Pick the right investments against economic downturns using these benchmarks

Although I live in Reno, I’m not much of a gambler – because I can’t predict the future, and I certainly don’t like to bet my money on the chance that this time my guess will be right.

I’m assuming you also don’t have future-predicting powers, which means you probably look for investments that don’t surprise you the way slot machines do.  Your criteria for investments, then, will be ones that maintain your principal and provide a consistent return.

For us, that usually leads to alternative investments (primarily real estate), and we guess your search will take you down a similar road.  The kind of investing we like best around here are tangible assets in markets that don’t fluctuate much in value.  We always want the benefits of real estate without the volatility.  After all, “The best investment on earth is earth.” – Louis Glickman.

So, in the absence of a crystal ball, how do you, as an investor, compare alternative real estate investment options to each other to best predict how your wealth will be protected and grow?

Here’s a quick list of considerations:

  • The return of each fund you are comparing is relatively close to being equal
  • You like and believe in the funds’ products
  • You have concluded the fund managers are good at what they do
  • The funds have excellent multi-year track records

    We can’t all divine the future with a tap to the head, but we sure can set our investments up to withstand financial hardships.

Assuming all those statements are true, then it comes down to one important question: how safe is your principal or investment during a big (or even small) real estate economic downturn?

Based on the experience of our team here at Hughes Private Capital, we have come up with a tried-and-true system for creating a portfolio of homes that stays safe in the event of an economic crisis.  We consider this strategy as close to future-proof as possible.  Now, let’s talk about a couple important aspects that make that happen:

Every investment should have a backup plan.

Our backup plan is what we do every day in the assets that we buy, which are properties that fit the core rental market or what we like to call workforce housing.

The homes we purchase in the Midwest are for their reliable cash flow.  Most of the homes are in the $125,000 value range, have good bones, and are able to be remodeled to suit the needs of the workforce housing market.  They are selected from three states across the Midwest – Ohio, Missouri, and Alabama – where we know there is a consistent demand for these single-family units.  In an up or down market, we know these homes will produce income because they are consistently rentable.

You may say this is boring, but we love that part about the Midwest and this type of investment.  We know we are not going to make a killing off the appreciation, but earning from appreciation truly is our backup plan since these markets don’t fluctuate up and down in value all that much.  This is key.  Plus, during downturns, demand for homes within the workforce housing market goes up as renters and homeowners in the upper market downsize to make ends meet.

This is simply not the same when you compare it to other types of real estate.  Take for example two commercial buildings I own here in my hometown: Reno, Nevada.  They are primarily what we call “flex space,” meaning they have some office, warehouse and (in the case of one of them) yard space.  They are usually leased to mom-and-pop type businesses.  When the downturn happened in 2008 and 2009, I think I could have stuck a sign out front that read, “Come in and rent it for free,” and still no one would have shown up.  It was an unneeded asset class for a period of time.  Now, of course, that has all changed and they are highly sought after again, but that doesn’t mean it’ll stay that way in the next downturn.

The one thing we know for sure is that people always need an affordable place to live and if structured right, single-family homes are consistently rentable, income-producing assets.

Be an investor, not a speculator.  If you count on appreciation only, it is just as much a gamble as rolling the dice.

The saying does not go, “the surest things in life are death, money, taxes, and appreciation,” which I, for one, don’t think is as catchy anyway.

As much as we know that good assets tend to gather appreciation over time, that is not something that should be relied upon for a return, especially when you’re considering an economic downturn.

Cash flow is your number-one protection to producing a successful real estate investment versus a burdensome one.  You want to be able to weather the inevitable storms that come in cycles.  That is only done through two ways:

  1.   Positive cashflow on your properties to sustain you.
    Or
  2.   (The burdensome way) having enough cash in your pocket to make it through.

If an investment is only wagering on the market to provide a good turnaround on a property when it’s time to sell, the market certainly makes no promises to hold up their side of that unspoken bargain.  We all look pretty smart in good markets.  But downturns reveal the truth about how much we relied on our expectations to pull through.  Appreciation-pushers tend to find themselves at the short end of the stick when that happens.

Fortunately, we don’t have to predict the future to see if it will meet our expectations.  We can just continue to operate our properties because they will produce income one way or another, and we’ll be able to wait out the storm until the market recovers.  You know how people say, “Cash is king.”  I would add one more word to that and say, “Cash Flow is king.”  With that in mind, I ask you: what’s ruling your investments?

 

 

Pick the right investments against economic downturns using these benchmarks

Although I live in Reno, I’m not much of a gambler – because I can’t predict the future, and I certainly don’t like to bet my money on the chance that this time my guess will be right.

I’m assuming you also don’t have future-predicting powers, which means you probably look for investments that don’t surprise you the way slot machines do.  Your criteria for investments, then, will be ones that maintain your principal and provide a consistent return.

For us, that usually leads to alternative investments (primarily real estate), and we guess your search will take you down a similar road.  The kind of investing we like best around here are tangible assets in markets that don’t fluctuate much in value.  We always want the benefits of real estate without the volatility.  After all, “The best investment on earth is earth.” – Louis Glickman.

We can’t all divine the future with a tap to the head, but we sure can set our investments up to withstand financial hardships.

So, in the absence of a crystal ball, how do you, as an investor, compare alternative real estate investment options to each other to best predict how your wealth will be protected and grow?

Here’s a quick list of considerations:

  • The return of each fund you are comparing is relatively close to being equal
  • You like and believe in the funds’ products
  • You have concluded the fund managers are good at what they do
  • The funds have excellent multi-year track records

Assuming all those statements are true, then it comes down to one important question: how safe is your principal or investment during a big (or even small) real estate economic downturn?

Based on the experience of our team here at Hughes Private Capital, we have come up with a tried-and-true system for creating a portfolio of homes that stays safe in the event of an economic crisis.  We consider this strategy as close to future-proof as possible.  Now, let’s talk about a couple important aspects that make that happen:

Every investment should have a backup plan.

Our backup plan is what we do every day in the assets that we buy, which are properties that fit the core rental market or what we like to call workforce housing.

The homes we purchase in the Midwest are for their reliable cash flow.  Most of the homes are in the $125,000 value range, have good bones, and are able to be remodeled to suit the needs of the workforce housing market.  They are selected from three states across the Midwest – Ohio, Missouri, and Alabama – where we know there is a consistent demand for these single-family units.  In an up or down market, we know these homes will produce income because they are consistently rentable.

You may say this is boring, but we love that part about the Midwest and this type of investment.  We know we are not going to make a killing off the appreciation, but earning from appreciation truly is our backup plan since these markets don’t fluctuate up and down in value all that much.  This is key.  Plus, during downturns, demand for homes within the workforce housing market goes up as renters and homeowners in the upper market downsize to make ends meet.

This is simply not the same when you compare it to other types of real estate.  Take for example two commercial buildings I own here in my hometown: Reno, Nevada.  They are primarily what we call “flex space,” meaning they have some office, warehouse and (in the case of one of them) yard space.  They are usually leased to mom-and-pop type businesses.  When the downturn happened in 2008 and 2009, I think I could have stuck a sign out front that read, “Come in and rent it for free,” and still no one would have shown up.  It was an unneeded asset class for a period of time.  Now, of course, that has all changed and they are highly sought after again, but that doesn’t mean it’ll stay that way in the next downturn.

The one thing we know for sure is that people always need an affordable place to live and if structured right, single-family homes are consistently rentable, income-producing assets.

Be an investor, not a speculator.  If you count on appreciation only, it is just as much a gamble as rolling the dice.

The saying does not go, “the surest things in life are death, money, taxes, and appreciation,” which I, for one, don’t think is as catchy anyway.

As much as we know that good assets tend to gather appreciation over time, that is not something that should be relied upon for a return, especially when you’re considering an economic downturn.

Cash flow is your number-one protection to producing a successful real estate investment versus a burdensome one.  You want to be able to weather the inevitable storms that come in cycles.  That is only done through two ways:

  1.   Positive cashflow on your properties to sustain you.
    Or
  2.   (The burdensome way) having enough cash in your pocket to make it through.

If an investment is only wagering on the market to provide a good turnaround on a property when it’s time to sell, the market certainly makes no promises to hold up their side of that unspoken bargain.  We all look pretty smart in good markets.  But downturns reveal the truth about how much we relied on our expectations to pull through.  Appreciation-pushers tend to find themselves at the short end of the stick when that happens.

Fortunately, we don’t have to predict the future to see if it will meet our expectations.  We can just continue to operate our properties because they will produce income one way or another, and we’ll be able to wait out the storm until the market recovers.  You know how people say, “Cash is king.”  I would add one more word to that and say, “Cash Flow is king.”  With that in mind, I ask you: what’s ruling your investments?