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SHOW NOTES FOR EPISODE 416: REAL ESTATE IS STILL THE TOP INVESTMENT PICK
The coronavirus economic shock has left Americans downbeat about stock market investing, even after the major market rebound off March lows, according to a new survey from Gallup. Along with stocks and mutual funds, other options in the survey included real estate, bonds, gold and savings accounts or CDs, and real estate remains the most popular investment choice. In today’s podcast, Bill explores why, despite the virus and a troubled economy, real estate remains the top investment choice.
Tip of the Week
Elevator Pitches or the Audio Business Card
- We’re in a people business
- People ask you “What do you do for a living?” – although I get less and less of that with my white hair (they assume I’m retired)
- Could be at a networking event (REI, meetup, wedding)
- Don’t say you’re in real estate – they’ll think you’re a Realtor, agent or broker
- You have 30 seconds to sell
- 2 or three sentence that clearly states what you do, highlights the benefits to others and
- I+action verb+target market (who you are looking for)+benefit so they can benefit
- Action Verb – show, train, help, buy, invest in
- Target Market (what do you need most) – Buyers, Sellers, lenders, lawyers, busy professionals, investors
- Benefit – How to create passive income
- Their benefit –
- So they can spend more time with their family
- So they don’t have to work so hard
- So they can create cash flow through real estate
- So they can generate enough income to retire early
- Don’t make it too wordy or use big words. Keep it simple. Like the way you talk every day. It has to roll off your tongue but NOT sound like you’re selling them
- You have to USE IT so it works!
- Examples
- I provide real estate investors below market deals so they can save on marketing costs.
- I help investors to generate monthly cash flow and significantly increase net worth through apartment ownership
- I show people how to invest in real estate and achieve financial freedom so they can retire in the next three to five years.
- I help investors to generate 9-25% returns in passive income through real estate
Real Estate is Still the Top Investment Pick
The coronavirus economic shock has left Americans downbeat about stock market investing, even after the major market rebound off March lows, according to a new survey from Gallup.
Only 21% of Americans think stocks or mutual funds are the best long-term investment — down six points from 2019 — which is the lowest percentage recorded by Gallup since 2012.
The drop occurred among both high-income and low-income Americans, with a decline of nine points each from last year’s survey, while the percentage of middle-income respondents who chose stocks or mutual funds did not change.
The results are from Gallup’s annual Economy and Finance survey, conducted April 1–14 among 1,017 U.S. adults.
Along with stocks and mutual funds, other options in the survey included real estate, bonds, gold and savings accounts or CDs, and real estate remains the most popular investment choice.
Housing Market Still Strong
The coronavirus pandemic has made us all a lot more familiar with our homes. But it has also thrown up a great number of questions over the future of the property market.
While global markets were thrown into turmoil in the early days of the outbreak, the property market, broadly speaking, has remained resilient. As of April, the median U.S. house price rose 8% year on year to hit $280,600.
That’s good news for investors. Real estate continues to rank as the top investment pick for the majority of Americans (35%), ahead of stocks and bonds (21%), savings accounts (17%) and gold (16%).
Buying a home
Buying a home is often seen as one of the most important and prudent financial investments you can make.
During times of economic distress, that conventional wisdom can be thrown into question. The 2008 global financial crisis, which originated in the property market, was a major knock on confidence. However, financial experts broadly agreed that this downturn will not hurt housing in the same way.
“In most historic recessions, the property market has either remained largely resilient or was only impacted across certain real estate sectors,” noted Dhruv Arora, CEO of digital wealth manager Syfe.
Notwithstanding the short-term difficulties of conducting in-person viewings, that means that now remains a reasonable time to think about buying a home once cities and states reopen.
With interest rates slashed in a bid to stimulate global economies, the cost of borrowing has become cheaper, which could make mortgages more affordable for those with adequate finances. The same goes for refinancing a current home.
Trent Wilshire, economist at Australian property site Domain, said that could encourage more people to get back out into the market. It is already starting to happen in Australia, where lockdown measures are easing, he noted.
“Transactions will start rising again in coming weeks but are still likely to be sluggish compared to late 2019/early 2020,” he said. “We’re already seeing a pick-up in recent weeks, with new ‘for sale’ listings rising the past few weeks and rising inquiries on his website, Domain, from potential buyers.”
That said, the nature of the coronavirus pandemic remains uncertain, and it’s important to look into the specifics of the local and national market of the city in which you’re looking to buy.
Rental real estate
Rental property remains a strong investment because it can offer a great source of passive income, via rental payments, and capital growth, through price appreciation. It can also offer an alternative route onto the property ladder for first-time buyers who are unable to buy in their preferred area.
Those fundamental attributes remain true in the current climate. Indeed, the economic slump has likely exacerbated existing trends, which have priced many young people out of buying and inflated the renters’ market.
The best investment opportunities will be in those places where job growth is high and the labor market is the least damaged.
That offers opportunities for those in a position to invest. However, with the global economy and record unemployment, the renters’ market has been impacted as well. Prospective landlords should be cautious that some tenants may struggle to make their payments. Landlords may have to build in new checks and balances as they assess potential tenants and may even want to consider new things like 6-month or even month-to-month lease terms to attract good tenant prospects.
“It’s all going to be about location. The best investment opportunities will be in those places where jobs are strong and the labor market is the least damaged,” said David Lebovitz, global market strategist at JP Morgan Asset Management.
As with residential homes, rental properties suffer the same logistical hurdles right now in terms of property showings and processing sales.
Commercial real estate
Commercial real estate, which encompasses the hard-hit hotel and retail sectors, potentially poses the biggest risk for investors.
So far this year, the commercial real estate market has fallen almost 28%, with hotels & resorts and retail spaces down 48% and 40%, respectively.
Syfe’s CEO Dhruv Arora said the drop-off will take some time to correct. That recovery is likely to be “gradual” — or U-shaped rather than V-shaped — as economies embark on phased re-openings.
However, where there are downsides there are also opportunities.
“As always there will be investors who look at the long-term potential of these real estate sectors,” he said.
Sectors with “strong fundamentals,” such as industrial, residential and specialized real estate, show particular signs of resilience.. Meanwhile China — initially at the forefront of the outbreak and now leading the charge on economic reopening — offers cues as to which sectors thrived under the pandemic, chiefly health care and logistics.
That means healthcare related residential, like Senior Living will be one of the strongest sectors, as is evidenced by REITS purchasing numerous Senior Living facilities across the U.S.
“We still see value in direct real estate as a source of income, and more broadly, as a portfolio diversifier,” added said David Lebovitz, global market strategist at JPMorgan Asset Management, highlighting direct purchases and real estate investment trusts (REITs) as some of the best options.
“We believe it is about combining REITs and direct real estate, particularly given that REITs provide greater exposure to more forward-looking sectors,” he said.
Building the foundations
Before embarking on any financial investment, real estate or otherwise, it’s important to get the foundations right.
Typically, financial advisers recommend setting aside roughly three months’ salary in cash to tide you over in case of an emergency. However, in the current economic environment, I would recommend that six months’ worth would be a safer bet. I would rather error on the side of conservatism than take any undo risks.,
According to personal finance expert Ramit Sethi, “An emergency fund is money saved for any unexpected expenses. It gives you the peace of mind knowing you have a hedge against the worst financial disasters.”
Additionally, it’s always important to set aside extra funds for unexpected capital expenditures and to cover the legal and transactional costs associated with buying and owning a rental property.
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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