Is Real Estate a Good Investment in 2020? An Expert’s Perspective

In the new reality of COVID-19 in 2020, rock-bottom interest rates, and crazy stock market fluctuations, people often ask me:

Is real estate still a good investment right now?

The simple answer is yes, it is always a good time to start your real estate investment. As the old adage goes, don’t wait to buy real estate; buy real estate and wait.

In the below video, I provide my insights on real estate investment and answers to this question.

 

In this article, I will cover the following topics and discuss each of them in depth.

⦁ Timing the market
⦁ The real estate market’s inverse nature
⦁ Dollar-cost averaging in real estate
⦁ The importance of flexible investing strategies
⦁ Concluding thoughts

When Is the Best Time to Invest in Real Estate?

If you are thinking to wait until the perfect time to invest in real estate, there will probably never be a perfect time for it. Realistically, as with the stock market, trying to wait out the real estate market for the perfect time to make a deal is a fool’s errand. Inevitably, the market will fluctuate—sometimes with seasonal sales predictability—but just as often with seemingly unpredictable volatility.

Rather than attempting to time these swings, successful real estate investors understand the importance of having skin in the game for long-term returns, and understand top things to remember before investing.

Fighting Market Fluctuations? Try Dollar-Cost Averaging Technique

The futility of attempting to time the real estate market leads directly into this technique.

Typically, financial planners discuss the benefits of dollar-cost averaging with respect to investing in the stock market. With this technique, rather than investing a lot at one time, you invest a little over an extended period of time, thus “averaging” out the inevitable fluctuations in the market.

This same dollar-cost averaging technique can be applied to real estate investing. If investors commit to investing in different real estate deals every year (as opposed to viewing it as a large, one-time investment), they gain the market-smoothing benefits of dollar-cost averaging in the real estate world.

For example, say your strategy revolves around buy-and-hold of townhouses in a certain city. If you bought 10 townhouses in the third quarter of 2005—the peak of the national average pre-Recession values—the value of your portfolio would have been crushed during the Recession.

On the other hand, buying one townhouse per year during the stretch from 2005 to 2014, yes, you would have bought into pre-Recession highs, but you also would have reaped the benefits of the market lows and recovery period.

While this is a simplified example, the point is that spreading your investments out over time acknowledges that none of us are smart enough to perfectly time the market. Instead, dollar-cost averaging provides a technique to invest through the inevitable market fluctuations.

The Real Estate Market’s Inverse Nature

Related to timing the market, it’s important for real estate investors to understand the following two problems relating to the inverse nature of purchases and sales.

⦁ Problem 1:

When it’s easy to find good deals, it’s inherently harder to sell your existing properties. In other words, if there’s a ton of supply on the market, you have plenty of buying opportunities, but you wouldn’t want to sell into that sort of buyer’s market.

And conversely:

⦁ Problem 2:

When it’s hard to find good deals, it’s inherently easier to sell your existing properties. Or, if there’s a shortage of supply on the market, there aren’t many buying opportunities, but it’s a great time to sell, with prices shooting up.

These two problems are simply basic economics applied to real estate. That is, when supply is low and demand is high, prices rise. Conversely, when supply is high and demand is low, prices drop.

Both of these scenarios necessitate flexibility on the part of the investor, which leads directly to the next point.

The Benefits of a Flexible Investing Strategy

If you ask most real estate investors, they’ll explain the specific investing strategies, or niches, that they embrace. This makes sense—if you’re an expert in a particular area, take advantage of that expertise to maximize returns.

But, the reality of the above scenarios means that a well-prepared investor will have multiple “tools in the toolbelt” when it comes to real estate investing. In the video I mentioned above, I provide a prime example of the importance of this sort of flexibility.

At one point in time, I focused on a fix & flip deal. However, in the midst of the deal, property values plummeted, leaving me and my team upside-down on the deal. In other words, we had more money invested in the deal than we would’ve received in a sale at that time.

Rather than rigorously adhere to our initial fix & flip strategy and take a loss, I adopted a BRRR approach, found a high-quality tenant, and leased the property. By doing this, the monthly cash flow from the renter covered the debt service and property expenses while the property had an opportunity to appreciate.

Seven years later with more equity built, home values had appreciated significantly, and I sold the property at a far larger profit than projected at the outset of the initial fix & flip plan. One of the takeaways is that flipping is still profitable now.

The reverse of my situation also occurs frequently, with an investor going into a deal with a BRRR strategy and then choosing to adjust course mid-way through the deal.

Specifically, massive fluctuations in the real estate market can occur, and during the renovation stage of the BRRR process—especially if it drags out close to a year—opportunities can present themselves. If at the end of a rehab property values have increased far more than initially projected, it may make more sense to sell the property (as opposed to rent/refinance) and reinvest the extra cash into a couple other deals.

So, what’s the moral of these stories? Real estate investment strategies may change, but your commitment to investing shouldn’t.

Concluding Thoughts

Overall, I think now is a great time to get involved in real estate, regardless of what’s happening in the marketplace.

If you wait for an absolutely perfect deal to come across your plate, you’ll be waiting forever. Every deal has its pros and cons, a reality successful investors understand and embrace.

Instead, use every opportunity possible to learn both the fundamentals of real estate investing and different strategies used by different investors. Armed with this knowledge, you have the ability to A) analyze a deal, B) determine if its pros outweigh its cons, and, most importantly, C) take action and execute the deal!

No matter what path you take as a real estate investor, financing is king. Without access to reliable financing, the best deals remain nothing more than wishful thinking. As such, one of the most important relationships you can build as an investor is with a reliable, trustworthy lender.

The Do Hard Money team would love to build that relationship with you to help with your financing needs. Regardless of your situation and experience as a real estate investor, we can help you meet your goals. Drop us a note, and we’ll figure out the best way to support you on your real estate investing journey. Get pre-qualified for your investing loan today!

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