The Dark Side of Real Estate

When we think about real estate, we think about long-term wealth. The wealthy have made countless millions of dollars off of real estate. Historically, it has been a reliable generator of long-term wealth if you learn how to invest in it.

But what people don't tell you is that it’s not so cut and dry. Many significant factors are at play, larger trends we call market cycles. Like business cycles, market cycles run every six to eight years on average, sometimes extended for a little longer.

We've had an exceptionally lengthy cycle, starting after the Great Financial Crisis of 2008. We've had a bull market for the last circa-fourteen years. But that bull run is running out of steam.

The Danger of Short-Term Memory

Most investors have a very short-term memory. In recent years, financial markets, tech stocks, crypto, real estate, and all tangible assets have exploded in value. A massive bubble was created mainly by the federal government's off-the-charts manipulation of the monetary system and fiscal spending.

Most were absent or do not recall the causes and financial stresses present during the 2008 Great Recession, the 2001 Dot Com crash, or the 1990 Gulf War Recession. You can look at the history of recessions. Market cycles have been present and repeating for a long time in the US and worldwide. 

So, why are we not more prepared?

I am not here to spell out doomsday or just to say that “the sky is falling.” There are always opportunities whenever there is chaos in the markets. I wish it didn't have to be that way. I wish everybody could just do the work, be prudent investors, and success could be a linear path of predictability.

But that's not the way the world works. Many dynamics at play today have changed the course of what we thought to be true just a few years ago and even what was true in the last few decades.

The decades to come will be very different from what we have seen. Volatility is the only certainty. Predictions and forecasts will be less accurate and more complex to create.

What Can You Do About the Uncertainty?

Where are you investing your capital today? What is your exit plan from your business or practice? Where will you put your capital to work to sustain your lifestyle for the next few decades as you remove yourself from active income?

You have worked tirelessly for your money. Should you put it in the markets and hope it maintains its value? Even novice investors today can see the risk in that approach.

What about treasuries? Today, it’s relatively risk-free for 5.5% interest. But how does that measure up against inflation? You can’t trust the government for accurate information on the inflation figures. They are deeply incentivized to play with the inflation rate number to garner votes. I would at least double the number they give us for inflation.

Inflation has to be running at least between 7 and 10% today. If you're not staying above that line, particularly after taxes, you will be depleting your capital base. That certainly spells uncertainty to me.

So, where can you invest for safety and growth?

Real Estate is a Reliable Asset

In my experience, investing in tangible assets is the best play. Your business is one such tangible asset that you have invested in for many years. Owning a business can be very profitable and predictable as long as you put in the work. But therein lies the issue. Is it possible to invest in tangible assets without putting in as much work?

What other tangible investment assets are there? I have found real estate to be the best investment asset outside of one’s business or practice.

However, even real estate is changing. You can not invest the same way, using the same strategies we’ve used for the last twelve to fourteen years. You must pivot your strategies while keeping true to the principles that make it all work.

Don’t just follow everybody else's advice. We all hear promoters say, “It's a hot product. You need to get in it now. Don't miss out on this one.”

If you follow that advice, you will be late to the party. Syndicators today are late to the party. They are taking money in, not because they have a great investment or because they can guarantee your return or your principal. Syndicators and sponsors are still taking money because they make money off the fees of your investments. They earn money whether or not you do. They are living off of a track record from a bygone era that is increasingly irrelevant in today’s new market realities (high interest rates, inflation, higher cost of capital, etc.)

Be very careful. This is the dark side of real estate that no one guards against very well in today’s market. What you don't know will come back and hurt you. There are ways to invest in real estate without playing the game everybody else plays. You just have to learn how to do it.

Start Learning How to Invest in Real Estate

Since investing in real estate in 1980, over forty-four years ago, I've experienced five major market cycles. I understand what it means to be both an active and a passive investor.

I've also had the privilege of helping hundreds of other doctors, dentists, and their spouses with their financial planning and their path to financial freedom. We help them take their assets—what they have today—and the capital that they will have if they sell their practice and deploy that into tangible assets at the right place, right time, the right asset class, the right place in the capital stack, etc. (I go a bit more in-depth on these topics here.)

There’s a lot more to it, but the point is you can learn this. You don't have to surrender this to a third party and hope they understand what they're doing. Most financial advisors, planners, and money managers today have not gone through a complete market cycle.

Many financial advisors emerged after 2008. They've only seen an upmarket. What can they do to help you during a down market? Can they help you preserve your capital while still allowing you to have the lifestyle you want?

It is time to be your own financial advocate. You know how to make money, but I implore you to learn how to preserve and maintain your wealth and get your money working for you.

Most have yet to explore that missing piece. This is your chance to do it. My team and I are here to help clarify your situation and point you in the right direction, whether it’s with our group or not. I invite you to schedule a call with my team and find out how we can help you.