There is a lot of hype in the media. Many don’t want to acknowledge the potential financial side effects of the current crisis. Others will say anything to sell what they have, even if it is the worst investment in history.
So, what should we be investing in? What should we be cashing out of?
The New Crisis
Unless the COVID-19 situation is turned around and we return to normal life within 2-4 weeks, the chances are we’ll experience a new economic crisis that is at least 2x more severe than 2008.
This is like a Cat 5 hurricane hit the whole country at once. There’s no toilet paper, no (appealing) dry foods, no water to ration in many grocery stores, and even no furniture or car parts due to a lack of imports.
At least the fed is lowering interest rates this time. However, 40% of the working population who hadn’t already switched to remote work is in for a big shock. In California, the new ban on freelancers means 100% of the population there is pretty much unemployed at this point. Unless you are a doctor, are in the national guard, or you own your own business.
Things will bounce back. We will adapt though it’s likely to get deeper for longer than most appreciate. It may be two months, six months, 12 or more.
What do we do right now?
What Not To Invest In
There are some pretty obvious don’ts when it comes to investing right now. There are some pretty clear assets it doesn’t make sense to invest in.
- Muni bonds
- Most tech startups
- New cars and homes to live in (unless you are downsizing)
While it is virtually impossible for even the best to precisely pinpoint the bottom, we know these things likely have a long way to go down before they come back up. It will probably be at least 6 to 12 months before they bottom out and can hope to rebound.
You can always buy these assets back cheaply at appetizing discounts if you cash out now and still have the cash to work with then.
Do Invest In
What do we all need right now?
We need solid, tangible assets with limited downside exposure. We’re going to need cash flow and alternative income streams.
The best asset class appears to be apartment buildings—specifically, those in the working class or workforce housing sector.
They will survive best when it comes to asset values. Whether people are moving up or down, this space will be in demand.
Even if some tenants struggle, you have diversification. In the worst-case scenario, you can give tenants a couple of weeks break on rents and tack it onto the end of the lease.
The Bottom Line
Don’t panic. Don’t wait to sell bad and declining assets. Do act and invest smartly now.
As Warren Buffett has said, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” Keep cash on hand and be on the lookout for opportunities.
ABOUT THE AUTHOR
Bill Zahller is the Managing Partner of Park Capital Partners, LLC and resides in Asheville, NC. As a Multifamily Real Estate Investor and Syndicator, he founded Park Capital Partners, LLC in 2016 after 14 years involvement in real estate investment. He works with accredited investors and professionals who are interested in real estate investment, diversification, and financial freedom.
Bill has been flying since high school. His father was a Naval Aviator and Captain for TWA. Bill has been flying professionally for over 25 years, 23 of those at his current company. He has accumulated over 12,000 hours and 7 Jet type ratings. He has also held Instructor, IOE Instructor and NRFO pilot positions with a large fractional flight company. He is currently flying the Global 6000 in a long range mission capacity. This keeps it interesting – one week its Beijing or Sydney; the next Rio or Rome.
Bill is also the founder of the Asheville Multifamily Investor Club. Visit www.ParkCapitalPartnersLLC.com for more information.