Contrarian Investing: Smart, but Scary

by francine Hardaway on March 18, 2010

I am a contrarian investor.  Which is why I have now shifted my angel focus to real estate for a while.  I’ve done that because real estate is in the toilet, especially in Arizona where I live in the winter, while tech is flying high in the Bay Area where I live in the summer.

I just got back from SXSW, a huge (18,000-20,000 attendees) conference that’s often called spring break for nerds. The hot thing there was location-based mobile phone applications. I counted five different platforms being used to check in: Buzz, Yelp, Foursquare, Gowalla, and Whrrl. Each of these applications has investors.  In fact, some of the deals were so hot that they were difficult to get into unless you knew someone. The space is over-invested right now.  The same is true of solar energy, which has received hundreds of of dollars from venture capitalists in the last few years and hasn’t yet paid off.

That’s because even professional investors are attracted to a space everyone else is crowding into. And this is wrong. I’ve seen it in the stock market as well.  Everyone wants to ride the same wave.

So I am going to turn to a more neglected space: Arizona real estate. It is literally at an all-time low. Sentiment about Arizona’s future couldn’t be more negative. To my mind, that’s the time to buy.

Of course in a market like this, you can’t just buy anything. You buy information. You buy experience. You buy things that are well below replacement costs.

Experienced investors are already back in the Phoenix housing market because they know they can by a home for $.50 on the dollar and rent it out to someone who has been foreclosed on as a result of the mess. Or they can buy a foreclosure and fix it up. Unfinished subdivisions are also being snapped up. Pretty soon institutions with deep pockets will be buying our see-through retail centers and office buildings.

Things always come around sooner or late. The people who bought low will sell high:-)

There’s only one pre-requisite for knowing all this: time on the planet.  If you have been in this market since the 70’s, as I have, you already know that Phoenix, indeed, has a strange economy. Indeed, wages are low and large corporate headquarters are scarce. Everything that can be wrong from an economist’s perspective is wrong. However, people continue to make millions in Arizona real estate, on the up cycle and the down cycle.

So I’ve started to look for what people will need first when the recession lifts, no matter how slowly. How do I find that?  I go to my old friends Bruce Hilby and Dick Wilson, whose careers started when mine did, and who sat out the entire upturn, buying nothing an selling everything for their investors. I heard from Bruce a couple of months ago for the first time in years. I am recapturing my youth.

(full disclosure: I am a licensed Arizona Realtor, which I use only for my own investments. I’m not trying to sell you a house:-)

{ 7 comments… read them below or add one }

dougwo March 19, 2010 at 7:15 am

Excellent Francine. The issue I always have is timing. Is now the time? Many experts say that prices will stay this low for several years. I just sold my place in Beaver Creek, Co and the 'experts' there say they expect a 5-7 year lag before recovery. So what do to with the cash in those 5-7 years? You want to get in before the boom, but that takes extreme patience, something that many investors today do not have.

hardaway March 19, 2010 at 8:12 am

Invest lower down the value chain; finished lots or buildings that are
empty and think in terms of IRR, not time.

STLinvestor April 8, 2010 at 9:41 pm

It is a great time to invest. Make sure you watch trends in your market. Housing prices are starting to rebound in the midwest. However, they are still very low.

I am a real estate investor and have been able to buy property and completely rehab and still be under a 65% LTV. With these numbers we are able to offer private investors a 10-12% return on their money all while being able to turn property in 2 months or less start to finish.

It is a win win situation for the investor and us.

mikeoneil9 May 22, 2010 at 1:00 pm

Phoenix Real Estate Collapse: You ain't seen nothing yet. Add the exodus of 200,000 to 300,000 Hispanics to the Real Estate Equation.

Anonymous May 22, 2010 at 8:00 pm

Phoenix Real Estate Collapse: You ain’t seen nothing yet. Add the exodus of 200,000 to 300,000 Hispanics to the Real Estate Equation.

hardaway May 22, 2010 at 6:17 pm

I assumed that would be true.

Francine Hardaway, PH.d

hardaway May 23, 2010 at 1:17 am

I assumed that would be true.rnrnFrancine Hardaway, PH.drn@hardawayrn816.WRITTENrnrnHttp://

Leave a Comment

Previous post:

Next post: