Although the flag is in the picture above is Canadian, it’s a global recession (depression) that we have entered. The unintended consequences of social distancing is far reaching and the future outcome is still unknown.
It’s a daily struggle to try to sift through the fear mongering to find the true underlying facts. The fear from the news is in the forefront of my mind. However, whispering in the back of my mind is the quote above from Warren Buffet.
They say history repeats itself. The Great Recession, which is still fresh in my mind, seems like a great place to start looking for answers.
Below is a great graph illustrating the correlation between the stock market and the real estate market over the last 14 years.
We know now that the stock market bottomed in 2009 and real estate bottomed around 2012. As you can see there is a lag time between the two. The reason is liquidity. It can take up 1 year or longer to complete a foreclosure. However, it takes seconds to sell and buy stocks.
In my opinion, the real estate market feels more like late 2007, before things really got ugly for real estate. Back then, I was still blindly purchasing real estate. I remember bidding on a property and being surprised that my offer was accepted.
It turned out, I was the only offer.
I’ve learned from my mistakes, this time around. Our investment group has primarily been a seller of real estate since 2017. Whether or not our government has learned from its previous mistakes is yet to be determined.
Our government and central banks around the world have proven to be much quicker this time around on printing money. It’s almost beyond comprehension the scale and size of that much money flooding the financial system.
The picture from above illustrates only 1 Trillion in $100 dollar bills. Our government has already rolled out the 2 Trillion CARES stimulus package. Many experts believe that the total amount may surpass 5 Trillion in stimulus by the time we are done.
All while our National debt grows over 23 Trillion and counting everyday!
I don’t think anyone knows what this will do short or long term (Hyperinflation, Deflation, Stagflation). I also don’t think any central bank or government can stop a natural market cycle of ups and downs.
However, they be able to temporarily alter or slow the natural process. In the long run, it’s like saying that we can somehow avoid winter and always have summer. It goes against nature and against economics.
We have had a long hot 10-year economic summer. Now as things cool off, it’s time to work smarter. We need something harder and stronger that has weathered the face of time.
The buildings above were built long before I was born and will be here long after I am gone. They have endured war, famine, plagues and still they stand. They have been the ultimate protectors of wealth for those that understand its value.
I love brick and mortar real estate because with the right knowledge it can be controlled. I can physically see it and touch it. It offers a timeless way to grow rich slowly. I also like investing in mortgages which is directly secured by brick and mortar real estate, for the same reason.
During the last recessions recovery, our group’s assets accidentally benefited by the governments quantitative easing policies and lowering of interest rates that created artificial inflation.
When we purchased these college rentals, I had based my long-term projections on a 3-5% appreciation model. The intent was to pay down low balance mortgages and slowly over time increasing cash flow to become independently wealthy. What I didn’t expect what the rapid increase in value to the point in 2017-2018 we basically had no choice but to cash out.
No one knows exactly what will have in the future. However, nothing has been a better store hold of wealth than real estate. Our group will continue through this down cycle to identify opportunities for investment.
Economic and investment fundamentals will always prevail in the long run. Below is a link of our investment groups history and strategies for 2020.
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Kyle Zimpleman, Managing Member