NASHVILLE – MAY 26: Nashville skyline as photographed from the Shelby Street Bridge in Nashville, Tennessee. (Photo By Raymond Boyd/Getty Images)
Getty Images
In real estate investing, it’s easy to feel pressure to follow the crowd. When certain markets, asset types, or strategies dominate headlines, they may seem like good choices. Yet history shows that some of the strongest opportunities often emerge in the opposite direction, such as places where capital has pulled back. This type of investing is often called contrarian investing, as it counters market trends.
Keep in mind that contrarian investing doesn’t mean going against the market without proper research or a plan. Instead, it’s about developing the discipline to look beyond popular narratives, examine what’s happening beneath the surface, and decide what might work best for your business plan. In real estate, where cycles are long and sentiment can swing dramatically, this approach can lead to rewards over time.
Understanding the Role of Sentiment in Real Estate
In real estate, sentiment is often shaped by headlines about interest rates, regulation, or economic uncertainty. Entire markets or asset classes can be written off based on broad narratives, even though conditions vary significantly at the neighborhood or asset level. This is where opportunity can begin to form, particularly for investors willing to dig in and study the details.
Looking for “Empty Rooms” in the Market
One way to think about contrarian investing is to ask a simple question: where is capital avoiding right now? When investors universally say they would “never” invest in a certain market or asset type, it could be a sign to investigate more closely. That’s the approach Billy Haddad, managing director of Partners Path, mentioned on a recent podcast episode of The Insider’s Edge to Real Estate Investing. In these overlooked areas, pricing can be more favorable and sellers may be more realistic. This creates room for investors who can tolerate uncertainty and think long-term.
Separating Headlines from Fundamentals
A key skill in contrarian investing is the ability to separate headlines from underlying fundamentals. Broad statistics often overlook important nuances. Vacancy rates, for example, may seem high at a market level, but a closer look might reveal that most of the excess supply is concentrated in a specific segment that doesn’t directly compete with your asset type.
Contrarian investors consider factors such as submarkets, tenant profiles, and replacement costs. They check whether demand is declining or shifting in an area, and if new supply is likely to continue or slow. They’ll be especially interested in what’s happening on the ground.
Patience as a Competitive Advantage
Contrarian investing often requires a longer time horizon. Buying when sentiment is negative means accepting that recovery may take time. With the right capital structure and realistic expectations, contrarian investors can hold through periods of uncertainty, collect income, and wait for sentiment to shift. When confidence eventually returns, pricing can move quickly, rewarding those who were willing to invest earlier. For this reason, contrarian strategies are often best suited for investors with flexible capital and the ability to adapt rather than rush toward predetermined exit timelines.
Successful contrarian investors structure deals to survive prolonged periods of uncertainty, whether through lower leverage, stronger cash flow, or built-in flexibility. Partnerships are also especially important. Working with operators who have specialized local knowledge can help provide insight that goes beyond the data.
Contrarian Investing Insights
Perhaps the biggest challenge to keep in mind when it comes to contrarian investing is to find other capital investors to follow you. Oftentimes equity investors will hesitate if others aren’t moving in a space, which we saw in the office segment shortly after the pandemic. Typically lenders will be more willing to participate because the view is often that debt is a safer investment than equity because it has a more secured position.
That said, for investors willing to think independently, contrarian investing offers a way to step away from crowded trades and focus on fundamentals. While it may not always feel comfortable, this approach can uncover opportunities that others overlook and lead to more resilient, well-priced investments. In a landscape where capital often moves together, the ability to stand apart can become a lasting competitive edge.