Market Pulse: Real Estate Investing, a Strong Defensive Play

All across the country, including Forest Hills, TN, real estate, investing in real estate acts as a solid monetary endeavor aimed at future financial gain and long-term security. Not only can real estate provide a person with more resources, but it can also be a defense against various market changes, as it can be a more reliable form of income and fluctuate less in the long term. However, if you are looking at homes for sale in Forest Hills, TN, to invest in, there are some things to know about investing defensively. Read on for some top tips from expert agent Ashley Boykin so that you can move forward with confidence.

Considering that cash flow has contributed to a large portion of return in core real estate historically, the definition of defensive investing is making investments with the intent of providing stable cash flow. It involves taking as little risk as possible through a stable investment. It also involves limiting a property's amount of capital spent per unit of income, as some environments involve deteriorating credit quality and downside volatility for leasing. People who invest defensively will have a portfolio with limited capital expenditures and stable cash flow. This will lead to less volatile returns during low appreciation cycles. In other words, they are setting themselves up for success.

Nothing stays the same in the real estate market; it is a constantly changing landscape, with home values going up and down and favor shifting between buyers and sellers. Especially in the current market, defensive investing is a great idea because the strategy defends against so many factors. In the upcoming year, there is an economy that is probably slowing down, a possibility of a recession, growing interest rates, higher inflation, and geopolitical risk. Defensive investing may be able to help with all of these situations.

While people can invest in real estate during any market, some markets are particularly ideal for defensive investments. When the market is in a great position, such as having high GDP growth and low-interest rates, a defensive portfolio is not as important. However, in a slower growth and higher interest rate market, a defensive portfolio is essential. In general, investors should evaluate both the market and the specific and general risks investments bring as they build their portfolios.

While not all debt is a bad thing, in general, it is preferable to stay out of it. In defensive investing, negligible debt lowers the risk. Investing in properties without leverage can be done for those who do not want to go into debt or increase their risk. With a debt-free strategy and no long-term mortgages, there is no longer a risk of foreclosure. There are several options for investors wishing to limit their use of leverage, including trusts and debt-free real estate funds.

 

Co-investing in properties with people of similar goals is an inherently more defensive strategy. It allows the investors to split the risk and allows them to invest in more quantity rather than placing the majority of their net worth in one place. For those who are serious about being a private investor, the two options are not mutually exclusive. People can co-invest in one property and invest independently in another at the same time.

Defensive investors often diversify their capital into multiple properties in a variety of geographic locations, asset classes, and business models. While this strategy does not guarantee protection against losses or profits, it is still wise not to put all the money into one single property. Buying many multifamily units across a state is a better investment than buying one large property in one location. Defensive investing is a situation where quantity over size is preferable.

Some properties are better suited for defensive investments than others. Some real estate types to generally avoid include offices, retail, hotels, senior housing, and oil and gas real estate. As more people work from home, offices may not be a stable investment anymore. Meanwhile, senior living requires various regulations to be met, leading to more risk for those owning them, while oil and gas properties yield uncertain or volatile profits. The underlying value of drilling and energy production real estate can plummet fast if they do not produce as expected.

On the other hand, one of the types of property best suited for defensive investing in the current market is industrial. Regionalization of supply chains, e-commerce demand, and inventory rebuilding have all led to stability. With the vacancy of industrial properties at historic lows, the growing rent rate keeps up with inflation while also requiring low capital amounts. Meanwhile, residential properties, including traditional rentals, multifamily buildings, and student housing, among others, make use of the current housing shortage to make them an excellent choice of investment properties.

In today’s market, more homebuyers are turning to renting rather than purchasing a home of their own. In late 2021 and early 2022, rent prices were recorded to increase by 10 to 15%. While this pace is expected to slow down, rental prices are expected to continue to increase, as the growing demand gives pricing power to the landlords. Whether there is a recession in the future or not, income on rental properties is likely to be reliable, making this type of property a good defensive investment.

For anyone looking for Forest Hills homes for sale, working with a skilled local real estate agent will make the process easier and smoother. Ashley Boykin, a second-generation realtor who has learned from the most successful agents, is a reliable, honest realtor. She explains every step of the process to her clients clearly and directly, giving them exact expectations from the beginning, while her status as a top negotiator and her dedication to each customer’s needs form an excellent experience. Her business is run 100% through referrals.

 

Contact Ashley Boykin about buying or selling a house today.

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