The Myth of “Low Inventory”

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Real estate investors in today’s market are finding it difficult to buy properties the traditional way. One of the main difficulties they lament is “low inventory.” But is inventory really low? And is “low inventory” even an issue that should affect them? In this episode, Jeff reframes what inventory is, explains why there’s not really low inventory at all and why higher inventory isn’t necessarily better.  Most importantly, Jeff explains how you can continue to grow your portfolio regardless of what the inventory statistics say.

Episode Transcript

I was recently observing some conversation in a Facebook group of real estate investors, and they were lamenting the different challenges for buying properties and building their portfolios right now at this moment in time. And one of the reasons and there were a few, but one of the reasons they cited was low inventory and having a hard time finding a deal. And I got to thinking, I know what they mean in the technical sense, because I see data statistics about inventory as well. But I thought, does low inventory really matter? Does it affect me as a real estate entrepreneur? And I realized the answer is no, not at all. And that’s why we’re going to talk about that topic in today’s episode. So Let’s cue up the theme song. We’re going to jump right in. 

Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented deal makers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.

Thank you very much for joining me for another episode of Racking Up Rentals. Show notes for this episode can be found at www.thoughtfulre.com/e197. Please do us a big favor by hitting that subscribe button in your podcast app, it does make a big difference in helping other fellow thoughtful real estate entrepreneurs who are searching for a community in a message like this to find it. Alright, so onward with today’s episode.

So like I mentioned, I was listening and reading some of the comments of real estate investors. I had asked a question about, you know, if you have a couple of properties already, and you’re trying to buy another one, what seems like the hardest part? And it turns out a lot of the answers I think were not so much about here’s what’s hard about property number three specifically. But it was kind of more about here’s what’s hard about buying rental properties right now. And there were a few different themes that emerged from their responses, but one of them was certainly this idea of low inventory. And I want to talk with you about that today. Because I want to just start with a simple premise here right now, there is not low inventory. In fact, I would argue there’s virtually the same inventory there was yesterday, and virtually the same inventory there was a year ago or two years ago. In fact, if anything, there’s probably a little bit more inventory than a year ago or two years ago, because new homes and new pieces of real estate have been developed and properties have been built. And what does this come down to? 

It comes down to now don’t think this is a semantic issue, because this is a big difference. How are we defining inventory? Now, most people when they say inventory is low, what do they mean? Well, what they mean is on the Multiple Listing Service, the number of properties for sale is rather small. And the number of properties for sale, if they all sell at the average rate and pace and timing of selling right now will last you know, a month or two months or three months or four months. But basically what it means is, when I look at the MLS, there are a lot available, right? And the stuff that is available doesn’t seem that good. So that’s how they’re defining inventory. 

But I would encourage you to define inventory as the total properties that are in existence. It’s not just the ones that have a sign out front or are on Zillow as being available for sale. Now. Why would we choose to define inventory as just the entire universe of properties? Oh, I know what you mean. Jeff, you’re getting to that idea that everybody talks about everything is for sale at the right price, right? No, that’s not actually what I mean. I do mean everything is for sale. 

Yes, that is my belief. But not everything is for sale at the right price. I have a different angle on this that I want to share with you and I believe we’ve spoken about this a little bid on this podcast in the past, but it’s not that everything is for sale at the right price that’s too simplistic of a way of looking at things, right? That’s like saying anybody can be bought, anybody can be compromised, if you just give them enough money, but that’s not the truth. In my opinion, I would reframe it as this. Everything is for sale, if you can give the seller something that they value more than what they currently have. Okay, let’s stop and just think about that for a second. We’re not saying everything is for sale, if you can give the seller so much money that they can’t say no, what we’re saying is that the seller has something right now, that’s something is a multifaceted, something, I don’t just mean they have, you know, a little brick house that’s 1400 square feet, they have a little brick house 1400 square feet, yes. And they have the financial outcomes of that house. And they have the responsibilities that come with that house. And they have the tax benefits that come with that house. And they have the stress that comes with that house, and they have all sorts of things that are related to that. So what they have is a holistic package centered around this little brick house, I guess. 

But it’s not just that little brick house. So they have a situation that includes a property. And what I want you to think is that everything is for sale, if you are somehow able to give that seller something that they would prefer to have more than that little current package of situation and property. Now, how are you going to know what that is? Well, you’re never going to know what that is, unless you spend some time talking with them. And you’re never going to spend some time talking with them, if you don’t have the opportunity to get in front of them, which is an off market, relationship based negotiation approach. So looking at just what is quote, the inventory, right what is on the market, you’re never going to know what they would actually prefer to have more than their current situation. Right? All we’re really all doing is we’re trading what we have for what we think we would like better, right? When I’ve got 20 bucks in my pocket, and I go to, you know, get myself a burrito. For lunch, I’m simply trading the 20 bucks in my pocket, hopefully not all of it, maybe 15 of the 20 bucks in my pocket for that burrito. Because in that moment of time, I would rather have a full belly full of delicious burrito than to have that $20 in my pocket, right? Those of us who have jobs, which I’m glad to say I’m not one of them, but I know many of you listening are you are simply going to work because you would rather have the money and what is downstream that allows that that money allows you to do, then the time available to you. We’re simply all trading what we have for what we would prefer to have. 

So back to our sellers. Everything is for sale, if we can give the seller something that they value more than what they currently have. So low inventory as it’s commonly defined, right by listed property, volumes of listed properties. Why aren’t more sellers putting their properties on the market? Why is that? Inventory low? Right? Because simply if more sellers said, I guess I’ll put my property on the market, we wouldn’t have an inventory problem as commonly defined, then would we? So why aren’t they? Is it because right now, all of them are just thinking, Man, I love this property. There is nothing in the world, I would rather trade what I have for because I’m so content with what I have? Well, maybe that there are some of them are probably thinking that, you know, gosh, I’m more than happy with this property. I like the situation. I have I like the situation that it creates for me and surrounds this particular property. But what if simply, it’s that they’re not listing their properties on the market? Because they think that if they did, it would be a futile effort. They think, Gosh, I could sure I could list it on the market. But nobody’s buying properties right now. Nobody can buy properties with these interest rates. And they’re thinking, I would actually like to trade my property for something else, that I would prefer more, but there’s not going to be anybody there to buy it. That sounds like a waste of time and effort. So there’s there could very well be all these sellers out there who actually do want to sell their property but they feel like they can’t like there would be no buyers right? 

So you have a bunch of traditional mainstream buyers looking at quote unquote, the inventory and saying well, inventory is low. So there’s no sellers selling properties I want. And the sellers are looking at going, well, there are no buyers who want to buy in a 7% or whatever interest rate environment. So I guess I’m just hosed. I’m just gonna have to hold on to this property. There could be very well sellers out there who want to sell, but they’re not listing their property because they think it’s not going to work. What does that sound like to you? What does that smell like to you smells like opportunity to me to get in front of those sellers who actually would be happy to trade, their current situation and their current property for something that they would deem better in their mind. 

So these folks who are lamenting low inventory in the traditional sense in the listed property sense, here’s the thing, I don’t really think that they want more inventory like they say they do. But I don’t think that any of us really want, quote, unquote, more inventory. Now you might say, but Jeff, hey, I went to econ 101 In college, and I’m pretty sure that if demand stays the same, but supply goes up, that means prices come down. And yeah, I was in econ 101, as well. And that’s true. But if there becomes more supply, now, buyers feel like, oh, I can finally buy a property again. And so what does that also bring to you, as a potential buyer, it brings a lot more competition. And competition is one of the things that really makes for a bummer situation. 

For Buyers. If you were to go back in time, 18 months or 24 months or three years from right now, what were investors lamenting, then, so much competition, you know, limited input inventory, but so much competition, seven offers, you know, on every property, and it’s hard to get something because there’s too much competition, well, more supply would also create more competition. And that’s not necessarily what we want, especially if you’re listening to this podcast. And I’m guessing if you’re hearing these words, right now you are a listener to this podcast, we don’t want competition, we want to direct one on one audience, with our seller in their living room so we can get to know them, get to understand them and can craft something truly customized and tailored, that is going to fit for them and is going to fit for us. So please don’t interpret what I’m saying as be totally oblivious to inventory, pay no attention, have no idea what the inventory numbers are. I think it’s important that you’re knowledgeable about what the quote unquote inventory is like in your market, because that just makes you a much more educated and informed business person. But what I am saying is that don’t let your perception of that inventory feel like a limitation to you like, it’s helpful for you to know that there’s 2.2 months of inventory in your market, because you’re out talking to people and you’re out gauging what other people think is going on, it’s important for you to have that context. But don’t look at this and say inventory is so low, and now I am limited as a result. 

So this is it let me give you the conclusion, I hope you will take away from this. You can choose to make inventory irrelevant for you, as a real estate investor, just as I have and just as many other real estate entrepreneurs who have as well. Let everybody else go on thinking that there’s, quote, low inventory. And just go ahead, knowing that everything is for sale, when you can give them more of what they want when you can give them something that they prefer more than what they currently have. And enjoy the fact that when you find yourself sitting in front of those people in that living room, and picking away at understanding what it is they would prefer more than what they currently have. You’re going to have a conversation without any competition these people are not going to be saying well, Alright, great. I’ve got another person coming by here at 1230 Please get me your your offer your highest and best offer here in the next you know 12 hours because I need to make a decision tomorrow morning. That’s not the dynamic at all that you will be creating enjoy the fact that you’re having a one on one conversation, where your real competition is the sellers ability to just maintain the status quo and simply keep their property not the competition from other buyers. 

That is it for today’s episode of Racking Up Rentals. Again, show notes for today’s episode are at www.thoughtfulre.com/e197. Please do us a big favor by hitting that subscribe button would be so appreciated. And if you would rate and review this show just real quickly, doesn’t have to be long or eloquent. Just a rating there and a couple words would be super, super helpful and very appreciated.

Did you know that we have a Facebook group for Thoughtful Real Estate Entrepreneurs too? We do and you should be a part of it. It’s called Rental Portfolio Wealth Builders and we would love to have you join us there. Just go to group.thoughtfulre.com and you will be taken right to that page we can hit the Join button. If you liked this episode, please take a screenshot of that and post it to Instagram and tag us; we are @thoughtfulrealestate. I will see you in the next episode. Until then, this is Jeff from the Thoughtful Real Estate Entrepreneur signing off. 

Thanks for listening to Racking Up Rentals where we build long term wealth by being win-win dealmakers. Remember: solve the person to unlock the deal and solve the financing to unlock the profits.

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