Real estate news has dominated headlines for years. Certainly when the bubble began to expand, then when it burst and now the trend has continued throughout the recovery. Real Estate investors can easily get caught up in the latest changes in market statistics and forecasts. But how helpful is following all that news? Should you consider ignoring much of the hubbub or is shutting off the constant flow of news a detriment to savvy and informed investors? In this video, you're going to discover if your should ignore real estate news:
The Information Age
We're in the information age. There is so many things coming at you all the time, so much information that it can get you all confused. What I have discovered is that there's a lot more noisy information. Noisy, meaning it's not productive. It's not going to help you. Then there is signal. Signal mean that those nuggets of wisdom that are absolutely essential. Let me talk about what would be some of the noise that you're going to read about in the news. I'm going to say, "Noisy news." Noisy news is going to be things like foreclosure rates. It's going to be, you'll hear phrases like "builder starts."
They'll just talk about overall sales, both of new and existing. You'll read these things in articles. You'll read things where it talks about interest rates. I know, some people are going, "Phil. Interest rates, those are really important." Okay, hold on. Hold on, I'll get to it. Okay, so this is what I defined, in most cases, as noisy news. First of all, who's creating these news articles? Journalists. What are they creating them for? So people will read them. They're not real estate investors. They're not in the field doing the business. They're journalists, and they create these articles so people will read them, but it doesn't mean it's going to help you and your business. Now, some people say to me, "Phil. I want to keep up to date what's going on."
Real Estate on a Neighborhood Level
Well okay, this is the next part of this. If the foreclosure rates are high, the builder starts are low, the sales are low and the interest rates are high, how does that change the way you're going to invest? That's a big question, right? Because I would position that regardless of where the market is, my approach is still almost identical. I only buy rental properties that cash flow incredibly well. Otherwise, I just flip the deals. If a deal is a good deal, I don't care if the interest rates are high or low. I don't care if the sales are good or bad, because all of this stuff, here is a big one, this is macro. This is what's going on on a national level.
You know what? Real estate happens on a neighborhood level. Real estate happens in such micro localities that even if the city has lost value in properties, it doesn't mean the entire ... the neighborhood you're doing a deal in is losing value. Warren Buffet does a great job of communicating this concept when he talks about the idea, like you buy a farm and you buy it based on what it's going to produce, not based on what the value is going to do each and every month. Following all of this is largely a waste of most people's time, because it really doesn't affect a wise real estate investor's approach.
Now, if you are buying bulk properties, 2,000, 5,000, 500 homes at a time and you're a hedge fund owner, okay, you can disregard everything I'm going to talk about because you do have to watch all these things, but for all of us individual investors, this stuff really doesn't make a big impact. But I'll tell you what it does do and it confuses new people, it confuses existing people. "Uh-oh, the builder starts are up now." "Oh my gosh, the sales are up. Okay, the real estate market is booming again. I can't find deals again." These are the kinds of people freak out about and none of these matters to me, because we were making great money when the market was booming in the mid 2000's. When the market collapsed, we made a ton of money, when the market is on its way.
People Will Always Need a Place to Live
We're always being very productive because the real estate business is especially what we do at residential, is very consistent. It's going to be consistent because people always need a place to live. We only select those deals that stand on their own two feet. I'm not worried about what's going to happen next, which is, here is the next piece. You can't predict the future. I know I'm bursting your bubble because you were probably one of the few that guessed that the market was going to collapse in 2007, and so you pride yourself on predicting the future. I got news for you, you can't do it.
You Cannot Predict the Future
Predicting the future is a huge waste of time. Real estate investors should not be investing in deals, I mean, some of the long-term basis, based on what's going to happen in the future because you never know. Let me give you a simple example. In 2010, 2011 as the interests are really, really low, everyone said the rates were going to go up. In 2010, they were going to go up, they didn't go up in '11. They didn't go up in '12. They went up a little bit slightly in 2013. We don't know what's going too happen. This is fascinating, in 2007, they did a huge study when the market was starting to collapse, when they're asking all of these brilliant economists, "Hey, are we about to have the biggest catastrophic plunge in our economy that we have since the great depression?"
Almost everyone said, "No." And we were in the middle of the drop and they didn't even know. We're lousy at predicting the future. We're terrible at predicting the future. I pause it to you here that you attempting to predict the future is a complete waste of time. Noisy news, not only does it confuse you, not only is on a macro level on almost all cases, so it's pretty much useless anyways, but also, to try to use that data to make decisions is kind of a poor approach because you can't predict the future anyways. I mean, when the market is as bad as it is, what's supposed to happen is the interest rates are supposed to be up, but they're not. They've been down.
I mean, we don't because everything is different all the time. We don't know what the future brings. With having said all that, where is the signal? Where is the signal? This is the good stuff. Where is this? It's in doing deals. It's getting out there, getting properties under contract, getting properties closed that are wise deals and getting stuff done. When you're in the game, that's when good things happen. By the time real news hits the newspaper, if you are out there doing the deals, you would have already known about it.
I'll give you a good example. Several years ago, the market is melting down and everybody is panicking and the sky is falling, and they gave ... The government did a tax credit for anybody that bought home, like a first time home buyer tax credit. When they released that, especially as it started to expire, right before it expired, there was a huge boost in sales. If you had some deals out there, you made it. You made some money. We did. We made some good money from that. Another example is when the market really hit rock bottom, which is in about 2012, a lot of hedge funds came in and bought a bunch of property. Then in some markets, they're still buying them right now, but that's really trailing off. I mean, it was like an in and out.
Those hedge funds went in, bought a ton of properties and came right back out. What happened was, if you have properties on the market, you had deals you were working, you got paid. It was nice. But hey, once it hit the news, that Blackstone group was buying a whole bunch of properties. Just as quickly as it hit the news, bang, it was already gone and you missed your opportunity. The signal is out doing deals. Now, in your local, local market, there may be some statistics that could be very helpful. Maybe your local board of realtors releases some data. Some of that can be helpful. That can be signal too, when you get really, really localized. If you're in a big city like Los Angeles and they give you Los Angeles-wide statistics, that's still not as helpful. I mean, you got to hone it down, [inaudible 00:09:01] kind of level.
What I'm trying to get across is the idea that a lot of people spend a lot of time wasted on focusing on news, as opposed to focusing on doing deals, because when you're doing deals, great things happen. That's where the news comes into play because you're there before the article comes out. You know what's happening before anything else is happening because you're out there. What drives me nuts is when somebody just takes a cursory glance at their market. They read a couple articles and they go, "Well, around here, Phil, things are a lot different than where you live." I go, "Really? How many deals have you done this last month?" "I've never done real estate before, Phil." "Oh, so you're giving me some advice on your local area and you've never done a deal there."
The Real World
That's the difference. The signal comes from being in the real world. You're not going to shortcut it reading some news. You got to get out there and do deals. I got a little intense on this one. You could tell a stuff drives me nuts when people do this, when they make these assumptions based on some macro news, I'd tell you ... Now, am I saying that you completely shut off the news? No. I mean what I do is, I'm always tracking what's going on out there, but I only read the articles that I can tell has some signal on it. Most of them aren't anything like, "Sales plummet in November." "The National Real Estate Association said that real estate crisis have actually leveled up."
They make these grandiose claims and it's like, "Okay, so it's November. Yeah, of course real estate slows down in November. That's Thanksgiving. People don't buy as much, as well as December." Then June, people buy all- It's a lot more bustling in June because everybody's out of school and they're all buying houses to get transition for the next year. The key here, in my opinion, shut off the noisy news, don't try to predict the future and go out there and do this business in such a way whereby the deal stand on their own two feet. It doesn't matter what happens tomorrow. You're still going to get paid.