Sector Rotation in Real Estate

[Tom Juhn]

This is more of a theory question. In stock investing there is an investment strategy called sector investing. The theory goes as the economy moves from expansion to contraction and back again, there are certain sectors of the market you need to be in, e.g. energy, consumer staples, tech, chemicals.

My question is does real estate work the same way. Are there times you should be in note buying or multifamily? Are there other times you should be in cash or flipping?

For example, if you felt in 2006-2008 that a bubble was forming, other than cashing out and sit in cash, could you have been investing elsewhere in real estate?

[Neal McSpadden]

The fundamental tug-of-rope in real estate is yield vs. capital gains. In most situations, the more of one, the less of the other.

I'm still seeing cap rates of 15+% in rehabbed SFR rentals in my area. As investors come back into the market, we'll see capital gains rise and yields fall.

So if you are interested in yield, you'd be rotating into those kinds of properties and out of properties that have already experienced capital gains.