The economic chaos that followed the 2008 financial crisis has been over for a while now, but many discussions about real estate investing still reflect on the hard times we all faced. Everything from "How do I survive" to "Is it too late?" is discussed. What's more interesting — and what might be true — is that many of these questions can be answered with several key factors. For example, if you are somewhat new to investment and retirement strategies in general, then you might struggle to find your way. But by looking at personal finance and trends in the market, you can identify where the best opportunities lie and then consider looking into real estate investing in recession. These opportunities can be found in things like current demographic shifts, the growing adoption of cashless technology, and what could be considered long-term investments.
The following article will explore some of these factors to identify some of the key factors that might make real estate investing a good bet, whether you're just getting started or have been dealing for a while now.
The "Real Estate Market" Is Recovering
One thing you hear all over is how great it is to invest in real estate — but how does one tell if the market is really recovering? Luckily for us all, there are several key indicators that hint at a revival.
On the surface, the real estate market itself is performing quite well. In fact, from 2017 to 2018 there were 6.3 million more households that now own a home than there were in 2011. Overall, over the last five years, properties have increased by 5% — but that's only growth of about 1.5 million homes if you look at that timeframe alone. So where are all these extra properties coming from? And why aren't homeowners feeling wealthier? The answer can be found in the increase of multi-family housing. In 2012, 19% of houses were multi-family housing — compared to just 15% in 2008. Now, more than 35% of houses are multi-family housing, including condos, townhouses, and apartments.
One thing to keep in mind is that it's difficult to get a clear picture of how people with less money invest; but even so, there are obvious trends that point toward potential opportunities for the savvy investor. First, the homeownership rate is still down by 5% — meaning that many are renters rather than owners. Second, the median amount of income needed to rent a place is now $40K a year — compared to just $26K back in 2009 (when incomes were lower).
The last thing you want to do is be constrained by markets and laws. For example, in Boston, you're most likely to find apartment buildings that are leaning toward the pricier end of the spectrum. So the tips from people like this can be particularly useful.
The Boomers Are Retiring — And That's Good News For The Real Estate Investing Lessons From The Great Recession Applied To 2021
No one is quite sure when retirement will happen, but we do have a good estimate of how many will be leaving the workforce. Well, at least we know eventually. Estimates from the Social Security Administration suggest that about 2% of people retire every year starting at age 65 and about 10% retire between ages 70 and 75. Of course, those numbers are slowly increasing over time, but let's use them for now.
One of the biggest reasons people are retiring is that Social Security has become a more enticing proposition. People are living longer, so they have to plan for the extra years. This means pension and health benefits must be put in place. On top of that, retirees are also saving for their own health needs — an average of $1.9K a year. So what does this mean for real estate investors? Well, first off, it means that we might see a spike in people putting their homes on the market as they downsize. Second, it means that many will try to rent out space in their houses or rent out a whole property to cover those costs. This is a great opportunity for those with the right processes in place to make some extra cash.
The Sheets Are Now 80% Cash
Forget about your employer-sponsored retirement account, as it's likely that most Americans are maxed out. Over the last 40 years, income has increased by an average of 2% — but with inflation hitting 1%, it means real pay has only grown by 1%. And while that may seem like a small difference, it adds up after a few years.
Even worse, we have a lot less money than we used to. There was a time when people thought they could retire with $50K a year in savings. But studies suggest that today's workers need nearly twice as much — at least $85K saved — to maintain their lifestyle and still have enough for emergencies and health care costs that come up over the course of retirement.
Even if you're one of the fortunate ones who don't think they need as much, there's still some bad news: that number is inflated compared to data from the 1980s. In 1989, Americans saved about 7% more than they do today. That might not seem like a lot, but it adds up after years of investing.
Now, this is not to say that all the gains are going to corporations — a new study from Goldman Sachs suggests that 25% of corporate earnings are going straight to shareholders in the form of dividends, share buybacks, and interest payments. In other words, this is money we're not seeing.
One thing these numbers point to is a clear shift in savings habits. Today, nearly 80% of people have money held by cash accounts: money market accounts or CDs. For example, about 20% are invested in stocks and only 7% invest in certificates of deposit or savings bonds. Only 10% have retirement accounts such as IRAs that help us save for retirement — and we've already seen how those compare with today's standards.
The data doesn't lie: we just have a lot less money to save than most. So what gives? Well, studies say that this is largely due to the fact that when people are working, they tend to put their money in savings accounts or CDs. They don't want to incur any fees like fees for investing in stocks and bonds — so they end up saving even less.
For all of these reasons, it's not surprising that people who are stuck at work have no idea what retirement means. While Social Security has been around for nearly 70 years, many don't feel confident about their ability to make enough to cover expenses in retirement. So most don't plan for it — or even think about it.
Investing Tips From The Pros: Five Investment Strategies To Grow Your Portfolio
No one knows how the real estate market is going to perform next year, but there are still ways investors can add to their portfolios. Here are five investment strategies that work well in this economy and might be worth considering for the future.
The first thing you have to do is stop trying to guess the market — remember that without any useful data, you have little chance of succeeding. So ignore the headlines and focus on the fundamentals.
Second, it's important to diversify, especially if you're not a founder or an early employee. Most people think that real estate investing takes a lot of work — and it does — but the best stocks are the ones that pay dividends (which can be reinvested). That means picking stocks that pay dividends and then diversifying your holdings with other types of shares which pay out a similar rate of interest. Third, we need to look at what is going on around us. If you look at history, the slowest rates of growth take place in the spring and fall. This means that you should focus on buying stocks when they are low and selling them when they are high. That way you can play the swings in the market. Fourth, leverage works well. This means that if you can use other people's money to buy stock, it can go a long way. For example, most mutual funds have minimums of $5K or more — but they also come with big fees. So a better strategy is to buy stocks on an exchange using your own money and then bought fund shares with your profits. That way you only pay for what you need without paying extra fees just because you don't have enough cash.
Fifth and finally, it's not about how much cash you have — it's about how much time you have. So many people get scared when they don't have enough money and try to save at once, but that's not a good strategy. Instead, you should always be buying stock whenever you can. The market will almost always go up over time if you just buy a handful of shares at a time.
Real estate investing in a recession can be considered and looked into. All that you are required to do is consider and look at all the aspects for the same.
For more information, you can visit Real Estate Calculators.
