More than a third of investors plan to buy zero properties this year, according to a recent sentiment survey, despite 38% expecting market conditions to improve. That gap between optimism and action is costing them, says Larry Gotcher, owner and broker of Resource Realty Group in Ann Arbor, Michigan, who has closed deals through every major cycle since 1991.
“Investors are way too picky about what they’re buying,” Gotcher said. “Purchasing real estate in America is one of the most lucrative things you can do. It’s hard to go wrong, even if you make a mistake, because you get your appreciation back over time.” In a market like Southeast Michigan, where apartment rents are still climbing and buyers consistently outnumber sellers, the cost of sitting out is compounding.
Being selective and being paralyzed are not the same thing. There is a version of caution that protects from bad investments, and another that keeps investors on the sidelines while properties appreciate without them. The investors who build meaningful portfolios are those who close more transactions and win a little each time, rather than waiting for a landslide victory on a single deal. “You don’t have to win the lottery on every deal,” Gotcher said. “I would rather close more transactions and win a little bit every time. In the end, you’re going to win bigger because you own more property.”
After more than 30 years, Gotcher has identified two questions that signal a buyer won’t close. The first is asking why the seller wants to sell. “Why does anybody get into real estate? Buy low and sell high,” said Andrea Gotcher, who handles residential transactions and analytics at the firm. “They’re just wanting to move on to a different project, or they want their money.” The second is asking to see the seller’s financials to assess past performance. “What somebody else has done to run their business into the ground doesn’t matter,” Andrea Gotcher said. “We know our area. We know what we can do with the property. We base our numbers on that.” For investors with genuine market knowledge, the question should be what you can produce given your operating expertise, financing, and management approach.
Gotcher’s acquisition criteria are simple: properties need to cash flow at or above zero after debt service. Breaking even monthly is acceptable, as tax depreciation generates a real return on top of that, and long-term appreciation does the rest. A deal that looks unremarkable on paper today tends to look solid five or ten years out. “The key is owning as much real estate as you can,” Gotcher said. “If you’re too picky about what you buy, you’re not going to acquire very much real estate.”
The single principle that runs through all his advice is to buy and hold. “Don’t be scared by temporary market conditions that force you to sell,” he said. “Make sure you hold as long as you can.” That applies in a high-rate environment, a flat market, and a downturn. Investors who sold into fear during the 2008 cycle in resilient markets like Ann Arbor came out significantly behind those who stayed in. Time corrects most underwriting errors in real estate in ways almost impossible to recover from if sitting on the sidelines. The market today, with rates still elevated and many buyers waiting for conditions that may never arrive, is another version of the same test. Investors acquiring now at reasonable prices with sound assumptions will likely look back at this as a good entry point, while those waiting for certainty will face higher prices.
