Between civil unrest, unemployment, heightened financial tensions with other countries… I feel like I’m missing something… oh yes, a global pandemic, it’s hard to resist the urge to squirrel away every dollar in a mattress. But for those who resist, the rewards may far outweigh the risk.
As Warren Buffet’s longtime investing partner, Charlie Munger, puts it, “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.”
You’ll have no trouble finding opinions on how to manage your funds during an economic downturn, but here are a few reasons why investing in rental property continues to present itself as a noteworthy option.
Economic Uncertainty Due to COVID-19
A lot of people have made a tremendous amount of money in the stock market. Besides the odd scatter point, most of those people are excruciatingly patient. They are also very well funded, which means they have the luxury of weathering any storm. They can push all their chips into the pot when things look bad, knowing if they wait long enough, and if they have enough money spread out across different areas, eventually it will shake out in their favor.
Not many Average Joes enjoy that luxury.
There’s a good chance your 401K, IRA, or any individual stocks you’re into at the moment are a source of frequent heartburn as you watch them dip into the red, then jump back to green with startling speed. Even when things are good they are apparently still not good, according to the Jim Cramers of the world.
Rental property, by comparison, could always be considered valuable as long as a human being requires a place to lay their head at night. There are no dividends to concern yourself with. And over time, investing in rental property tends to yield better returns than stocks.
Unemployment May Drive the Demand for Multi-Family Housing
Although the American Dream is still alive and well, the state of the economy makes it awfully difficult to achieve. Unemployment and reduced income for thousands upon thousands of people means less money in the bank to cover mortgages. That also means the hunt will soon be on for more inexpensive living options.
Investing in rental property now could not only put you in a position to capitalize on your investment strategy, but also provide low-cost housing for people desperately in need.
Resist the Urge to Time the Market
We’ve already determined it takes lots of time and lots of money to come out ahead of the stock market. If “buy low and sell high” was all there is to it, we’d all be filthy rich. If you think the real estate market is any easier, ask the many young families who “sold high,” then moved into their mom and dad’s basement until they could “buy low.”
For example, it certainly seems like the middle of a global pandemic might be a good time to buy, doesn’t it? There’s got to be some deals out there. In reality, home prices are up 45% since 2012... with no down years.
“OK. I get it,” I can hear you say. “Jump in as soon as you can.”
Further down in the same New York Times article, you’ll find a warning that harkens back to a 75% rise from 1997 to 2005 – an era in which, “delusions of eternal price increases for houses” sprouted. After 7 years and a 36% dip in home prices, some Americans are just now starting to get back the value they lost if they held on.
“OK. So... wait?”
Maybe. It depends on your long-term and/or short-term goals and the amount of capital you have ready to invest. The ball is in your court, but one thing is clear, those who attempt to time the real estate market end up reducing their overall return when compared to those who invest without regard for economic cycles.
The “Value” of a Home
You’d have been hard-pressed to find anyone who could have predicted the situation our nation would be in just 6 months ago, but one thing is certain–home is now a lot more than that place you go after work. More than likely, it is now where you work. When government officials gave the word, it was the only place you could go and it’s the only respite you have when civil unrest and a rapidly spreading virus waits just outside your door.
Investing in rental property is much more than a chance to expand a portfolio. It’s a chance to provide affordable safety and security for people whose lives have changed forever.