Toronto Real Estate Expert Claims ‘Rational’ Investing is An Elusive Goal

March 7, 2011 - PRLog -- Toronto, ON- Toronto real estate investment expert Mark Loeffler reminded his audience at a workshop today that by any standard, totally ‘rational’ investment is almost unknown.  Referencing Meir Statman’s latest book, he states that purely rational investment strategies don’t exist, because egos or human values always get involved. It’s human nature to think you can ' beat the system.' Would Las Vegas or Monte Carlo even exist if people thought about what they were doing for 5 seconds?

Does this mean most investors are stupid? No. Irrational? No. It just means that the great majority of investors cannot divest themselves of their prejudices when it comes to certain investments. As Statman notes, “Profit is the first thing most people say when asked why they invest. But if that were the case, they’d buy a diversified portfolio of index funds or exchange-traded funds that guarantee market returns. But many of us think we can beat the market, so we buy actively managed mutual funds and individual stocks."

In Loeffler’s field of investing in rent-to-own property, he sees this all the time. “People come to me and say, ‘I have a hot tip of this neighborhood.’ Or, ‘I know this area of town is about to go boom.’ Or, ‘All my friends say King East is the next hot area,’” says the author of Investing in Rent-to-Own Properties. “When I ask them what kind of research they have done....well, then the answers change to, ‘Uhm, my cousin lives there.’  Or ‘I had an aunt who was a real estate agent 20 years ago.’ Or even, ‘A guy I work with says you can't lose on this.’”

None of these people are stupid or uninformed. They are just making a very human mistake – letting their emotions get in front of their real estate investing.

Loeffler reminds potential investors of 3 unchanging fundamentals:

1) If there’s something real estate investors must understand, it’s that markets vary between provinces, regions, towns and even neighbourhoods. Investors who do not pay attention to this WILL lose money.

2) Successful real estate investors do their homework. There are no exceptions.

3) When you invest in rent-to-own real estate, profit is maximised when the right investor buys the right property at the right price and has the right tenants.

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