stronaut Neil Armstrong is well known for his famous quote,
much. It is imperative for investors to rely on their intuition and common sense in addition to data. Clifford Stoll, an eccentric pioneer in digital forensics who identified and eventually helped authorities track down a KGB hacker in the mid-1980s, observed cryptically in his writings about the experience: “Data is not information; information is not knowledge. Knowledge is not understanding; understanding is not wisdom.” Although this sounds contradictory on the surface, it describes to perfection the antagonistic relationship real estate investors have with data. A good example of this is how investors would refer to our current economy. Most would agree the country is currently in a recession. However, most will actually say, “We are heading into a recession” because the data that will back up the assertion the country is already there will not be available for another 90 days. For active, action- oriented investors, those 90 days are a crucial window for taking effective and decisive action. The actions an investor takes during the 90-day window while the rest of the investing community waits to see “the numbers” will determine how successful investors are in jumping ahead of the pack in the weeks and months to come. While the rest of the world waits for “the crash,” a largely indeterminate event that many investors who did not experience the last housing crash expect to be sort of a fire-sale free-for-all, real estate investors willing to read the real-time signs will be able to prepare effectively for the events to come. To that end, let’s look at three trends investors should consider as 2022 comes to a close.
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TREND 1: INVENTORY IS PILING UP Investors with turnkey businesses, rehab-to-rent businesses, and fix-and-flip operations are already seeing a massive increase in available housing inventory.The data is not yet showing this development because there is a 90-day delay on most reporting and the present demand for that inventory is still masking the trend. Although it is relatively common knowledge among investors that properties are not getting as many offers right out of the gate and are staying on the market longer than they were in 2021, demand for housing is still high. As a result, investors know inventory is stacking up but do not entirely believe it. In any business that generates a lot of leads on deals, the evidence is irrefutable. In the past 45 days alone, inventory has begun to emerge on the market; in another 45 days, distressed properties will begin to sit on the market for 90 days or more. That magic number, 90 days, is important, because these trends will receive little attention until they have first appeared more or less consistently for 90 days and then have been evaluated and analyzed for another 90 days. That is a six- month timeframe in which a savvy investor can change strategies and acquire large volumes of properties before the competition starts to drive up prices. Real estate investors must also understand what types of properties are going to be classified as “distressed” in the coming months. Historically, distressed properties have been those that belonged to motivated sellers facing foreclosure and eviction from the property. In today’s market, however,
“That’s one small step for man, one giant leap for mankind.” He made a number of other observations about the world around us, including one later in his life that rings particularly true for 2022: “Science has not yet mastered prophecy. We predict too much for the next year and yet far too little for the next 10.” For 2022 and arguably for the entire time after March 2020 and the onset of the global pandemic, investors and the rest of the population have been desperately relying on science to tell them what will happen next and what to do about it. Real estate investors, in particular, would benefit from stepping back and taking a clear, careful look at the data available for our industry. It holds important information about what has been happening and what is likely to happen, not in just the next 12 months but in the years to come. Of course, investors should not rely solely on “traditional” data sources for their information. WHEN YOU SEE THE DATA, IT MIGHT BE TOO LATE For investors, real estate data can be a funny thing. In many cases, by the time analysts and economists have assembled and interpreted housing data, sales numbers, and various metrics, the time to act has nearly passed or, in some cases, completely passed. This is frustrating for data-driven investors who feel most comfortable when they are implementing strategies based on cold, hard numbers. However, an investor who waits to analyze, in effect, what someone else has done first can do only so
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