One of the most powerful differences between an average investor and a world-class investor is the former’s ability to balance short-term and long-term thinking. Dominic Barton – the former Global Managing Partner of McKinsey and Co. – often remarks about his desire to figuratively have a telescope in one eye and a microscope in the other. This analogy is crucial during times of uncertainty and it has led me to remain optimistic about the future of real estate as the world’s best asset class.
Why Real Estate, Among Other Investments?
Real estate is everything that Bitcoin is not, and perhaps that’s a very good thing. Low-liquidity, minimal volatility, and cash-flow with consistent growth make real estate an excellent addition to my portfolio. Here’s why those characteristics are important to me:
This one may seem counter-intuitive; however, the real estate’s low-degree of liquidity can actually be a strong benefit to investors during ambiguous market conditions. I, like many other Canadians, use a digital stock brokerage app (WealthSimple Trade, in my case) to buy and sell stocks. The advent of these apps are great because they offer people access to the stock market with very low commission fees; however, they can occasionally hinder a disciplined investment approach if the owner isn’t careful. When investing in real estate, particularly through a private placement like addy, I don’t have to worry about my own impatience impacting my portfolio’s performance. The lack of liquidity in private real estate forces me to be disciplined with my investment choices and avoid buying and selling securities based on what I’ve read in the latest Twitter news cycle. This allows me to yield higher returns over the long-run compared to other investors who might feel the need to “time the market”.
When I see Tesla’s stock hit a price-to-earnings ratio of 1,300 in the middle of a global pandemic, I have to ask myself how long I think this stock market boom will last before reality kicks in. As someone with a fascination with financial markets, I have read about famous crashes such as 1929 and 2000 and the fact is that there are many similarities between those bubbles and the current condition of the stock market in early 2021.
Traditionally, real estate market prices (with the exception of publicly-traded REITs) are not highly correlated with the stock market. This means that I can rest easy knowing that if I invest in addy, there is a drastically lower chance of me losing a large portion of my wealth after one bad day of trading.
Cash-Flow and Growth
Real estate offers what very few alternative asset classes can: steady cash-flow and inflation- resistant growth. I prefer a degree of stability in my portfolio which is why real estate is an obvious choice for me because of its cash-flow consistency. In addition to cash-flow, real estate’s value appreciation typically acts as a hedge against inflation which is a valuable – yet often overlooked – benefit of owning real estate.
Why Invest Now?
As they say, “never let a crisis go to waste”. There are two primary reasons that make 2021 the ideal time to make real estate a core part of my portfolio which include: 1) high vacancy rates, and 2) addy’s $1/share offering.
Primarily driven by the pandemic, Canada is seeing relatively high vacancy rates in Q4 2020. This can scare off some investors but in reality, this is what it looks like to buy low before selling high.
Here’s an excerpt from a recent PwC report:
“Of employers that had yet to return to the workplace, 78% expected to do so to at least some extent in the next three months. When we asked employees about their ideal work environment, 34% said they prefer to work mostly or entirely remotely; 37% want to be in the office most or all of the time, with the remaining 29% looking for an even split between the two options.”
This eludes to the fact that employers and employees alike are planning to make the migration back to the office and commercial real estate prices will likely rise when they do. This makes right now the perfect time to invest in commercial real estate, specifically.
For so long, I – along with just about everyone else my age – have been forced to purchase shares of volatile REITs if we wanted to invest in real estate, but addy has made the markets 1000 fold more accessible and it wouldn’t make financial sense for us not to begin investing on the platform.
Not only does this fractional share offering make the real estate market accessible to the 99%, but it will also allow the 1% to diversify their portfolio with greater granularity. It goes without saying that addy’s offering is truly game-changing
2020 has been anything but predictable and with the changes that we must go through as a society, it’s unlikely that the pace of change will diminish; but as investors, we have to stay committed to taking a logical approach to decision-making in order to navigate the occasional ambiguity of the markets.
Opinion piece by Hunter Sones
Hunter, 22, is currently in his final year of post-secondary at BCIT studying marketing and business administration. He has a fascination for alternative investments and had always wanted to break into the private real estate market but, until addy came along, he never had that chance. Now, Hunter aspires to grow and diversify his real estate portfolio while encouraging other young investors and aspiring homeowners to do the same.