Stock Market Bears To Chase More Capital To Commercial Real Estate

Stock Market Bears To Chase More Capital To Commercial Real Estate

As the stock market degrades expect more capital to head to the safety and returns of commercial real estate.

The stock market has been fighting to minimize losses and uncertainty recently. That is likely to be a losing battle at some point. Especially with rising interest rates and the additional uncertainty and mayhem the ramp up to the 2020 election will start causing in the new year.

Odds Stacked Against the Stock Market

The odds are definitely stacked heavily against stock market investors today. We’ve perhaps been in the longest and highest bull run in history for a long time.

Cyclical bear markets come along often. Just as real bears hibernate and wake up to go on the prowl. Yet, look further back and you’ll find far more extended bear markets that can last many years. Those can take decades for investors to recover from. Even just to get back to par.

We know the stock market has been 60% or more overinflated for years. Now analysts say we’re headed for a new recession. With an 80% chance of that recession coming in the next 35 months. Even in a reasonably normal stock market that is dangerous. Then consider that 83% of all IPOs in the first three quarters of 2018 were companies that were losing money. Those are signs that the founders and early investors were just ready to cash out and run. Many of the biggest tech startups with the biggest deficits haven’t even tried to go IPO recently. Though many stock market investors may also be exposed to those losses through funds that bet on them.

Speculating on a horse that has the worst odds of winning isn’t really investing. It’s not even smart gambling.

Brick and Mortar

While most will hold onto their stocks too long (as they always do), we’ll eventually see the following rush to brick and mortar assets.

Recognize that this type of real estate investing is different to publicly traded REITs or real estate stocks. Those normally won’t be spared the emotional volatility of the deep cuts of a big bear market.

Direct and private investment in real estate, on the other hand, provides the safety of hard tangible assets. The whipped cream on this pumpkin pie of investments is strong yields and the ability to control asset value, even in down markets.

We’ve already seen giants like Amazon making more multi-billion dollar real estate investments. More institutional money will follow as stocks really crumble. As will masses of individual investors. Though many may lose a lot of their nest eggs in the stock market before they take action.

Early Mover Advantage

These facts still give early movers a great advantage in investing in commercial real estate, like multifamily apartments. There is still a window of opportunity to get in while your investment capital is mostly intact, and before values go higher and returns compress.