Real Estate Observer This newsletter will provide frameworks & analysis you can use to confidently invest your capital in private market real estate. It is written from the perspective of someone who reviews many deals in search of one that fits my personal or my investor partners’ preferences. To keep up with what I’m working on, click here. |
There’s a “strength in numbers” aspect to private market real estate investing. I have found that bouncing ideas off of business partners, friends, and other investors has:
Made me more money
Helped me avoid painful lessons
Allowed me to take less risk
Two weeks ago I was underwriting a land deal in Charlotte for a small single-family home development. I figured we could build 3 homes on a particular parcel. One conversation later, we were pushing density to 9 homes, and generating an extra 200k-300k of profit. Someone else simply looked at it differently. I’m sure I would have eventually reached the same conclusion, but speaking to someone 20 years wiser allowed me to get there quicker.
This was a scenario that allowed me to generate more profit, but sometimes it’s about saving yourself from getting into a bad deal (see #2 and #3 above).
It’s easy to get caught up in your own excitement about a deal, especially when you’ve spent hours (or days) considering it and imagining the upside. Two forces can cloud judgment: dopamine, which fuels excitement over the upside, and confirmation bias, which filters out red flags once your mind is made up.
Dopamine & Anticipatory Reward: Thinking about the upside: the profit, the win, the status. All of which triggers dopamine release.
Confirmation Bias: Once your brain leans toward liking the deal, it seeks out supporting evidence and filters out red flags. This is an automatic, unconscious process - your prefrontal cortex is literally working to defend the idea you already want to believe.
These biases can form for any number of reasons and we can all fall victim.
Having trusted people around you who can poke holes in your assumptions is invaluable. They see blind spots you’ve grown numb to, and they can catch risks you’ve subconsciously chosen to ignore.
Even just having to explain your thinking out loud forces clarity. If you can’t clearly articulate why a deal makes sense, or if you find yourself defending it emotionally instead of analytically, that’s a sign something’s off.
In private markets - where deals are less transparent, illiquid, and require high minimums, this peer filter is one of the best ways to protect your capital.
I am not suggesting you fall into “groupthink”. There are countless investment groups out there, and the false sense of security they can provide is equally as concerning. Don’t follow the herd. Plenty of people have lost a lot of money doing so.
I’m simply suggesting that everyone should have a few people in their corner to help provide a review when making big decisions of any kind, including investments.
Some of the other things that friends in the industry are great for:
Hearing about deals that a sponsor has that are underwater, but it’s not public yet.
Hearing about a sponsor that is under investigation for something nefarious.
Hearing about a great up-and-coming sponsor. Smaller operators generally have the ability to deliver outsized returns more easily than large AUM sponsors.
Simply learning what to watch out for.
Spotting new, concerning strategies or structures, like pref equity capital calls. You can read more on this here: Risk For LPs: Rescue in Multifamily
I always enjoy chatting about real estate. If you’d like to connect, schedule here or simply reply to this email.
If you’re interested in North Carolina single-family development or existing multifamily opportunities, you can follow along by clicking here. I usually only come across 1–3 deals per year that are truly worth investing in.
Clay Stanley
704-608-8488
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