Real estate investing can be a risky market but it’s full of opportunities. Sometimes true success comes from taking a risk and going against the grain. It’s situations like these that contrarian thinking comes into play. A contrarian is a person that takes up a contrary position, usually opposed to the majority. Popularity is not something a contrarian is concerned with.
2020 has certainly proved to be an interesting year. We’ve seen a good deal of real estate volatility in short order, with the prospect of more to come, however, the past months have brought forth a lot of change and opportunity.
Contrarian thinking is a core feature of the high-net-worth mind, and it’s no coincidence that the two go hand in hand.
The most successful real estate investors and buyers I’ve met are contrarians: When they put money to work, they usually invest in unloved or beaten-down real estate or entire businesses. I think every investor needs to develop a similar attitude.
But why take that risk?
Learning how to put aside the current and popular views and form an independent opinion is an important part of being a successful real estate investor and smart buyer — and I believe it will be even more important in 2021 with the changing market and the introduction of new taxes, more financing changes, possible interest rate changes and new policy changes!
What does it take to be a contrarian?
1. Embrace the discomfort
The contrarian approach is based on being out-of-step with the consensus. Many times, the contrarian can feel alone when it comes to investment decisions. That’s why the first and most important step to being a contrarian is to be comfortable being uncomfortable; learning how to control that basic human impulse to seek the security that comes with going along with the crowd. Don’t always follow the herd, start your own movement and have others follow you!
2. Be wary of extrapolation
One of the key problems with the crowd is its tendency to extrapolate. Because an investment idea is working today, many assume it will continue to work in the future. Likewise, because an investment theme or strategy has excellent back-tested performance, investors assume it must be equally attractive today. Contrarians are wary about this kind of thinking. The same goes with buying when the market dips or slows for a day or two. It doesn’t mean it’s time to panic and sell. Be your own person and buy, plan your life the way you want it to go.
3. Focus on getting it mostly right
This is an important point: Contrarians don’t worry about capturing every last dollar out of a buy or sell decision. Instead, they focus on capturing 90 percent of the opportunity and moving onto the next big thing rather than being left behind. Take a risk and try the market.
4. Look for asymmetric opportunities
Successful contrarians are on the lookout for what I call “asymmetric” opportunities: that is, cheap, out-of-favor investments in which the potential upside far outweighs the potential downside, usually by at least three to five times.
Use this time to learn and plan your moves for the future. Take the time to learn and understand the market is changing and how to stay ahead of the curve. There’s no need to panic. The real estate market is still full of opportunities whether you’re interested in investment, commercial or co-purchasing. Try contrarian thinking and you may find what you’re looking for. You might be surprised by what you find.
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