, but in this space, a good sponsorship team will set conservative expectations and then work hard to exceed them for their investors.
Those who invest in real estate syndications also know that their investment is not solely dependent on market conditions and other external factors. The commercial real estate market, which includes apartment buildings, does not follow the same rules for pricing as residential real estate. Single family home prices are based on how other homes in that area are priced and buyer/seller speculation. Residential homes are similar to stocks in this regard as they are largely based on market conditions and speculation of what the company will or won’t do. The price of an apartment building is based on a calculation called NOI and this number can be influenced based on how you either reduce operating expenses or increase the value (or both). This is how you can estimate a future sale price of the property without needing to know what will be happening in the housing market at that time.
Lastly, if you’re a passive investor in real estate, you don’t need to worry about becoming an expert in the space. Every investor should be educated to a certain degree, regardless of what they are investing in. But the advantage of being a passive real estate investor is you can choose to invest with experienced operators who have track records of analyzing opportunities, creating business plans, and delivering returns to investors throughout many different economic cycles.
You can also work with a financial planner to create an investment plan for the stock market, but even they don’t know what the market will do and what it will look like at the time you are ready to start cashing in on your investments. Knowing that someone who has experience has your back enables you to focus simply on your long term investing plan and financial goals instead of what changes you need to make to ensure your investment delivers.
The goal of this discussion is not to bash other investment vehicles. It is simply to remind you as an investor that it is important to focus on the long term game instead of the short term hype. Of course, we strongly believe certain investment vehicles help you do this better than others, but this thinking can be applied to whichever assets you choose to invest in. Investing doesn’t have to be complex or stressful. Create long term goals and then focus on investments that give you a high degree of confidence that you will meet those goals. If you do this, you have a much better chance of achieving them while maintaining peace of mind.
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