Real Estate Investing in a Pandemic World

The Big Picture

The Long Game

There are speculators and there are investors.  The one you chose defines your proper course of action when allocating your hard earned money to future expectations. Everyone at some point faces the reality that forces outside your control can strip away everything you thought you knew about tomorrow's plans.  It happens daily to thousands of people and we never give it a moment's thought.  When the same forces hit everyone everywhere at the same time, then we all perk up and take notice.

If you're a speculator, you either double down and take advantage of everything you can, or you sell everything and go cower in a corner waiting for the dust to settle.  Investors see sudden shocks like this as opportunities that only come around a few times in life.

For most of my life I thought of myself as an investor, when in reality most of the time I operated as a speculator.  Investing takes discipline, dedication, and focus on the right things.  For some people all that comes naturally.  The rest of us have to work on it.  In this pandemic world we find ourselves in as I'm writing this, some of the lessons of the past make excellent case studies to hone our discipline, dedication, and focus so we come out stronger on the other side.  Times like this provide the perfect opportunity to step back and evaluate our past experiences and our futures. Those past experiences combined with present realities strengthen us for the future that awaits.  We play the long game, and we rise above the tide of mediocrity.

Building on 2008

I've lived through about eight black swan events in my life.  Each one provided perspectives on the world inaccessible in a book or classroom. Nothing changes you like a real experience, and no real experience changes you more than one that strips away all your preconceived notions of reality.  As a child, the first black swan events simply sparked my imagination.  I was too young to personalize them.  The possibilities were no more real than a story book.  As a young adult, the possibilities became frightful and stirred me to take drastic actions out of fear.  After two or three events it became clear to me either the true worst case scenario almost never happens or when it does, human beings figure out how to adapt and get on with things.  By 2008 I had seen enough global crisis to carefully watch events unfold and ask relevant questions to prepare for the new world unfolding.

As I was processing and reevaluation all my life lessons on money and finance in 2008, the founder of the real estate company I now work with quickly discovered his real estate business model had some weaknesses. Some people give up when their world is shaken.  Other's pick themselves up and learn from it.  I'm grateful Robert Slattery had the internal fortitude to realize the defects were not in the real estate industry itself.  Instead, like a good engineer, Mr. Slattery took a close look at his design, identified the flaws, and redesigned his model to withstand inevitable exogenous events.

The lessons from 2008 suggested to me real estate was actually the safest place to invest hard earned money for the long game.  Before 2008 I believed Wall Street traders were real wealth makers.  After 2008 I realized real wealth exists only in assets you directly control and own completely.  Gold and silver obviously fit that standard. But gold and silver don't produce income.  Real Estate provides the lowest risk, highest potential of any other asset class.

Today I find myself still convinced, and fortunate to participate in the opportunities ahead that our present crisis provides.   No matter what happens, common people need a place to live.  The Blackwell model was designed for just that situation.  To enjoy those benefits going forward, we need to establish the basic principles that support and enhance that real estate model.

Basic Principles

First to Market

In every event like today the people who win big are those who are ready to go when the air clears.  One real estate investor I met last year hit the ground running after the Great Recession, targeting undervalued assets and distressed properties. Today he is financially independent. The venture capital world works like that daily.  Suppose an inventor comes up with a unique solution to a pervasive old problem that everyone needs.  Your Shark Tank lessons probably taught you by now once the word gets out, venture capital swarms the market like locusts.

The first to market reaps the biggest dividends.  We have at least a few months as of this writing before work and life will be called normal again.  We have a perfect opportunity to prepare ourselves, while there's no competition, to review our long term plans and goals.  Figure out why you involve yourself with real estate. Figure out where you want to be in ten years. Figure out what resources you will need to succeed. Then outline a strategy to get ready and hit the ground running when the coast is clear.

Historical Opportunity

We have seen truly unprecedented actions from governments around the world to stop the spread of the SARS-Cov-2 virus and the economic consequence to the lives of many, with more on the way.  The consequences of those actions will reveal themselves over time. While we don't know the extent or nature of the new rules, we know for sure there will be new rules. Some rules flow out of direct actions by government, like ultra-low interest rates, while other rules reveal themselves as several trillions of dollars of assets shift from one place to another.

The collapse of the Bretton Woods monetary system from the Nixon Shock in 1971 opened the door for Americans to buy gold bullion for personal use. It set the stage for floating exchange rates and changes how we think of oil as a commodity. Today professional and private traders and investors participate in large financial markets trading gold, oil, and forex.

Another paradigm shift is around the corner. While you prepare an action plan, leave time to study the changing landscape. Keep an open mind for creative ways to solve problems, as problems reveal themselves.  In the United States we have opportunities unavailable to most people on earth. You've seen this taking place in the middle of the crisis: restaurants pivoting to serve in unique ways; a liquor distillery converting itself to hand sanitizer maker, a 3D printer engineering company producing 100 ventilator valves in a single day on a moment's notice, auto companies brainstorming methods to support production of ventilators. These are just the visible signs of free-market ingenuity, and the rapid response of creative minds applied to solving real problems.

I learned one of my guiding principles from an interview with Richard Branson, founder of Virgin Group. Asked how he figures out how to make money he replied, "I don't think about making money.  I look for opportunities where services and needs are lacking, and figure out how to meet those needs.  If I can do that, the money will follow."  I went to work for Blackwell Real Estate because they pursue that same goal. You can, too

Rules of the Game

Secure Your Home

Toilet paper is not your biggest concern.  There's nothing broken in the U.S. supply chain. In times like this, everyone owes it to themselves to evaluate the gaps and weaknesses in their living space and financial circumstance.  I like Dave Ramsey's advice. When faced with financial stress, make sure you prioritize the three most important parts of life in this order:  food, utilities, shelter.

I'm sure these last two weeks forced all of us to think carefully about what's most important in our lives.  Use this isolation in a constructive manner filling in the gaps of your lifestyle as circumstances reveal the needs. The biggest growth and change in the United States occurred after the Great Depression, as that generation learned to reevaluate the importance of essentials.  Many of you may remember seeing that attitude in your parents or grandparents even into the second half of the 20th century.  I believe our present situation will do the same for this generation.

After your home essentials, consider your personal qualities, strengths, and abilities, as well as your weaknesses and vulnerabilities, and the impact on your future. Talk about the bigger issues of self-sufficiency and readiness with your loved ones. Review your estate planning, as my wife and I have done. Ask what it looks like in your world to anticipate and prepare for lose of access to common supplies. Changing one's perspective regarding everyday life pays dividends where it matters most, in any number of exigencies of life: earthquakes, long-term power outages, severe storms, and all other man-made and natural disasters.  These actions remove significant factors that feed our fears in times of crisis.

Prep Your Resources

One of my favorite financial writers has two poignant pieces for our consideration.  Take a look at "A Crisis is the Worst Time to Learn Your Risk Tolerance" and "Three Things I Think I Think – Corona Edition" by Cullen Roche at Pragmatic Capitalism.  While his dialog centers around stocks and bonds, his principles apply to any type of investment. As he says in one of my favorite quotes, "Don’t do something you love. Do something other people will love you for doing."

When you have your essentials secured and your purpose defined, then you're ready to prepare your resources.  The internet provides a wealth of information on strategic planning and project management. Every personality type and learning style can find a system that resonates with them.  Use the extra time from isolation preparing a strategy for yourself.

While you build your plan, prepare a timeline that works regardless of timing.  This crisis will unfold and settle down in unpredictable ways.  Remember the first to market principle above.  I started my business in real estate for this very purpose, to help investors build solid plans.  I can't tell anyone what the right choice looks like for them, but I can ask relevant and useful questions to help anyone find the answers for themselves.  An epiphany three years ago opened my eyes to my knack for finding creative solutions to problems and clever techniques for saving time and money. If you can't work with me, find someone you can work with.  A coach, a mentor, or a roll model is invaluable to everyone.  Even the richest people on earth had and still work with mentors and coaches.

Lastly, I highly recommend The Only Basic Financial Advice You’ll Ever Need at Pragmatic Capitalism as a general educational resources for building your financial futures.  In the meantime, stay tuned through my social media connections.  I have other research coming regarding historical U.S. home prices based on Case-Shiller's work from Irrational Exuberance where I will demonstrate the stability of home prices through various economic changes and stress conditions.  I'm also working on collecting data on real-time changes in our local market, and other topics as events unfold.

Don't forget to share your thoughts below so others can learn from your experiences and I learn to address the thoughts and needs of my readers.