The Dark Side of Real Estate's Golden Rule

I'll never forget that moment. My friend – an office investing guru – sat slumped in his leather chair, face ashen. "I'm bleeding tenants everywhere," he whispered, voice cracking. The irony? This was happening in Phoenix, one of America's hottest real estate markets.

Meanwhile, my "ugly duckling" office investment in Tucson was quietly crushing it. Picture this: a plain, 1970s office building with all the architectural charm of a cardboard box, steadily pumping out a 10% cap rate year after year, with clockwork 3% annual rent increases, as reliable as a German train schedule.

That contrast hit me like a bucket of ice water. Could real estate's most sacred commandment – "location, location, location" – actually be leading investors astray?

I need to paint you a picture of these two cities. Phoenix is the golden child, its population exploding from 3.5 to 5 million faster than you could say "housing bubble." Tucson? It has been crawling along at a sleepy 1% annual growth, the kind of market most investors scroll past faster than their ex's Instagram stories.

But here's where it gets interesting. My friend's Phoenix problem wasn't a lack of growth – it was drowning in it. Every corner sprouted another up-and-coming gleaming glass tower, each one hungrier than the last to poach tenants. Imagine running a restaurant where a new Michelin-star competitor opens around the corner.  Every month. That was Phoenix's office market.

Want another example? This time cowboy, picture Austin, Texas – the Tesla-attracting, tech-loving poster child of boom towns. The city needed an astounding 10,000 new apartments yearly to meet demand. Developers, drunk on optimism and easy money, built… 20,000. The result? Rents plummeted as buildings desperately scrambled for tenants, turning projected returns into red ink.

Back in "boring" Tucson, something beautiful was unfolding. Growth wasn't doing parkour; it was taking a leisurely stroll. A new hospital wing here, a housing development there. But here's the kicker that changed everything: in my building's area, there were no new offices being built.  Zero.  Zilch. Nada. My competition? Just other 1970s (or, occasionally, 1980s) buildings like mine, where we couldn’t easily outdo each other.

That limited supply became my superpower. When businesses needed space, they had real, but manageable choices. No shiny competitors offering free rent or move-in specials. No desperate price wars. Just steady demand meeting limited supply – Economics 101 in action.

Does this mean location never matters? That's like saying calories don't count on your birthday. Of course they do. Phoenix land values have soared because, surprise, they're not making any more desert. But here's the truth that most real estate gurus won't tell you at their $5,000 seminars: growth is like fire – it can warm your house or burn it down.

In markets like office space, explosive growth often leads to a supply tsunami that drowns returns faster than anyone expects. Your "prime location" investment can transform from cash cow to money pit in the blink of an eye.

Don't get me wrong – I'm not anti-growth. In fact, I believe in demographic growth so strongly that I've recently launched a fund focused on Guyana, currently the world's fastest-growing economy. But the key is understanding when and how growth translates to returns, and when it might work against you.

This is why some of the juiciest opportunities lurk in markets others ignore. Tucson's tortoise-like 1% growth? It was the Goldilocks zone – just enough demand without the supply hangover. While others chased the next boom town, my "boring" building kept quietly printing money like a government mint.

Strip away all the real estate jargon, all the market predictions, all the guru advice, and you're left with one essential truth: "Demand tells you where people want to be. Supply tells you whether you'll make money."

What will you do with this insight? Chase the neon lights of the next boom town, or start hunting for those hidden gems gathering dust in overlooked markets?

Your move.