Real Estate News & Commentary

“The Sky is Falling!”: Why Stock Market Swings Shouldn’t Scare Real Estate Investors

Expertise: Personal Development, Commercial Real Estate, Real Estate News & Commentary, Landlording & Rental Properties
69 Articles Written
Man relaxing in his chair and enjoying the view from terrace.

Concerned about the massive stock market swings we’ve seen recently? Many people are. After all, the headlines have been devastating!

Here are a few from 2018:

A CNBC post Oct. 31 was entitled “The Stock Market Lost Nearly $2 Trillion in October. Here’s What Happened.”

On Nov. 20, The New York Times wrote, “Stocks Fall, Wiping Out Gains for 2018.”

“Market Crash Underway” was the name of a Forbes piece published Dec. 6.

And—perhaps most dramatically—CNN titled a Dec. 31 article “2018 Was the Worst for Stocks in 10 Years.”

So, Are You Scared?

I’m not.

If you’re heavily invested in real estate, like me, you’re probably sleeping well at night—not glued to your laptop, enjoying the third season of A Series of Unfortunate Events and chomping on semi-boneless ham.

My kids would never have known about “the crash” if they hadn’t heard the nervous commentator’s voice on FOX News Radio. (We switched it back to classic rock immediately thereafter.)

Real estate investors are not speculators. Or at least we shouldn’t be.

We have the opportunity to buy hard assets with measurable earnings and, therefore, quantifiable values.

Why Speculate When You Can Invest?

I look at it this way.

Investing is when your principal is generally safe, and you have an opportunity to make a profit.

Speculating is when your principal is not at all safe, and you have the chance to make a profit.

I’ve written about this in detail in the past.

Here are some anecdotal examples of speculating vs. investing:

  • When my friends and I dropped hundreds of thousands down a North Dakota hole in the ground, wildcatting for a new oilfield, we were speculating.
  • When I bought an expensive parcel of highly leveraged waterfront property, counting on a change in the zoning, I was speculating.
  • When I invested in a self-storage facility, with a known, quantifiable income stream and demographics showing opportunities for more revenue, I was investing.

Paul Samuelson, the fist American winner of the Nobel Prize in Economic Sciences, once said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

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Speculating is fun! It’s exciting! You can watch your bank account grow and plan that trip to Maui to visit Brandon Turner!

Meanwhile, I often find that investing is frankly… boring. And investing in real estate can be particularly boring at times. Like Samuelson said, it’s like watching grass grow or watching paint dry.

When Speculating Goes Wrong

My friends who invested in Bitcoin had a lot more fun in 2017 than I did. They watched their investments double again and again.

One of my friends, a smart financial planner, even convinced someone to loan him money to buy a McMansion with his unrealized cryptocurrency earnings as collateral.

Then there was 2018. Bitcoin lost over 80 percent of its value (compared to December 2017), and it’s still dropping.

I hate to say I told you so, but I predicted as much (on Dec. 8, 2017, to be exact—about a week before Bitcoin hit its all-time high of over $18,000).

Related: Bitcoin or Real Estate: Which is the Better Investment?

bitcoin, investing, investment, cryptocurrency

Courtesy of Google.com

To be clear, I easily could have been wrong.

Bitcoin could have gone up to two or three or ten times that level—or dropped to zero. That’s the problem with speculating.

Speculating often makes wild assumptions using massive unknowns to reach its conclusions. And when factoring in human greed and some people’s natural bent toward optimism, it can be deadly.

Real estate is different.

Or at least it should be, if done right.

And that’s why I’m sleeping like a baby in the midst of all this market turmoil.

Related: 4 Reasons Cryptocurrencies & Blockchain Technology Are Poised to Transform Real Estate

In a funny way, I guess the “boredom” of truly investing helps me sleep even sounder. Unlike a friend who is always on call, or sleeping with one eye open as the 24/7 world markets respond to and predict market swings, I’m busy hanging out with my wife and kids and playing my new Schecter bass.

Did you just call me boring?

Guilty as charged.

How about you? How are you reacting to the latest stock market volatility? 

Let me know in a comment below.

After graduating with an engineering degree and then an MBA from Ohio State, Paul started on the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They sold it to a publicly traded firm for $2.9 million five years later. Along the way, Paul was Finalist for Ernst & Young's Michigan Entrepreneur of the Year two years straight. Paul later entered the real estate sector, where he completed 85 real estate investments and exits, appeared on an HGTV Special, rehabbed and managed dozens of rental properties, developed a waterfront subdivision, and started two successful online real estate marketing firms. Three successful developments, including assisting with development of a Hyatt hotel and a multifamily housing project, led him into the multifamily investment arena. Paul co-hosts a wealth-building podcast called How to Lose Money and is a frequent contributor to BiggerPockets, producing live video and blog content on a weekly basis. Paul is the author of The Perfect Investment—Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and is the Managing Director of two commercial real estate funds at Wellings Capital.

    Christopher Smith investor from brentwood, california
    Replied 10 months ago
    Frankly there is no clear line of demarcation between Investing and Speculating. I invest in both areas as I believe both have a place in an intelligently constructed portfolio. My real estate has provided somewhat more stable returns, predictable cash flow and some quite nice tax benefits. But securities if selected with care and diligently managed outside of the daily vissistudes of the market provide great opportunities for profit. The latter being a much more challenging endeavor than the former (both intellectually and emotionally), caution is surely warranted. So to each his own path in playing game.
    Gareth Fisher from Manheim, Pennsylvania
    Replied 10 months ago
    I agree with many of your points. However your over simplifying many of the problems our economy has. Many of which are tied to asset prices. We are in the largest credit bubble in the history of our country. If you aren’t losing sleep over this you are either already in a very good defensive position. The downside of real estate is debt. Debt kills businesses every day. To be so niave that the problems in the market don’t effect your real estate is extremely niave.
    Chaim Kernkraut from Brooklyn, New York
    Replied 10 months ago
    Agree. A lot can go wrong in real estate as well.
    Scotty Ball investor from Gainesville, Georgia
    Replied 10 months ago
    Yes sir…..investing vs speculating. Knowing the difference is critical to sleeping well.
    Colin Smith realtor from Colorado Springs, CO
    Replied 3 months ago
    I would tend agree more with Paul. If investing in real estate and setting aside funds from every rent check for a rainy day (roof, HVAC, make-readies, the next downturn, etc.) then I would think you too would be sleeping well at night. But accounting for all expenses on most purchases in my market (Colorado Springs) makes for very small cash flow returns in the first five years of the investment. But yes, things can go wrong with real estate no doubt and there are certainly risk factors to take into consideration. I prefer small multi-families as I believe them to be more recession proof being the rents are already on the low end of the market but the trade off is the tenant quality. If you have a single family that is 150% the average market rent for your area, you may struggle to fill the vacancy during those down years. Commercial real estate can be seen the same way as many business may not survive the crash causing high levels of vacancy. Including the increasingly popular storage space as I suspect this will be on of the first areas people stop paying when looking to cut any expense they can. Just my 2 cents.
    Matthew Adair rental_property_investor from Chicago, IL
    Replied 3 months ago
    Colin, I like you point about investing in small multi-families since the rents are typically on the lower end of the market. I invest in small multi-families in Chicago and typically set our rents at less than the big apartment complexes nearby, aiming to attract quality tenants who love the area but don't need all the fancy amenities.
    Terry Lowe
    Replied 3 months ago
    I worry about those who only have a small equity in several rentals. Seems it wouldn’t take much to get under water.
    Christopher Vasquez
    Replied 3 months ago
    Hi Paul, Thanks for the article. I agree that investing vs speculating makes a huge difference when someone is looking at getting into any asset class or investment. However, I believe you and I can both agree that the "scary headlines" that have always been out there, usually do not take your specific situation into account. Therefore, my opinion is these "scary headlines" can be ignored for the most part. I would argue that the value of well run, well managed companies, by smart people (Amazon, Netflix, Facebook, etc) can add value to your overall active real estate portfolio. Especially, if you are looking at holding these positions for years or decades. That is the part the media tends to ignore because they think in terms of minutes and hours. They have to talk about something right? One more thing to keep in mind is that there is no shortcut to building long-term sustainable wealth. If there is let me know. - Chris