It’s no news flash, but the real estate market is shifting. In fact, I would say it’s already shifted some and is going to shift some more. I don’t have a crystal ball to tell you the best move or type of investment for you, but I do have a 4-step framework I use any time there’s a major change.
This framework allows me to take stock of what’s going on in the market and gives me clarity to form a strategy.
- Listen to the podcast “#380: 4 Factors That Will Help You Thrive in a Shifting Market” Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
1. Take into Account the External Factors of the Market
Right now, inflation is rising, interest rates are high, and there’s a war. Out of these three things, what can you control? Unfortunately, none of them.
It’s important to look at them in order to understand what’s happening. But then you need to realize you have no control over them, so stop worrying about them. Get a picture of how they’ve historically affected investments, the economy, and your field of work.
I find that doing this puts into perspective what’s going on and what I do and don’t have control over. This relieves stress and brings clarity.
2. Understand the Local Conditions
If you’re reading this, chances are you invest in Denver or the Front Range. Understanding what’s going on in these markets can help you determine your immediate strategies. We can’t control bigger economic conditions, but we have more insight into local conditions.
What’s really important when it comes to real estate investing? Supply and demand.
What’s the supply of houses coming on the market to buy and sell? What’s the supply of rental properties coming on the market? As investors, we care about both of these questions.
Locally, we don’t have enough supply of housing, so there’s a lot of demand.
I’m eager to see next month’s numbers, since I think supply will go up a bit, but it’s still a seller’s market. Demand is high—people and jobs are moving here and we’re seeing steady population growth. The imbalance of supply and demand means prices go up.
Increasing prices also applies to the rental market. With rising interest rates, some people are bumped out of the buyer pool, while others decide proactively not to buy. This is a good sign for landlords, since that means there’s high demand and low vacancy for rentals.
Keep in mind that in Denver during the last six recessions, housing prices continued to rise. The other recession is an outlier since it was real estate driven, which is not happening this time.
Understand the local conditions and get a reality check on what’s happening immediately around you.
3. What Is Your Situation?
What are your goals, financial position, job or business? We all face the same external factors, but we have a lot more control over our personal situations.
For investing, how much cash on hand do you have, what’s your risk tolerance, and is the changing market going to affect your job industry?
This step is where you should focus the majority of your energy. Understand your situation and risk tolerance so you can form a strategy. Go through every account you have and see if you’re within your minimum threshold. Truly understand your financial position.
There are a ton of investment opportunities out there, even in the changing market. Take stock of everything, reflect, and goal set.
If you need help with this step, reach out to me. I love talking about it and helping people understand where they are and what options they have. We’re also going to be focusing on this more as we upgrade Property Llama and gear up for another Portfolio Analysis Mastermind.
4. What Opportunities Do You Have?
The market is changing, but there are a lot of opportunities for investing. Broadly, look at stocks, cryptocurrency, real estate investing, and cash on hand. There’s a lot more nuance to this, but we’re keeping it simple here.
Stocks are down 20% this year and tend to be more variable in times of volatility. I like to buy stocks during dips because I’ve seen the historical data to show this is a good move.
Cryptocurrency is down 50-80% this year, which is a reason I have yet to invest in it. I like to see what happens during the bad times so that I can truly understand it. I believe that you don’t know the true nature of anything—a person or an asset class—until you see how it reacts in the down times.
Traditionally, real estate is a great hedge against inflation. As an asset class, it provides something that other asset classes can’t: leverage. It’s easy to use leverage with real estate, and that’s one reason why it brings such great returns. I haven’t bought real estate this year yet, but I’m going to after getting tax returns and putting a HELOC on my primary to free up cash.
Personally, I don’t like to leave a bunch of money in my savings account that isn’t doing anything. While I like to have enough to cover my reserves, I don’t want to lose my returns to inflation. This year, inflation is already up 8%!
Figure Out What Works for You
By using this framework, I know what works for me, what my options are, and where I want to focus.
Now that we’re halfway through the year, now is a good time to figure out what’s right or wrong for you, and where you’ll find a good fit for investing.
Let’s Connect on Social Media
Over the next couple of months, we’re going to put out more content about investment opportunities, where to put capital, and more. I’m going to be doing a lot more content on my social media accounts, particularly LinkedIn and Instagram.
In a fast-changing market, social media allows me to get information out there quickly and provides an avenue for two-way communication. Reach out with your questions and comments, and let’s have a conversation.
If you want a one on one strategy session, reach out for an investment consultation. I’d love to help you form a real estate investing plan.