What investors should look out for during uncertain market periods
Inflation is skyrocketing, rising interest rates and the war in Ukraine are affecting the investment real estate market. As an investor, what do you need to know to make the best decisions you can during this uncertain market period?
Investors are probably asking themselves: should they sit back and hold onto their capital until the market changes? If that is the route you choose, you would be losing a significant percentage of your idle cash. With current inflation rates pushing prices higher along with lower passive return numbers, this would reduce the purchasing power of each dollar held. But, what is the hedge against inflation? Investing in real estate.
For passive investors, we recommend looking for a group, fund, or syndication that implements a macro strategy: a better plan of diversification of asset classes and markets and not just rely on a single asset risk.
A lot of funds and syndications have a lock-up period for your capital, oftentimes, 3-7 years. Try to look for certain investment companies that allow some aspect of liquidity, where you can get your money out even sooner or take it out with a written request within a certain amount of time. Dual City implemented this strategy when the COVID-19 pandemic hit. We were going to launch our second closed end private equity fund, which gives a minimum hold period before assets would be sold off and any profits would be distributed. We ran into a lot of headwinds at that time and rightfully so. If we didn’t want to lock up our capital, we couldn't blame investors for not wanting to lock up theirs in such an uncertain market, and we still don’t expect it.
At the start of 2022, we implemented an evergreen strategy in which the fund doesn’t have a close date and doesn’t divest its assets after a certain period of time, so we can buy through any market cycle. What that provides is when interest rates are rising, cap rates are going to rise, which should increase cash flow on assets. If equity is decreased because of increased cap rates and interest rates, the cash flow in turn should also increase. If you outlast that market cycle, you’ll have higher cash-flowing assets, and hopefully coming out of it, you’ll have cash-flowing assets that are also appreciating at a higher amount.
Sitting back and trying to time the market cycle might not be the best strategy, but instead, look for groups you can trust and meet diversification criteria. Look for funds that don’t close on a certain date, such as an evergreen fund, and ones that may provide some degree of liquidity.
While rates are still fairly low, Dual City believes purchasing assets far below construction costs is a smart plan. Oil prices will lead to higher construction costs, interest and capitalization rates will rise, but if we can lock in longer term capital now at relatively low rates on quality assets, we feel that will be a beneficial long-term strategy for us and our investors. Even in this uncertain market, our strategy is to move forward.
Dual City Investments is a commercial real estate investment firm built on fidelity and integrity while focusing on providing private equity investment opportunities with investor security as our priority. Our firm’s mission has been to produce consistent investment returns through a systematic approach across investment real estate and specialty asset classes. We provide trustworthy and consistent real estate investment options and specialize in identifying opportunities that allow for long-term wealth building.