The novel coronavirus known as COVID-19 has already wreaked havoc on systems around the world, from healthcare and the stock market, to the travel, transportation and restaurant industries, but the domino effect this created has yet to near its apex, leaving many real estate investors to wonder how property values will fare when this is all over.
“As the number of COVID-19 cases increases exponentially each day, stocks have dropped, businesses have closed, unemployment has risen, and millions have been mandated to stay at home”, wrote Quicken Loans.
Here’s a quick overview of the relationship between real estate and the coronavirus, including how the market is expected to respond in both the short and long term:
COVID-19, Stock Market Volatility and Real Estate Investing: The Big Picture
We’ve been writing about how real estate investing can help mitigate the impact of the next (inevitable) economic downturn on your financial portfolio for some time, but as is usually the case with stock market crashes, no one could see the coronavirus coming! Still, the results of its impact economically are largely the same as those we have been warning our readers about for some time, including extreme stock market volatility and unprecedented levels of uncertainty about the future.
Our position has been clear, helping clients find smart investments that are:
- Essential: Located in a high-demand destination, where it can provide an essential service.
- Tangible Assets: Investments backed by real assets (like investment properties) offer a level of security that simply can’t be matched by most stocks, bonds and mutual funds.
- Income Producing: If your investment doesn’t produce consistent cash flow, how can it really help you enjoy a secure retirement?
There is little doubt that the impact of the coronavirus on the economy will be massive, and every single part of society will be affected. Although there will be no total protection from the financial fallout of COVID-19, there are some things every investor can do to protect their hard-earned assets, and there are certain industries expected to bounce back faster than others.
“As quickly as the new coronavirus crossed China’s borders, the impact on the financial markets has been almost as swift”, wrote Real Estate Journals, following a Special Report from real estate investment brokerage, Marcus & Millichap. “Fearing a bear market, investors directed their capital reserves to the relative safety of the bond market, resulting in the largest one-week stock drop since the 2008 financial crisis. The Dow just had its biggest crash since 1987”.
And with the massive U.S. stimulus package that was recently passed, which slashed interest rates to nearly zero and dumped trillions back into the economy, the looming threat of ballooning inflation has suddenly become even more ominous, making smart real estate investments more essential now than ever before.
How to Protect Your Financial Portfolio During the Coronavirus
Although we don’t know exactly what will happen over the coming months, there are certain financial truths that will prove their worth over and over during trying times like these. Here are a few important rules I live by, after several decades of studying money and real estate investing:
- Protect Your Capital: This also happens to be Warren Buffet’s #1 rule, “Don’t Lose Money,” and although it might seem obvious or flippant on the surface, the deeper question here is actually, “how?” For one thing, it’s important to note that Buffet doesn’t invest in stocks, but instead takes major positions in whole corporations, where he trusts the cash flow and management. If you aren’t a Wall Street Insider, I believe protecting your capital means investing in things that give you more control over the underlying asset, like real estate. Look for property in strong or up-and-coming real estate markets that have a bright future, where there is positive job migration, hospitals, schools and other infrastructure.
- Invest for Cash Flow: Nowadays, it’s practically impossible to earn enough from stocks, bonds and mutual funds to provide a secure retirement, unless you get very lucky… But even if you are among the most fortunate, everything can disappear virtually overnight unless you are invested in tangible assets like raw land and other types of real estate. If you only invest in things that can provide positive cash flow, both today and into the foreseeable future, you can start to plan for a retirement that offers more than just getting by. Look for real estate investments that can still provide secure ongoing income even if they have less than full 100% occupancy, and remember: Rents have gone up ever since 1945 - the end of World War II!
- Invest for the Long Term: It’s important to note that to us, the “long term” means 10 years from now or more, which we all know will be here before we know it! Still, regardless of how great your investment may be, you have to keep in mind that it takes time for money to grow and almost no one gets truly wealthy overnight. Also, this means you need to be okay with not being totally liquid. Instead, when you have cash to invest (whether it’s in a regular bank account, a 401k or an IRA account) look for smart real estate assets that will continue to provide ongoing income for the long term.
Finally, it’s important to point out that, looking back, previous pandemics like SARS and H1N1 also created short-term market volatility, with markets stabilizing in three to six months, but obviously it’s still too early to determine the full impacts of COVID-19. Still, in isolation from the current coronavirus pandemic, global real estate markets have been largely in balance. So, it’s also fair to assume that job creation and economic growth will bounce back - and with those, strong real estate fundamentals - unless we experience a far worse health emergency on a global scale.
“This should lead to a relatively stable outlook for the [real estate] sector over the remainder of ”, wrote Real Estate Journals. “While we’ve been inundated with headlines about COVID-19 and its detrimental impacts on the equity markets - the virus is unlikely to have severe, long-lasting effects on real estate”.
Now, more than ever before, it’s time to protect your assets! Stop losing sleep in the stock market and download our FREE guide, 6 Steps to Investing in Real Estate with an IRA Account.