Good news: The markets are up.
Way up. The Dow just passed 20,000.
The stock market has been swelling for the last several years (although, depending on how you look at it, you could also say it’s been sideways).
Real estate is also clawing it’s way back from the dark hole of 2008.
Yes, the market’s are up.
But that’s both the good news and the bad news.
The bad news is that the markets up… and that means there are a lot of dollars frantically chasing yield.
Investors don’t want to put their money in the normal conservative arenas like CDs, bonds and money markets t-bills. The returns don’t even keep up with inflation.
Investors in today’s market are like blind men in a foot race.
When the market surges, amateurs gain the courage to play a dangerous game they know nothing about.
The ugly truth is, there is going to be a reset.
You can bet on it.
The markets always cycle. The stock market is way, way overvalued and it's due for a crash.
And then there’s our new president.
Historically a new administration will take hard hits in the two years following an election.
They try to address the pain points early.
Like him or hate him, our new president has shown little hesitation when it comes to tackling pain points.
Later in their term, presidents (at least most presidents) play things safer, are a bit more liberal, angling for a chance at another term in office. That’s how the game is played.
I’m keeping a wary eye on the financial marketplace.
6 months, 12 months, 18 months… “when” can’t be said for sure.
But when it falls, it will fall hard.
I truly believe the stock market has a long way to fall (as it did back in 2008).
Real estate can also be affected.
When the financial markets freeze, real estate financing credit freezes and financing tightens up.
So… what’s to be done?
As I said earlier:
“When the market surges, amateurs gain the courage to play a dangerous game they know nothing about.”
But the other side of that truth is this:
When the market resets, veteran investors see opportunity.
The key is control.
In the stock market, you have zero control. You ride the roller coaster up and hope for the best when the ride gets bumpy.
In the real estate arena, I can choose which markets to invest in and how to invest.
Let’s dig a bit deeper.
When the markets reset, it will affect real estate… but how?
The higher tiers of the real estate market will bear the brunt of the reset.
Houses valued at $250,000 and above (into the millions).
That's the market segment that will primarily be affected.
After all, no matter how badly the market crashes, people still need a place to lay their head at night. If you lose your $300,000 home, you’re probably not going to live under an overpass with your belongings in a shopping cart. You’re going to temporarily rent something smaller (something you can afford…) until you get back on your feet.
Below $150,000, there’s a market that will be (somewhat) insulated.
Another factor is that banks are not lending money as freely in that lower market segment.
The answer is long and complicated, (but can be summed up in one word: regulation). The cash foundation of this market-space serves to further stabilize it.
So, if you want to be safe and protect your downside while still having an inflation hedge for the upside, the best sector to invest in is the $150,000 or less, both as a buy-and-hold equity owner or as a lender.
That's where I truly believe we can stay safe from fluctuations and volatility in the marketplace.
If you’re investing for cashflow (cashflow is king) in these “boring” markets, you’ll be well prepared for anything, even a general reset in the market.
That’s my analysis of the market. What’s yours?