Peoples Capital Group Blog

The Sky is Falling - 6/30/21

About six years ago I remember sitting in my friends brand new Range Rover, he had purchased one of the nicest Range Rover models money can buy and it was quite impressive. The LED lighting seemed to flow from the tightest corners of the cockpit that resembled a space ship. The trim lines and red stitching was near modern art that made me never want to drink a milkshake in this car for fear of staining the clean finishing. The automobile was truly a work of excellence and cost around $150,000. I personally prefer a car in which I can comfortably drink a milkshake. 

We drove out for some soft serve ice cream and joked about our early days of real estate. We both took different paths to find our success in real estate and had a lot to catch up on. As we sat outside on a beautiful Summer day, we got to talking about investments. He informed me that the economy was about to crash and his investment position was cash. He was to hold cash in a savings account until the big crash took place. "If you thought 2008 was bad just wait until you see this crash", he would tell me. Since this discussion, property values have grown around 8% per year and cash has lost it's value to inflation at the rate of about 2% - 3% per year.  

A year later in 2016 I recall speaking with a real estate appraiser. He informed me that prices were rising so fast there was no way people would keep paying for real estate and prices are going to drop hard. Also rent was definitely going to drop because wages were not rising fast enough. He was going to wait to buy real estate, once the price got really cheap after the crash.

In 2018 I was having a conversation with a fellow real estate investor who informed me that economies work in eight year cycles and this is the year the market will drop back down to where the prices where eight years prior. He was selling all of his property ASAP. Property values have grown over 20% since this discussion. 

It seems wherever I travel in my real estate ventures I can always find someone saying that the economy is set to crash and yes, at some point the economy will shrink but is that a reason to panic? 

Partially, all of these people are right but I believe their reaction was wrong. If we live in fear, standing on the side lines assuming the worst, then we gain nothing. In fact the one guarantee is that if we spend our hard earned money on expensive cars instead of assets, our wealth will dwindle. 

Fear of being deemed loser by our peers leads us to buy fancy cars or large primary residences with larger mortgages. So push back against fear. Use your capital to invest in assets that grow in value and produce positive cash flow. Avoid impulse by pushing away fear and pessimism. Do not be 100% invested in the stock market. Have a long term view on your investments and, in my opinion, at least a third of your capital should be invested in professionally managed real estate. 

Markets go up and markets go down, always diversify. 

This is not tax advice, legal advise or a solicitation for funds.

 

- Aaron Fragnito, Managing Member of Peoples Capital Group 

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