Investing can be a tricky business. It’s a bit like a seesaw – for you to go up, someone else has to go down. Your decisions to buy or sell can have big impacts over time. But unless you’re rolling in dough, it’s tough to be a big player in public stocks. The stock market is super efficient and us regular folks don’t have much control over a stock’s performance.
Sure, you can team up with others to create short squeezes like what happened with Melvin Capital and Gamestop. But for the most part, we’re small fish in a big pond. The real opportunity to flex your investing muscles is in real estate, my favorite way to build wealth. The real estate market isn’t as efficient, so you have more chances to capitalize on mispricing, bad timing, and lack of knowledge.
Since I graduated in 1999, I’ve been putting more of my money into real estate than stocks. So far, it’s been a good move.
So, what’s vulture investing? It’s when you swoop in to take advantage of a mistake or misfortune to get a great deal below market value. Vulture investors like to wait patiently for opportunities with their cash at the ready.
Some might say vulture investors are ruthless capitalists who only care about profits, not people. Others might say they’re just savvy investors who recognize and seize opportunities. In a capitalist society, the smartest investors often end up the richest. But vulture investors can make mistakes too. That’s the risk we all take when we put our money on the line for potential profit.
There are plenty of examples of vulture investing. Like Apple potentially buying Netflix after a huge drop in its stock price and layoffs. Or Blackstone buying housing communities in bankrupt cities during the 2008-2009 financial crisis. Or even buying a home in foreclosure because the owner couldn’t afford his mortgage and taxes after his tenant stopped paying rent.
It’s interesting that when big companies and institutional investors do vulture investing, it doesn’t seem so bad. As a limited partner in a private fund, you want the general partners to be aggressive. That’s what you’re paying them for.
But if you decide to become a vulture investor, you might face a moral dilemma. You’re the one making the decision, not someone else. It’s worth asking yourself if calling someone a vulture investor is just sour grapes because you missed out on the chance to profit.
I’m writing this because I have a chance to vulture invest. There are a lot of bad real estate agents out there who misprice deals. I recently saw a single-family home in San Francisco that was way overpriced. The house was a fixer-upper, but the agent priced it as if it was remodeled. The price was later dropped, but the damage was done. The listing was stale.
I’m tempted to make a low-ball offer, but I don’t have unlimited funds. Any savvy investor with the money should jump on this opportunity. You could potentially get the house for much less than its original asking price.
Despite the potential for a big profit, I’m going to pass. I don’t need another remodeling project. The potential profit isn’t worth the hassle for me. If I was younger and had the money, I would definitely make an offer. But that’s the irony of life. When you’re young and energetic, you often don’t have the money. And when you’re older and have money, you often don’t have the energy.
Is vulture investing immoral? I’ve made it sound that way because of the word "vulture." But in a free market, we all have the ability to buy or sell anything we want. The seller and listing agent took a gamble with the price and lost. Now they have to face the consequences.
It’s up to us to educate ourselves about investing. Nobody is forcing us to buy or sell anything. The more you know, the more opportunities you’ll have.
Those who’ve learned and taken action over the years have gotten richer. As a result, life is easier today thanks to the resources money provides. At the most basic level, one of the good things about having money is that you stop worrying about survival.
Our first responsibility is to take care of our families. If we don’t make enough money to take care of our children, we’re failing as parents.
Nobody is going to bail us out if we make a bad decision or face losses. So, we’ve got to take advantage of opportunities when they arise. Eventually, we will all make investing mistakes that could use a buffer.
In the economics world, you’ll never find a $100 bill lying on the ground because of the efficient market hypothesis. Someone else will have picked it up before you get there. But sometimes, you’re the lucky one who finds free money. So, you might as well pick it up when you see it.
With mortgage rates so high, I’m investing in real estate again. There are great deals to be had as competition fades and prices get cut. You can buy physical property or you can invest in private real estate funds, like the ones offered by Fundrise.
Fundrise manages over $3.5 billion for over 400,000 investors. It mainly invests in residential and industrial real estate in the Sunbelt region, where valuations are lower and yields are higher.
One of the most interesting new funds is the Innovation Fund. It invests in artificial intelligence, modern data infrastructure, development operations, financial technology, and real estate and property technology.
Private company valuations have come way down since early 2022. As a result, I’m taking advantage.
So, what do you think about vulture investing? Is it ethical or immoral to take advantage of a mistake or misfortune? What are some vulture investing moves you’re making today?
