Learn How to Read Market Conditions

We are in different economic times right now. I’m not just referring to a recession or a downturn. I’m referring to a longer secular pattern. We have had over 40 years of downward interest rates, which caused an uprise in the values of all asset classes. That is now changing.

I’ve spoken on this on other blogs and at other events but the conference attendees wanted to dig deeper and know where we can go right now in the market to safely invest. What can you do with your capital right now? My first response was: It is a great time to be patient.

This is difficult advice for some to hear right now. But it needs to be said. 

It’s important to clarify – patience does not mean doing nothing. 

You always need to be doing something – planning, thinking, staying connected, asking questions, and learning. Your network is key to everything you do. 

The market is turning and I think we're going to see a number of quarters of downward deflation of asset values in general. That doesn't mean you don't need to be invested. It does mean you need to be actively involved in building your wealth, maintaining your wealth, and preserving your wealth.

For example, right now, I'm going to higher ground, holding more capital in reserve. Treasuries right now are paying 5½ %. This is a decent return while significantly mitigating risk, waiting, watching, and keeping my eyes on the marketplace.

And when I see a good opportunity to jump back in on a particular investment – equity, perhaps – then I'll jump in, but I think it's early right now for equities.

Right now I'd rather be in the lending part of the financing capital stack. Lending money, being the bank, is a great place to be. You still have to be very discerning about who you're investing with, and what their track record is. You need to understand what the underlying asset class is that you're investing in. And by all means, make sure that whoever you invest with has strong financials. 

This goes beyond just their own balance sheet. What systems and infrastructure do they have in place to responsibly manage and track their financials? How is the capital used from the investors? Investors who are providing capital have a responsibility to conduct the due diligence necessary to ensure proper financial accountability for that capital.

These are key aspects that have really been put by the wayside in the last 15 years. Why? Because the market has been very forgiving, even poor managers who lacked operational efficiency could benefit as the “rising tide lifted all boats”. But those days are gone. 

Today, operational efficiency and strong financial management will be critical to success for investing in real estate 

Last piece of advice: Buying and holding is going to be a much stronger position going forward vs the “fix and flip” model of recent years (assuming great management is in place – a critical component).

Times of market transition always necessitate changes to your model. Those who are willing and able to adapt are those who live to fight another day. 

There are times when the market hands you opportunities to “win big”, and other times when winning means staying in the game – avoiding the calamity that befalls the majority. A “win big” opportunity may soon be coming for those who are able to maintain patience and a steady hand. 

Remember, patience is key. A new model is replacing the old model. Stay the course, but don't be overzealous in anything you do right now.