Should You Invest During a Pandemic and Before a Recession?
Hi guys, I’m Dan
And I’m Brooke with the High Yield Real Estate Investing Podcast
Investopedia defines a Black Swan Event as: “an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the widespread insistence they were obvious in hindsight.”
As we write this a global Pandemic is in full swing and we’ve been recording the past few episodes separately from the safety of our respective homes. Of all the things that anyone who invests in real estate thought that could affect their investment, was a worldwide pandemic one of them? We’ve all heard that desperate times call for desperate measures. But is this really a desperate time for real estate investors? Maybe for some. I think this is an unprecedented time that renters and property owners are navigating equally. If anything, it’s time for creative and interesting solutions. And we’ve already seen evidence of that. After all, the best way to make money in real estate is to solve someone else's problems!
So is it a smart idea right now to further invest in real estate? There’s been plenty of talk about a looming recession and the pandemic isn’t over yet. Also, some states still have an enacted moratorium on evictions. Recently, the CDC mandated that anyone who lost their job due to COVID 19 and can’t pay rent cannot be evicted. My answer to the question? Absolutely, it is. Here are some reasons.
Lenders are offering insanely low rates. These low rates mean a larger chunk of each monthly payment goes to principle rather than interest. More principal= more Return on investment! Mortgage rates are largely tied to what the Federal Reserve is doing. But have you been listening to the news? Lots of capital has been injected into the markets to keep the economy and stock market afloat. Lock in a low fixed rate now and benefit from that in the years to come.
People still need a place to live. That’ll never change. The tenants of mine that did lose their jobs had assistance from non-profit rent relief services (thank you if you work for one of those), state and federal unemployment, or a spouse or roommate who did have employment and could keep the other afloat. I got lucky though. No one has been a non-paying tenant so far.
Gig economy. Drive people around in your car. Shop for someone’s groceries. Charge electric scooters in your garage at night. Advertise your graphic design skills for use on an app. The gig economy is new within the last few years originating largely with Uber and the like. People who didn’t have a job probably had a car and could go to work driving people around.
The pandemic will pass. The hold period for cash flowing real estate that I buy is much longer than a year or two. After this major world even passes you’ll be happy you have more real estate.
Buy into fear. Sell into strength. Ever hear of this concept in stock investing? You can call it contrarian thinking or going against the herd mentality. But buying during downturns and selling during massive upswings is a profitable way to invest in stocks over a long term. Buy when others are selling and sell when others are buying. The same concept can apply to real estate too. While multifamily real estate prices haven’t really been affected by the events of 2020, the amount of buyers out there has. I’ve noticed that there are more real estate listings hitting the open market instead of being bought off-market. Brokers are sending more “call for offers” over email than before. Usually a “call for offers” means the property isn’t selling and they want to generate a renewed interest in the property. A slow down or shift away from the market being primarily a seller’s market has unearthed some opportunities to acquire properties that normally would have been transacted off market
Had enough of the stock market? We all know the stock market goes up and down. Sometimes it goes WAY down and a lot of people sell at the bottom and lose a ton of money. Sometimes it’s their life’s savings. Or their retirement, or the money they were going to use for a down payment on a home. You don’t have any control over where the stock market is going to go. Most stocks are largely correlated to the movement of the stock market as a whole. This measurement of how a stock moves in relation to the market as a whole is called Beta. If you’ve invested in the stock market over a long enough period of time, or know someone who has, you know how volatile it can be. Just look at what the stock market did in March of 2020. I’ll put a picture on our website for those who need a refresher. Multifamily real estate doesn’t move like this. It’s not nearly as volatile. While coastal real estate markets can go up and down dramatically, it still takes a while for those moves to happen. With a looming recession predicted by many stock analysts and professionals, now is a good time to diversify away from stocks.
Inflation. Inflation and real estate are friends. Primarily because the payments for a fixed rate loan doesn’t change as inflation rises. The amount you charge for rent can go up with inflation. Mortgage payments don’t change unless your mortgage happens to adjust. Usually, the debt service on the property is the biggest expense you’ll pay. It’s nice to know your biggest payment won’t be largely affected by rising inflation. Also, the Federal Reserve just said in a recent conference that they’ll let inflation rise to try and offset unemployment. So be prepared! Now is a great time to own hard assets like real estate, precious metals, and interests in oil or water rights. Soft assets like stocks, bonds, mutual funds, and especially cash in the bank will be volatile and losing investments for the coming future.
These are just a few valid points regarding the investment of your money during an uncertain time as this. We have a facebook group where you can further the discussion. Search on Facebook for High Yield Real Estate and let us know your thoughts.
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