107: Buy the Fear and Sell the Greed
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Buy the fear, sell the greed. ☝️😉
You guys, it’s freaking amazing how six simple words can have such a profound impact on someone’s wealth.
There’s a book by this title, but the living principle behind it is from Warren Buffet, who used these six pretty basic words to catapult his wealth to the rarest of rarified air. We are talking 35,000 feet in the air, private jet energy here.
So like, you should know that he’s amassed his wealth by heeding his own advice to be fearful when others are greedy and greedy when others are fearful.
It sounds simple, but the enactment of this principle can be a real challenge and even counterintuitive to human nature.
We know you’re probably wondering how this principle can be applied in today’s current landscape. You might also be wondering what this means and how you can apply this investing philosophy to real estate investing so you can thrive when others are fearful.
Two Emotional Divas: Fear and Greed
Before we dive deeper into the investing philosophy behind the phrase buy the fear, sell the greed, let’s take a look at two of the emotions embedded into this philosophy.
Do we really know what fear and greed are? They both have negative connotations, and fear and greed are definitely two emotional divas that we all experience from time to time, perhaps even multiple times a day for some of us. And pretty sure that none of us want to be defined by either emotion, either. 😇😇
These two emotions amplify swings in an investment with the rise and fall of real estate prices. For real estate investors, typically what happens is that investors succumb to fear, anxiety, and panic, retracting or choosing to stay on the sidelines during the market’s sell-off, yet as property prices come down they still choose to stay on the sidelines and not invest. This is the thing we know as fear.
We know, we know, when there’s a bull market, we all have a sense of exuberance, the rush of exhilaration has a way of crushing any rational investment approach. This is that sneaky little feeling we were talking about called greed. And FOMO, the fear of missing out, definitely kicks into high gear.
The opposite is also true when there’s a bear market, investing feels exacerbating and scary.
But here’s the thing: your financial future shouldn’t precariously rest on these two opposing emotions, instead, focus on investing with solid fundamentals where there’s value.
Look, we all know it’s truly impossible to time the market successfully. Hindsight is ALWAYS 20/20, and the market is no exception. Instead of trying to capture your investment as it moves up or down, you should focus on turning your cash into a cash flow. And we are here to help you figure out how to do that. 👀👀
So we broke it down for you guys into three steps you can take to follow Warren Buffet’s advice and capitalize on the current market conditions.
See the Market Condition as an Opportunity
#️⃣1️⃣ See the current real estate market condition for what it is – an opportunity
Step one – you need to see the current state of the economy as an opportunity. We know you are probably thinking – Nan, Palm, you guys have officially lost it.
But think back to the darkest days of the 2008/2009 market crash. The real estate industry was collapsing before our very eyes. Foreclosures were happening at a record-breaking pace. But what came out of those darkest days was an extremely healthy and robust real estate market. If you asked people back in 2009, no one could have predicted how much real estate value would have risen in the last 13+ years.
Raising your hand virtually, who would have loved to have grabbed some of those properties as they were sold off at a discount? All of us, am I right? Well, in some ways the same kind of thing is happening right now, except our economy is in a much better position and home loans aren’t in such dire straits. If you know anything about markets, the economy, or just life in general, you know that it comes in waves, and it’s truly cyclical. 🤓🤓
We also totally get that the sneaky little feeling of fear might try to sneak in and tempt you to hoard the cash you have, but that’s the fear speaking. Again, keep in mind what Warren Buffet said “the best chance to deploy capital is when things are going down.” That’s a pretty heft thought, but it’s so true.
#️⃣2️⃣ Look for quality assets
Second, you need to look for quality assets. We all love a good bargain, right? That’s why stores like Marshalls and TJ Maxx continue to thrive even though they are dependent on their brick and mortar stores for most of their sales. Why? Well, the answer is simple – these guys figured out that people love to bargain hunt and boy, do we love a good deal.
The same holds true for apartment investing. When we go bargain hunting, we still want to make sure that the property itself is in great shape, and newer assets tend to check off this box. It’s well positioned in a great sub-market with a thriving economic and population base. ✨
On top of that, we always want to make sure that the property’s financial health is in tiptop shape. This goes back to the importance of doing your research and due diligence that we’ve talked about in previous episodes.
Bargain hunting is awesome, but not when you come out with lackluster deals or a dud of a property. So make sure you invest in great quality assets.
#️⃣3️⃣ Think long-term
Third, and our last step, you need to think long term. We are guilty of this too, but our society has turned into one of instant gratification, nano-second investors if you will. And unfortunately, this investing mindset has caused a lot of people to lose huge amounts of money to investments that promise outsized returns instantaneously.
Think about FTX and its 2% per day interest rate and what a Ponzi scheme that turned out to be. I mean talk about scary, right? These guys had everyone convinced this was the latest, greatest, hottest deal and it literally crumbled in front of our eyes. 🧐🧐
So when it comes to investing, there’s never just one way or one option. There are definitely ways you can grow your wealth faster, but the growth should be rooted in historical and verifiable processes.
And here is where common sense should come into play. If the way the investment’s profit is generated can’t be easily conveyed, then you shouldn’t invest in it.
So let’s use that thought and guiding principle to take a look at apartment investing. The investment thesis is extremely simple.
We buy apartments with under-market rents in great areas.
Keep in mind that this step is SO important, and is one of the reasons why we always harp on doing your research, etc.
Yeah, and then once we take over the property, we look for ways to reduce expenses and increase income.
The way this works is that the net income gets distributed to all investors as cash flow. Remember how we talked earlier about turning your cash into cash flow? This is exactly how to do just that. 🙏
The awesome thing about this strategy is that with the increased net income, our property is now worth more, so just a few years later, we are able to sell it for a higher price than when we purchased it. You guys, that’s what we call a WIN! And that’s when we split the profit from the sale with all our passive investors.
This hopefully is pretty easy to understand and it definitely passes the common sense test, which is what we the Kitti Sisters always use as our litmus test.
That gut check, that common sense instinct actually counts for more than you would think. 😍😍
We would love to help you climb your ladder of investing success, so download the Ultimate Passive Income Guide as we’ve taken everything we’ve seen and learned from turning your salary into a lifelong passive income and this guide will show you how to get started.
That’s it for this episode, thanks for tuning all the way to the end. 🙌
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Reading your article helped me a lot and I agree with you. But I still have some doubts, can you clarify for me? I’ll keep an eye out for your answers.