When someone tells you that a market is hot, and that you should get in on it, how does it make you feel? Do you want to run right out and look at deals there, and grab something in a rising market?
Or does it make you want to run in the opposite direction?
The argument for buying in a hot market is that many more investors will be attracted, and if you can get in now, prices will continue to rise and you will make money when you get out.
On the other hand, many people think that hot markets are too hot to touch – that you’re asking for trouble if you try to beat the crowd in a footrace to the best assets. And, what happens if today’s hot market cools off tomorrow, and you have not sold yet?
Does it simply depend on your strategy – flipping in hot markets, buying for long term hold in cold markets?
Is the reason to invest in a hot market because you’ll make a boatload of money when you sell?
Or is it psychological – because of FOMO (fear of missing out)?
What is the hottest market you know? Are you investing there now? Or are you steering clear until things cool off?
My own view is that of Warren Buffett, who has said that “You want to be fearful when others are greedy. You want to be greedy when others are fearful.”
What he meant by this is that, when the markets are in a buying frenzy, assets are expensive and hold a lot of inherent risk. When markets are scared, that’s when the buying opportunities present themselves.
Right now, the multifamily real estate investment markets are in a buying frenzy. That makes me very, very scared.
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Feature post photo by Derek Torsani on Unsplash.com