answer is to diversify your
investment portfolio so all
your eggs aren’t in one
basket. The problem many
individuals faced in 2008
was that most of their
401k or other retirement
accounts were tied up in
stocks and mutual funds.
When the market tanked,
so did their accounts.
Now imagine if half of
those funds were
diversified into buy and
hold real estate. For many,
the outcome could have
been vastly different.
Here’s why.
The key to cash
flowing, rental properties
is that even during a
down economy, they’re still cash flowing at the same
amount. In some cases, even higher. Let’s look at it this
way. If you were getting an 8% return on your stock
investments, and the market crashes, you’re likely going to
be reduced to 2%4% if you are lucky. With rental
properties, the rent amount stays the same. Your mortgage
stays the same. Your property management fees, if you have
them, stay the same. Essentially, if you were getting 8%
returns on your property before, you’re still getting that. In a
down economy, rents rarely go down. You may not be able
to get rent increases during that time, but you will at least
have a steady, consistent amount of cash coming in each
month.
Rental properties tend to weather a down market in a
consistent or even appreciating way. Not necessarily
appreciating in value of the asset but appreciating in terms
of cash flow being received. In a bad economy, a few
things are happening. People simply aren’t buying homes.
Credit is tighter. People are scared. The pocketbook is
squeezed. Instead of purchasing, individuals and small
families tend to continue renting during a recession. In
addition, those that may be losing their homes to a
foreclosure turn to singlefamily or duplex style rentals
since it’s more private and familiar than a large apartment
complex. Therefore, demand may actually increase in a
down market which is a huge win for rental property
owners.
I
t’s inevitable. A market correction is coming. The
market has been on a high for years now. In 2018
alone, the Dow Jones Industrial Average broke a
record high 15 times. If history has taught us
anything, it’s that the market cannot sustain those highs for
that long without a correction. Real estate markets across
the country are still very hot. Even with the “cooling” that
some markets are seeing, real estate prices are still well
above records and competition is hot. “A cooldown has
been predicted for over in a year in our local market.
However, I’ve yet to see it. Sure there are some longer list
times for sellers but properties are still selling in record
time over asking price. It’s still a hot market,” says Eric
Jones, Director of Sales and Marketing for Freedom Real
Estate Group.
With all that being said, the question on every wise
investor’s mind: how can I prepare myself for the next
recession? The short answer, diversify. The long answer,
diversify into buy and hold, longterm strategies.
“The shortgame (fix and flip) is good. It’s instant
return. But you get hit hard by the tax man. Buy and hold
has some of the best tax advantages of any asset class,”
Jones stated. “Depreciation, property taxes, mortgage
insurance and more are all deductible expenses. Plus, with
fix and flips, it’s simply not a longterm strategy. It’s not a
way to build true wealth.”
To lessen the risk of any big swing in the market, the
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