678: Is Now a Bad Time to Invest in Real Estate?

SHOW NOTES FOR EPISODE 678: IS NOW A BAD TIME TO INVEST IN REAL ESTATE?

Is now a bad time to invest in real estate?  It’s a fair question. If you’ve been following economic news — or even just gone shopping for groceries lately — it’s obvious the economy is hurting. In today’s podcast, Bill will take a look at what is going on with the economy and how that affects real estate investing.

Introduction

Is now a bad time to invest in real estate? It’s a fair question. If you’ve been following economic news — or even just shopping for groceries lately — it’s obvious the economy is hurting. Supply chain problems, inflation and a topsy-turvy stock market all have investors pretty spooked. If that wasn’t enough, the Federal Reserve has been increasing interest rates all year, a trend that looks set to continue.

I have also had many friends who have watched their 401 (K)s and IRAs take significant dives this past year.

Also, as you may know, I liquidated all my personally held real estate assets recently as I’m getting into retirement mode.  You may think, why should I buy if he’s selling?  Well, first off, I’m not selling because it’s a bad time to buy.  I’m selling because it’s still a good time to sell.  And secondly, I am making a conscious decision to move from an active investor status into a passive investor.  And what does that mean?  I’m basically relinquishing my day-to-day management responsibilities to move into retirement mode – that means, no more tenant, toilets and trash issues and I’m now trusting others to handle those management issues so that I can draw dividend income and have more free time to enjoy “non-real estate related” things!

Also, as a passive investor, my dividends are fairly consistent, whereas, as owner, cash flow can vary from month to month.

I’m also diversifying my investments as a recession/inflation buffer.  So, I am still investing in real estate – apartment and mobile home syndications, funds, etc. but I’m also investing in businesses — things like car washes, ATM machines and corporate promissory notes.

So, does it still make sense to buy real estate assets? Yes, of course it does. Real estate remains one of the, or should I say – thee best investment vehicle out there. Throughout history, real estate has been and will continue to be a strong investment option.

In fact, many experienced investors will tell you that down markets are exactly the right time to invest in real estate. Why? Because a lot of property owners are looking to liquidate assets, and many are doing so out of necessity so there will be some good deals to be had as prices continue to decline.  We are already starting to see a decline in property values and, I think if you can wait even longer, you will find some great deals.

Why Now is the Perfect Time To Buy

A down economy almost always means there will be an abundance of distressed or value-priced assets on the market. That’s why there is a longstanding adage in real estate investment that says, “When there’s blood in the street, buy property.” It’s not meant to be taken literally, but it does mean wise investors are on the lookout for opportunities, and some of the best opportunities present themselves in a down economy.

So, if you have properties that you may want to liquidate, do so and hold on to the cash in anticipation of deals ahead!

So once you have the funds, this of course begs the question: If I’m going to invest in real estate, where should I invest. There are already some great potential areas where you might be able to make lemons into lemonade with some solid real estate investments.

The Sun Belt

A large population shift is occurring in the United States. This has been happening for a while but the COVID crisis just sped up the process.  With Covid, there was a tremendous migration out of large cities like Los Angeles and New York into the American Sun Belt, a wide geographic area that includes the South, Southeast and Southwest that are all known for mild winters and lots of sunshine. Examples of popular Sun Belt destinations include:

• Tampa Bay, Florida
• Orlando, Florida
• Miami, Florida
• Houston, Texas
• Dallas, Texas
• Austin, Texas
• Nashville, Tennessee
• Phoenix, Arizona
• Atlanta, Georgia
• Huntsville, Alabama
• To name a few

Almost all of these cities experienced strong population growth in the months after the COVID crisis. In addition to the warm weather, the other thing they have in common is affordable housing. However, the influx of people into those markets has boosted property values and has left many of these cities without enough housing.

This combination of population growth and a housing shortage has had two significant kick-on effects. It created strong demand for both housing and commercial real estate opportunities. While it may be impractical for you as a single investor to buy an entire apartment complex or bundle of commercial properties in these markets, you can still invest in these assets passively through syndications, REITs, and crowdfunding options.

Foreclosures are also on the rise, meaning that strategies like wholesaling and flipping may become very lucrative at this time as well.

Yes, Now is a Great Time To Invest In Real Estate

As you can see, real estate investing is still delivering profits in spite of the unsettled economy. The reality is that the equation for real estate investing never changes. You can lose money in a strong market, or make a tidy profit in a down market. The truth is that some of the biggest real estate fortunes are made off of investments that were conceptualized during down markets.

If you are a newbie and have not yet started to invest, this could be a great time to get started.  The opportunities are only going to increase.

The key is to consider your investment goals and make sure you understand the fundamentals of any investment you make. That means being as knowledgeable about the risks as you are about the upside. If you have doubts about a particular offering, consult with a real estate mentor, qualified investment adviser or your CPA. But throwing in your hand and writing off the entire real estate market because we’re in an economic downturn is the last thing you should do.

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