In the ever-changing world of real estate, capital markets play a crucial role in determining how deals are structured and financed. But here’s the reality: you shouldn’t let the capital markets dictate your real estate projects.

Lessons from 2008: A Cautionary Tale

Think back to the 2008 financial crisis. Before the crash, homeowners were securing loans they simply couldn’t afford. Banks and financial institutions, eager to lend, were approving mortgages with loose requirements. As a result, home prices soared artificially, only to come crashing down when borrowers could no longer sustain their payments.

Sam Zell, in his book Am I Being Too Subtle?, dives deep into past recessions and the key role that capital markets played in inflating asset prices. When banks and institutions flood the market with easy financing—even for unqualified borrowers—prices inevitably spiral upward. We’ve seen similar patterns in recent years with hard money lenders offering 90% to 100% leverage on projects that, in reality, shouldn’t receive such aggressive financing.

The Risk of Blindly Following Capital Market Trends

Today’s market continues to show signs of risky lending. Some real estate deals with poor fundamentals are still receiving high leverage, leaving investors exposed to potential losses when the market corrects. The lesson? Just because financing is available doesn’t mean you should take it. The availability of capital should never be the sole deciding factor in pursuing a deal.

The Power of Smart Leverage

Leverage is a powerful tool—when used correctly. The key is ensuring that the project itself is fundamentally sound before seeking financing. Instead of letting the availability of capital determine your real estate investments, take control by:

• Conducting thorough due diligence – Evaluate the market, location, and long-term viability of the project.
• Focusing on cash flow – A property should generate sustainable income, not just rely on appreciation.
• Understanding the financing terms – Not all debt is created equal. Be strategic about the leverage you take on.
• Aligning with market fundamentals – Just because financing is easy today doesn’t mean it will be tomorrow. Plan for long-term success.

Take Responsibility for Your Investments

The responsibility to ensure a project is viable lies with you, not the capital markets. Lenders and financial institutions may offer financing, but it’s up to you to determine whether the project is worth the risk. By making informed, strategic decisions, you can build a real estate portfolio that withstands market cycles rather than being at their mercy.

Bottom Line: Smart investors don’t let capital markets dictate their moves. They evaluate opportunities based on sound investment principles and only take on leverage that makes sense. In today’s unpredictable economic climate, that approach is more critical than ever.