Will you make a fortune?
We’ve heard lots of talk about investing in a recession lately. You might be curious, confused, or worried – how will this impact you? What should you be doing? There’s one thing we know for sure: fortunes are made in recessions. Read on.
There are so many variables affecting the market right now—post-covid changes, excess liquidity created by monetary policies, rising interest rates (heck, even just the signaling from the Fed is enough to get people talking), geopolitical instability, next year being an election cycle (hint: rates usually go down in an election year) — so who knows what is going to happen next?
Here’s the thing: we don’t know how a recession will impact real estate, but even if it does: real estate is the best way to both grow and protect your wealth. Here’s why.
Real estate is a real, tangible, dirt & brick asset. A real estate investment is a hard asset that’s backed by paper debt, by numbers on a computer. Hard assets weather the storm of changing economic forces and potential recession exponentially better than alternative investments like the stock market, bonds, or cryptocurrency. It is significantly harder to lose your money when you invest in real estate. In fact, real estate investments can act as a hedge against inflation and market volatility. Read more about how to protect yourself against inflation on the Infinite Investing blog.
Recessions actually have a lot of upsides for real estate investors. Think of it this way: when is the best time to buy real estate? When it’s on sale. We’ve been investing during times of escalating prices for years, so we’re thrilled about the potential for lower prices. Recession often means lower prices, decreased mortgage rates, seller concessions, and a high demand for rental homes. While we never want to see people suffer through recession, people who are well versed in the real estate game are actually excited about the possibility of a recession.
That is not to say all real estate investing opportunities will thrive during a recession. After all, not all real estate investing opportunities are structured like ours. Right now, we wouldn’t invest our money in a real estate investment vehicle with a hard exit, or that’s contingent on a sale within the next several years.
We do recommend real estate investment vehicles with a value-add business model and long-term hold. With this structure, properties experience forced appreciation through physical renovation and management excellence, the value add exceeding the delta in the market. If interest rates skyrocket the next two years, the long-term hold strategy means your investment can weather the storm and benefit from a cash out refi event as interest rates come back down. Hint: interest rates typically come down about 18-24 months after they first start going up.
Even in a worst-case scenario, it’s very difficult to lose money with this kind of investment structure. If the market does something absolutely crazy and loses 30% of its value tomorrow (this is highly highly unlikely), you’re still unlikely to lose money in a value add investment model with a long-term hold. In an extremely bad economy, real estate is still the best investment vehicle compared to other asset classes. If the real estate market loses 30% of its value, odds are the stock market does, too—and that’s an investment that is not backed by a physical asset to protect you.
The Black Swan investment model is poised for success—in any economy. Did you know that Black Swan is all about being anti-fragile, about not just surviving during times of challenge, but about thriving, growing, and expanding? There’s a reason we gave our company this name!
Informed Investing.
Protect your Financial Future.
Want the latest on changing economic forces and what they mean for real estate investors? Watch the replay of our June Community Power Hour where we discuss how to survive and thrive in a recession.
One major thing to takeaway is that recessions are all about mindset. You could look at a recession and be scared, worried, or even pull back. Or, you could go into a downturn knowing that fortunes are made in recessions. (We think the second option sounds much better, don’t you?) The people who hesitate to invest because prices are too high are likely the same people who hesitate to invest when prices are falling. It’s all about mindset. We don’t want you to be the one sitting on the sidelines missing out.
Whatever the economic landscape looks like in the near future, we hope you go into it with confidence. Things will either be good, bad, or somewhere in between, and it’s hard to say. What we can say is that in all three scenarios, it’s extraordinarily likely that you will have better outcomes with the long-term hold investment model than any other alternative. We built this business plan in the post-2008 crash. It will work in challenging times–it was built for challenging times.
We hope you’ll face this changing economy with us, head on. So…ready to make your fortunes?