Ep 66: The real estate market sucks right now

I’ll be honest when I say that the real estate market sucks right now. Rates aren’t going down near-term, and cap rates aren’t falling enough to make buying make sense. There’s negative leverage in the marketplace which means that for every dollar of debt borrowed, your cash-on-cash return drops. Broker volume is down and acquisition teams can’t buy as much, partly because seller expectations haven’t corrected. Some buyers are stretching for deals just to make them happen.

My team made a lot of money over the past two years, generational wealth for our partners, investors, and ourselves. So in a market like this, why would I take risks now? I have a lot more to lose from a bad deal than I have to win. It’s super frustrating though. Our acquisitions team is beefed up, we’re investing heavily in finding deals but we’re going to buy less than we did last year.

We’re sitting on our hands, bored, looking at deals that we shouldn’t do. It’s not a good time to buy real estate, and it’s starting to hurt. There’s some real pain headed toward the real estate market, and I’m not optimistic short term. We’re focusing on our management, because it’s not as easy as I make it sound to manage a thousand tenants. We’re also building and expanding facilities where possible. We’re buying a little, but not a lot.

In good news, Extra Space Storage just acquired Storage Express for over $500M. They own a lot of small properties and had about three million square feet in storage. With these giant REITs needing to find a way to deploy capital and buy storage, they’re going to start targeting smaller buyers, which is exciting news for us.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.