Real Estate Investing – The Long Term View

I don’t know about you, but I need to stop and catch my breath. The Presidential election appears to be behind us but, in the immortal words of Yogi Berra, “It ain’t over till it’s over.” The COVID pandemic is roaring back with a vengeance. Our cities’ streets are quiet for the moment, but we all know that another unfortunate event could set it all off again. The good news? 2020 is almost over.

It’s times like these that we need to keep our focus as real estate investors on the long haul. While we don’t know what tax law changes are headed our way, or if a coronavirus vaccine will become available in the next few months, or if Washington will enter a new period of political stalemate, when it comes to real estate investing, we can look to history as a reliable guide for predicting the future.

Are we living in an “unprecedented” era? Perhaps, but my bet is that “the more things change, the more things stay the same.” That said, it’s a fair question to ask, is investing in rental real estate today a smart business decision?

Perhaps the best long term study of return on various investment forms was the November 2017 working paper sponsored by the Federal Reserve called, aptly enough, The Rate of Return On Everything. This massive data analysis was compiled by some of the world’s foremost scholars. The report covers a myriad of topics and is well worth reading to increase your knowledge of economics in general. But I want to drill down on one key finding made in the report, and I quote, “Residential real estate, not equity, has been the best long term investment over the course of modern history.” About half of the returns, over 7% per year on average, from residential real estate came from rental income. The other half was from appreciation. This global study covered sixteen countries (generally what we call the “Western Nations”) and 145 years of economic activity.

The study found that real estate investments were less volatile than equities (stocks) and much more profitable than government bonds. Now, without getting too far into the weeds, real estate investing offers higher returns and lower risk from an economics standpoint than other investment forms. Does that mean that investing in rental properties is right for every investor? No. Does it mean you should never buy a share of stock or an ounce of gold? Of course not.

More than anything else, I’m bringing this study to your attention to add some much-needed perspective. From 1870 through 2015, a lot happened – two world wars, an economic depression, a Cold War, and multiple political upheavals. Today we have instant access to “news” and information on social media, internet sites, radio, and TV. Politicians and pundits all tell us 24/7 that the sky is falling, right? Whatever side you’re on, politically or otherwise, the other side vigorously contends that the world is going to end if they do not prevail.

My bet is that the world keeps spinning. People will always need housing. Businesses will need commercial space. Yes, trends and cycles come and go, but hasn’t that always been the case? An old adage says, “God isn’t creating any more land.” That’s true unless you live in the Pacific somewhere on a volcanic island. Also, real estate is “real.” The only genuinely tangible non-cash assets are real estate and precious metals.

Businesses come and go; they can be acquired, liquidated, or file for bankruptcy. Dirt and buildings don’t disappear, and they can be passed down for generations. If you’re an REI, then you are interested in building wealth. One of the best, least risky ways to do that is to buy and hold rental real estate. That’s not just an opinion. It’s a fact.

If you have a residential property or properties in Westchester County that you are interested in renting, now is the time to put them on the market. At Sterling Property Solutions, we have a team in place that can answer all your questions and address any challenges. If you are already a landlord and no longer have the time or desire to handle rental property management on your own, we can help. Maybe your current property management company is not giving you the top tier service you deserve. If so, reach out. We are there for you.

Please give me a ring at 914-355-3277 or send me an email at [email protected]. Together, let’s form a plan for you to take full advantage of the current conditions and put in place a robust, long term program for your success.