BUTTERFLY EFFECT
What does the butterfly effect have to do with real estate investing in Calgary? Alberta? Please allow us to explain – and deviate from the Christmas events around every corner.
The butterfly effect was first used by a mathematician and meteorologist named Edward Norton Lorenz. Translation: super-smart guy trying to explain his research using a metaphor. He initially tried to talk about seagulls and storms, but someone convinced him to make the story “more poetic” and use the metaphor of a butterfly in one place, causing a tornado in another place. As so often happens with geniuses, something was lost in the translation. However, the concept remains valuable.
Essentially, in chaos theory, a small change in initial conditions (butterfly flapping its wings) can result in dramatically large differences in a later state/time (theoretically high winds or tornado on another continent). Stated another way, in a complex dynamic/system, even a small new variable can cause larger and unpredictable outcomes/consequences.
So let’s bring the high level math back to real estate investor life. Many of us would agree that the modern world in 2022 is a bit chaotic –on a good day. These are not “normal” times as we have known them for the past few decades. But who thrives in chaos? Those who don’t panic in the moment, and then those who adapt. In 2020, we called it “pivoting.” Guess what? The pivot continues!
As our global village seems to become smaller and smaller, a war in Ukraine has profound effects on the world’s oil/gas supply and prices. A man in Russia makes a choice, then suddenly I am paying more to fill up the truck. Hmmm. That Lorenz guy was ahead of his time! There are many other examples we could use, but we’ll leave that to your imagination.
There are no “sides” in chaos theory. So we are neither victim of the consequences nor perpetrator of the small changes at any given time. We are both. My point? We get to choose both how we respond, and the changes we create, in spite of the chaos around us.
The other thing we love about the butterfly is that it teaches us that the “trick” to surviving is to adapt, to play the long game (well, long in a butterfly world). The caterpillar has to leave the familiar, break itself down, then transform into its new reality.
You’re right. We haven’t really been given the choice to leave the familiar. Covid happened, then inflation, then interest rates, then stock market drama ….
But what if there is a way, or ten, that we can transform into the new world of real estate investing? It’s all over the news! People are begging for places to live! How can we adapt, and provide fabulous rental housing for years, if not decades, to come? If the “old” rules need to be broken, how can we re-build (pun intended) to a better housing future for the next generations?
Yes, there are risks and uncertainty. I’m sure the first time a caterpillar flies, and leaves life on the ground, there is some perceived risk too (ok, maybe they don’t think too deeply about it). Many good people are already trying to make small changes to create different outcomes: building with modular homes, using solar, using geothermal, increasing housing density, etc …. “Houses” may have started as caves, then changed into stone structures, then we built with wood/steel for a long time. Now builders are exploring many different options, both for affordability and environmental impact.
As we enter the season of resolutions, planning, and goal-setting, how will each of us transform our real estate investing journey? How can we create better outcomes both for our Financial Freedom, and for future renters?
