A Financial Advisor’s Guide to Real Estate Investment in an Uncertain Economy

We are living through uncertain times that seem to be getting even more uncertain with every passing month. In an environment like that it can be difficult to invest and think about your financial future. David Means from the DeNovo Advisory Group joined us on the Where We Live Podcast to discuss whether or not real estate is still a wise investment during uncertain times and how to approach investment and planning for your financial future in 2022. 

How to Invest In Uncertain Times 

There are a number of approaches you can take to investing but David favors the “Warren Buffet” approach to help his clients build a solid foundation for their financial futures. This approach focuses on long-term growth rather than worrying about the short-term rollercoaster. Real estate offers a major benefit here in comparison to other forms of investment because you can’t see the short-term price fluctuations. It is much easier to pursue long-term growth because you’re not watching the market movements like a hawk. 

Long-term growth is about building wealth for 20+ years ahead. In the future you can use these assets as leverage or liquidate them to fund future life stages like retirement. 

It Is a Mistake to Sell Assets In Uncertain Times 

Where inexperienced investors often go wrong is they sell their investments when prices drop. The gut reaction to get out when times are tough looks sound on the surface. They are worried prices will continue to fall, so they’d rather sell now rather than eat a bigger loss. Often, they would also prefer to have a little more liquidity to weather uncertain times too. 

The reason why you need to fight this gut instinct is because it goes against the most basic of financial principles, “buy low and sell high.” It is daunting to buy assets during economic uncertainty. You are tying up your money and watching prices continue to drop. What we continue to see though is that regardless of short-term economic events, the housing market and stock market continue to grow long-term. So, you should aim to buy assets in economic downturn and sell them in times of stability. 

What Makes Real Estate a Recession-Proof Investment?

Real estate is such a monster asset class and responsible for most of the wealth that everyday people will generate in their lifetime. We are seeing future generations using their real estate as a retirement nest egg. That is something that David encourages all his clients to consider when purchasing real estate. It’s not just about buying your dream home; it’s about buying something that will provide a stable financial future. 

A unique benefit that real estate offers is that you can leverage other money to invest in an asset. Instead of putting down the entire value of the property, you can use the bank’s money to leverage returns. This is completely different to say the stock market, where you need to put the entire value of the investment into the market to play. By making a smart investment, this leverage can provide a huge tailwind for investors. Working with the right professionals is key in order to leverage mortgages effectively. 

What Is the Next Step To Financial Freedom After an Emergency Fund? 

The first step to financial freedom once you have discretionary income is building an emergency fund. That is a universally accepted standard amongst all financial advisors. Where advice usually differs is what to do next. 

David advises his clients to play defense where they play offense. That means insuring your assets and insuring against future liabilities. If you have income from working, then that means life insurance and disability insurance to protect your earning ability. If you have real estate, that means insuring your real estate assets. This step builds a stable financial foundation so you can keep moving forward instead of being knocked backwards by circumstances outside of your control. It also helps protect your family in the event that you’re not around to. You know that your kids and partner are taken care of not only while they’re grieving, but also in the long-term. 

Once that has been taken care of, then it is time to talk about taxes. Financial advisors like David and the team at DeNovo Advisory Group can help you claim tax deductions short-term and look at long-term tax sheltering, so assets are only taxed once. Those are the steps that a financial advisor would suggest to ensure you are able to sustain the wealth you build. 

If you’re ready to take the next step towards financial freedom and want to contact David to talk about your options visit the DeNovo Advisory Group website to talk about your finances.