Investing in real estate is a daunting task, no matter what the economy looks like. However, when the free-market takes a dive, your choices can have even greater consequences down the road, for better or worse. Typically, a bear market indicates that the value of the market is in decline, and therefore prices are low. In principle, most experts recommend investing during a bear market, as it means you can get high value stocks and property at a low cost. These low prices will inevitably rise when the market recovers, allowing you to sell your investment for a profit.
Despite the apparent simplicity of bear market investing, it is not always easy to decide exactly when or how to start. As a result, many first-time real estate investors agonize over the decision. More often than not, when investors make decisions under stress, the results are disastrous. So, it is extremely important to approach real estate investment with a clear head and an understanding of the market. Here are just a few tips to make the most out of your bear market investment:
1. Do your research – according to historical data, the housing market has seen positive returns in every bear market since 1960, with the exception of the housing crisis of 2008. Statistically, real estate is one of the safest investments you can make during a time when stocks and bonds are less reliable. Nonetheless, large investments should never be made without first practicing due diligence. Look for areas with rising demographic trends or undervalued properties, but don’t rush into any large investment, no matter how tantalizing it may seem.
2. Expect slow growth – just because real estate can be a good investment during a bear market does not mean you should overestimate the growth potential. At the end of the day, a bear market still means declining value across most, if not all sectors. As a result, you should anticipate modest or even no gain in the short term. It’s not all bad news though. Even during certain periods of high inflation, house prices have historically shown modest growth in defiance of the broader market.
3. Don’t over-invest – the tendency during economic downturns is to sell off risky investments and either wait for the storm clouds to pass, or invest heavily in low-risk funds and real estate. However, generally speaking, those who are less reactionary during short term declines see larger returns in the long term. Real estate investment is no exception. Do not simply dump all of your existing assets in pursuit of real estate. Evaluate your options and maintain diversity in your portfolio. If an opportunity arises, you should certainly invest, but don’t put all of your eggs in the real estate basket.
4. Don’t agonize over timing – one of the hardest decisions to make during a bear market is not necessarily WHAT to buy but WHEN to buy. While it is frustrating to buy something only to see the value sink lower, it is important not to panic. When you panic, you make poor decisions. Deciding when to invest in real estate during a bear market is complicated, but it is always best to evaluate long term trends in the market, rather than react to short term changes.
These are just a few tips to help you navigate the world of real estate during a bear market. Historical data is always the best indicator of future returns, however, investing is not an exact science. Nonetheless, as long as you tread carefully and invest with a cool head, you should see healthy returns in the years to come.