Last year, I began working on what would become The Long Term Real Estate Investor podcast by Signet Investments. This was when the economy was booming, long before most people had heard of Wuhan, the word coronavirus or COVID-19. Investors, spurred on by the longest bull market in history, were chasing returns and betting big – they were after short-term gains. Today’s market is fundamentally different than last year. The unexpected happened and happened fast.
The Tip of the Iceberg
People are talking like we understand what is next. We don’t. There isn’t enough information to know the full impact of closing most of the world’s largest economy for months. Stock market volatility is up, interest rates are changing, the parts of the bond market are struggling, and over 26 million Americans have filed for unemployment . Many residential and commercial tenants are withholding rent payments, some landlords are offering extensions, and its commonplace for monthly rents to be forgiven. Some tenants aren’t paying at all.
Banks are of course worried too. Lending is very tight, commercial mortgage-backed security is frozen, mortgage payments are being modified. Those with balloon payments are worried that some banks may not modify the loans in time. While the government has helped with stimulus checks and paycheck protection programs, they aren’t jobs and won’t create assets that earn income.
As the economic effects continue, those businesses unable to weather the storm will fail. Already, companies such as Nordstrom, Best Buy, Lowe’s, AMC Theatres, and Kroger are among 15 companies at risk of bankruptcy. Layoffs from closing businesses like these will have huge downstream effects. Even as quarantining comes to a slow end, there will be a lagging effect, of unknown proportions, for rentals, residential office, and industrial.
Even if we re-open the economy today many companies are in trouble and business-as-usual will take a long time to resume And all of this doesn’t include the health effects of COVID-19 and possible future closures, which are troubling.
Long Term Investing Mindset in Uncertain Times
Okay, enough doom and gloom. We know the news. Now is the time to prepare. I am convinced that real estate investors need to reconsider how they invest in real estate.
The principles of The Long Term Real Estate Investor are geared for exactly these kinds of times. We think long-term, focus on minimizing impact, build wealth steadily, and less volatile in times of distress. This is what my family learned when Mexico nationalized its banks in the 1980s. Real wealth is built to survive any and every unexpected event.
Those investors who are surviving and positioned to flourish followed these seven rules, all examples of long-term thinking.
- Built and maintained a cash cushion.
- Generated their own investments and didn’t rely on a paycheck.
- Created a properly diversified portfolio that had low leverage, was well-hedged, and had only quality assets.
- Cultivated an adaptable mindset and pivoted personal and business finances as needed.
- Were ready to use reserve cash to respond to the opportunities from this crisis.
- Invested in conservative, long-term assets capable of weathering a market downturn.
- Switched to remote and were able to conduct business from anywhere.
What I am offering here is an approach to real estate that is fundamentally different than what many investors have done. In these difficult times, you can learn the principles of how to build wealth that is best positioned to withstand a market downturn – just like my family and I did.