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Memphis Real Estate Investing

4 min read

Stock Market Dip Highlights Real Estate Investment Opportunities

Wed, Mar 4, 2020

stockmarketdrop-coronavirus-realestateinvestmentThe U.S. stock market did not have a good week at the end of February. This in itself is an understatement — the Dow fell 1,191 points. S&P 500 posted its worst numbers since the Great Recession. The Dow drop of 4.4 percent, however, marks the worst single-day stock market drop in history. The U.S. stock market lost some $4 trillion in value where the global stock market lost $6 trillion.

All three major indexes (Dow, S&P, and Nasdaq) dropped between 4.4 and 4.6 percent. While all indexes have moved into correction territory, it’s not yet considered a bear market. This demands a number 20 percent or more below the most recent peak. Most indexes fell more around 10 percent from their recent peaks.

With all this said, what exactly does it mean? Obviously, stock market issues are troublesome overall — they can cause financial panic among investors of all kinds. In general, stock market health can be seen as a vote of economic confidence. Poor stock market conditions can, in turn, slow economic growth. 

What Happened to the Stock Market?

In simple terms, coronavirus fears caused the stock market tumble late last week. The energy sector, in particular, has been affected, with crude oil dropping 4.9 percent to just $44 per barrel. Gold, too, saw a loss — significant, considering gold is generally considered to be a “safe haven” during such market conditions.

With international turmoil, including the shuttering of Chinese factories to prevent the spread of coronavirus, the market has responded in kind.

What About Real Estate Investment?

While REITs and other real estate stocks suffered during the market free fall (as their success is also linked to stock values), we see expert predictions that this incident will begin a rush to real estate investment.

Real estate tends to be a more stable investment choice than stocks for the following reasons:

Leverage

Long-hailed as one of the biggest benefits in real estate investment, leverage allows investors to utilize the money of others for their gain (in the form of debt), allowing their capital to spread farther. While the upfront cost of investing in real estate may be higher, leverage allows investors to more effectively grow and diversify a portfolio, which hedges against risk.

Long-Term Benefits

The long-term benefits of real estate investment are two-fold. There’s the promise of property appreciation, which increases net worth over time. Appreciation works best in tandem with leverage (as you put less of your own money into the investment upfront). However, appreciation alone isn’t enough. The second long-term benefit of real estate investment is cash flow. 

Be sure to check out: Manage Risk By Investing in Real Estate Long-Term

For the real estate investor, this combination yields not only predictable gains every month, but hope for long-term values outweighing the initial cost of the investment. Of course, this works most effectively in the correct markets!

Decreased Volatility

There are innumerable factors that can impact the health of the stock market. Politics, both in the U.S. and in a global context, play a huge role. Economic conditions, interest rates, stability, bandwagoning, confidence, and other related markers all play a role, among other factors. Part of what makes the stock market so difficult is that its performance so often relates to human behavior, which can be irrational and unpredictable.

With such a multitude of variables, risk can be high along with market volatility.

By contrast, real estate tends to be a much more stable investment. Unlike stocks, real estate has a low and, at times, a negative correlation to other major asset classes. This makes the real estate world more insular — which offers lower risk overall.

Tax Advantages

When you sell off stock, you will be subject to capital gains taxes. Unlike stock, real estate offers numerous tax benefits and advantages. Depreciation, mortgage interest deductions, property tax deductions, and the potential for the deferral of capital gains taxes, among others, make real estate investment a tax-friendly venture. Further tax benefits can be found in the utilization of SDIRA accounts and an LLC structure. 

Hedge Against Inflation

Because real estate is generally considered to retain or grow in value over time, it is typically considered a hedge against inflation. This is because real estate tends to grow in value during times of inflation. Inflation makes your money’s reach decrease. It hurts purchasing power. When real estate grows alongside inflation, however, your money maintains its strength in the market. 

A Word of Advice for Investors

As beneficial as real estate investment can be, it is important to recognize that every investment carries some level of risk. No investment is a sure thing. However, in times of market volatility, we see more clearly the benefit in real estate investing.

Those who favor stocks will likely say that real estate investment demands too much work and experience to be profitable. We know, however, that the utilization of a turnkey partner mitigates these risks and demands. With experience on your side along with an expert property management team, you can invest in real estate with peace of mind.

REI Nation has over fifteen years of experience in the industry — and a record of success to go with it. 

Don’t wait — start building your passive real estate investment portfolio today.

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Chris Clothier
Written by Chris Clothier

Entrepreneur, writer, speaker, ultra-endurance athlete, husband & father of five beautiful children. Chris puts these natural talents on display every day. As a partner at Memphis Invest, Chris addresses small and large audiences of real estate investors and business professionals nationwide several times each year. Chris is also an active writer, weekly publishing real estate, leadership, and endurance training articles.

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