Investing in Uncertain Times: 5 Principles for How and Where to Invest

For the last three years or so, many investors have been asking the question, “When is the next recession going to happen?”

My take on it was that it was going to be caused by something unknown or unpredictable.

More specifically, I was thinking a war somewhere could cause some global uncertainty and plunge us into recession. Recently, that tiff with Iran looked like it could do the trick. But it ended up being something even more unpredictable: a war on a virus that knows no borders.

While there were some other troubling aspects of the economy, such as student and consumer debt, the coronavirus is proving to be much more destructive so far. We went from an extremely low unemployment rate (under 4 percent) to a spike (and continued upward trajectory) in unemployment almost overnight.

If you are a landlord, you must be thinking of your tenants’ ability to pay rent right now. Just last week we were talking with our property manager and putting together a plan to raise rents to market rates. Now that has been put on hold. Many landlords are offering incentives, credits, or even waiving rent next month.

There are a lot of other questions out there, as well. While the real estate industry hasn’t been hit hard yet, we’re starting to see deals fall out of escrow, sellers wait even longer to put property on the market, and investors wondering if that deal they’ve got locked up would be better put on hold.

Some sellers may panic sell to liquidate assets, but I haven’t seen that quite yet. I’d love to hear in the comments what you’re seeing in your market though!

All this to say, these are uncertain times. So, how is a real estate investor to navigate the treacherous waters ahead? Here are several principles to help you shape your investing strategy in times of uncertainty.

Investing in Uncertain Times: 5 Things to Keep in Mind

Principle #1: Have Patience

Since we can’t predict the future, patience needs to be exercised. If things are worse than expected, then the market may not bottom out for some time. We’ll need to be patient as landlords, as well.

Principle #2: Look for Opportunity

Times like these are when wealth is created. Many people, myself included, wish they would have bought up properties between 2009 to 2014 (give or take). Here’s an oft-cited quote from Warren Buffett:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Current market movements imply many investors are fearful, so be on the lookout for opportunities.

Principle #3: Be Prepared

If you have income-producing properties, hopefully you have reserves set aside for circumstances like this. If not, then hopefully you have some equity to fall back on.

For those who wish to acquire properties—and have the means to save or raise money in the meantime—now is the time to prepare for those opportunities that will most likely be coming down the road. (Of course, the optimal time to prepare is always two years ago.)

Principle #4: Continue to Learn

You should constantly be learning. But in times like these, it’s important to learn from your mistakes or assumptions you’ve made in the past.

The last few years, I thought that affordable housing was bulletproof (or close to it). My rationale was that even if a recession were to hit, the more affordable a place is, the more likely there is to be sufficient demand to maintain solid occupancy rates.

Now I’m not so sure. Blue-collar and hourly workers are most likely to be affected by the latest circumstances, and they are the ones to most likely be renting “affordable” housing.

The average American is already in a tough spot when it comes to having an emergency fund. Those at lower income levels, even more so. If they are out of work for one, two, or more months, then the property owners who offer affordable housing may have a predicament on their hands.

Further, with schools now closed and children at home, the burden is on parents to care for their children first. Working from home and seeking out new employment will prove difficult.

Those with white-collar jobs or the ability to work remotely uninterrupted will be far less affected—unless the ripple effect in their particular industry hampers their ability to earn.

Principle #5: Be Optimistic

It’s important during tough times to maintain a sense of optimism.

I’ll be honest. This has been hard for me—I don’t like the disruption of routine and being told what I can or can’t do.

But we can’t dwell on the negative. This too shall pass (hopefully quickly). We’re in this together, so let’s put on a brave face, help each other out, and come out on the other side stronger, more resilient, and more grateful.

What principles do you live by in uncertain times? I’d love to hear about them!

Leave a comment below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.