June 27, 2022

We’re officially in a bear market now and a recession seems likely. A lot of people have been asking me what this means for real estate and how they should be investing.

Like all investors, I have been thinking a lot about current market conditions. We published a long form article on this topic and the feedback was very positive, so I wanted to share a shorter version with my broader audience.

Bear market investing is not much different from investing in normal times. Conditions change, but principles stay the same. Here are my key takeaways:

  1. Fundamentals like supply and demand always matter.
  2. Great investors build diversified, long-term portfolios.
  3. Macro trends are important, but they’re not determinative. It’s always possible to beat the market.

Difficult market conditions, like what we’re seeing today, hurt all kinds of assets. The stock market is way down, and this time, bond markets are suffering too. Real estate appears to be holding up better, for a variety of reasons.

Supply and demand are the primary driver behind every market. Currently, the lower liquidity and longer time horizons of real estate are an advantage. Investors are fleeing to the safety of cash, while stocks and bonds are much easier to sell quickly.

Investing is a long game, so we always want to be thinking years into the future. Of course, the future is hard to predict, and that is why great investors diversify. Different asset classes with different risk profiles and time horizons help ensure that an investor stands to profit in many different scenarios. Every new investment should be considered in light of how it affects the investor’s overall portfolio.

I won’t predict what will happen with the real estate market writ large, but I am certain that Alliance will continue to find good deals. We have developed a deep understanding of a specialized niche - medical properties - that has performed very well over the years. People always need medical care, and that props up demand, even in a recession.

Real estate is extremely local, and Alliance knows where to look. With our deep understanding of the market, we will always find winners. It also helps that some of our niches are generally too small to attract the large institutional investors who might otherwise make things more challenging.

A bear market is a scary time for investors, but it is also an opportunity. As asset prices drop, we have the chance to buy great properties at better prices. As always, the key is to focus on the fundamentals and think long term.

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