The revolution that created a new property-owning democracy was born out of a great American financial crisis

financial crisis

The crisis resulting from human action and inaction, not Mother Nature or computer models, has gone haywire. The captains of finance and the public stewards of our financial system ignored warnings. They failed to question, understand, and manage evolving risks within a system essential to the American public's well-being. Theirs was a big miss, not a stumble. While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred. To paraphrase Shakespeare, the fault lies not in the stars, but us. Despite the expressed view of many on Wall Street and Washington that the crisis could not have been foreseen or avoided, there were warning signs. The tragedy was that they were ignored or discounted. There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms’ trading activities, unregulated derivatives, and short-term “repo” lending markets, among many other red flags. Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats promptly.

. The current financial crisis, which was sparked by consumer defaults on subprime mortgages in the United States, is considered the most drastic in history because of its global effect. This crisis has affected financial markets and institutions and goods markets and consumers all over the world and has thus generated a global effect. ...In the context of the recent financial crisis, which is considered the most severe financial crisis since the Great Depression, research has shown that banks reduced lending.

To some entrepreneurs, a recession is not a time to be mourning lost opportunities, but a time to be finding new ones. How can you find gold nuggets of opportunity in bad times?

Keep calm and carry on – American judge and author, Jacob Braude once said: “Always behave like a duck: keep calm and unruffled on the surface but paddle like the devil underneath." For the past four years, our clients have needed one thing around them more than anything has been level heads. Whether directly in crisis mode or simply responding to the Street's hyperbole, our financial services clients did not need one more reason to freak out. By offering them dispassionate and worthwhile advice, we were able to keep them calm and keep them coming back. At the same time, we were paddling like the devil under the surface! Networking like crazy and an aggressive sales strategy, considered unbecoming by many PR agencies, ensured our competitors felt the recession and not us.

Add value – Analysts in our industry refer to what happened in the stock and housing markets as a "correction". Overvalued assets reset sharply back to more appropriate levels. Though it’s not often spoken about in these terms, I believe the same thing happened in the world of service providers. After years of unwarranted price inflation, if your services weren’t worth the money, they would be scaled back or cut altogether.

Measure everything – Public relations has always gotten a bad rap as a fuzzy science that is difficult to measure. Not a great place to be if, as above, you’re trying to demonstrate value-add in the middle of the worst economic crunch in living memory. When most firms retrenched, we invested in a new proprietary technology offering that would help our clients measure their reputation in real-time. For those unaware of Pearson’s law, it states: “That which is measured, improves. And that which is measured and reported improves exponentially.” By focusing so ruthlessly on measurement and reporting, we probably made our lives harder. Still, we also made our clients’ campaigns more successful and our relationships with them a little stronger.

Contrary to expectations, our success over the past five years has built despite, not because of, banks' willingness to communicate. As financial institutions, find their voice and begin to flex their muscles once again, it will be interesting to see just how far this business will go.

In real estate, cash flow is king. A property that cash flows today is likely to cash flow during a recession. Even if on paper the value of your investment properties drops, if they cash flow positively, you'll emerge from the recession a happy investor. Recessions have had varying effects on the housing market. Housing prices plummeted, and the number of transactions dropped by half of what they had been before the downturn. Another recession will likely have some effect on housing. In areas with substantial job losses, home values could drop.

Rebecca Lake, Paulina Likos

2 April 2020

The coronavirus has created an economic storm that puts stress on several business sectors ranging from transportation to hospitality and agriculture. But an economic slowdown may be a reason to buy real estate since this investment speaks to a variety of investor needs, including diversification and income generation. So it is important to understand the value of property investments in a portfolio during a recession.

"Real estate is an interesting asset, "When the stock market is doing poorly, investors who are looking for other opportunities find that real estate is a haven."

Incorrect assumptions about real estate prices and recessionary environments can keep investors from pursuing a property investment, whether it is a real estate investment trust, a REIT, or buying rental properties.

"The fact that the real estate bubble caused the last recession has remained strong in investors' minds, making them think that recessions lead to depressed real estate prices, Even though during three of the last five recessions, real estate values actually increased."

A recession can be the best time to invest in real estate,

"An investment in a real estate investment trust is also an option that involves less capital and may add diversification to your portfolio,

Property investments can produce stable income.

-- Real estate may be less sensitive to volatility.

-- Property may outperform stocks and bonds.

Rebecca Lake, Paulina Likos

2 April 2020

The coronavirus has created an economic storm that puts stress on several business sectors ranging from transportation to hospitality and agriculture. But an economic slowdown may be a reason to buy real estate since this investment speaks to a variety of investor needs, including diversification and income generation. So it is important to understand the value of property investments in a portfolio during a recession.

"Real estate is an interesting asset," says Mihal Gartenberg, an agent at New York-based Warburg Realty Partnership. "When the stock market is doing poorly, investors who are looking for other opportunities find that real estate is a haven."

Gartenberg says incorrect assumptions about real estate prices and recessionary environments can keep investors from pursuing a property investment, whether it is a real estate investment trust, known as a REIT, or buying rental properties.

"The fact that the real estate bubble caused the last recession has remained strong in investors' minds, making them think that recessions lead to depressed real estate prices," she says. "Even though during three of the last five recessions, real estate values actually increased."

A recession can be the best time to invest in real estate, says Jim Egan, head of commercial real estate banking and senior vice president at Bryn Mawr Trust.

"An investment in a real estate investment trust is also an option that involves less capital and may add diversification to your portfolio," Egan says.

[See: 8 Real Estate Investing Mistakes to Avoid.]

Still not sold on real estate investing? Here is a look at the merits of investing in property when the stock market moves into a sluggish cycle:

-- Property investments can produce stable income.

-- Real estate may be less sensitive to volatility.

-- Property may outperform stocks and bonds.

Property Investments Can Produce Stable Income

One of the chief reasons to consider making property investments is the opportunity to generate income. REITs can provide dividend income; direct ownership allows investors to pocket rental income.

As an income stream, real estate investing tends to offer predictability in a recession.

"Consistency of the yield is what makes real estate investments more suited for riding out a recession," says Jason Laux, owner and retirement advisor at Synergy Group in White Oak, Pennsylvania.

Laux looks to rental properties, saying consistent rent payments from tenants do not fluctuate in a recessionary period.

"Their monthly rent payment is always due and is not tied to the stock market," he says.

Real estate investors have another edge in using rental income to offset the effects of a recession.

Laux says they can hedge against inflation and change interest rates when they have control over rental prices. Raising the rent at lease renewals, for instance, allows investors to keep up with rising prices associated with inflation.

In that respect, this asset class can offer more flexibility than stocks and bonds in a recession, Laux says.

Real Estate May Be Less Sensitive to Volatility

Stock market volatility can add to an investor's recession woes if stock prices are making wide swings. That can directly affect the return profile of a portfolio. Real estate's relative low correlation to stock market movements, on the other hand, can make it a more reliable choice during a recession.

"Because of the steady nature of revenues from real estate, it can often be a good hedge against volatility," Even in times of recession, people need places to live, work and get services. So the market will always exist.

One of the hallmarks of real estate investing is its slower-to-move nature.

"Paper value may change, but value, as it relates to the yearly income, doesn't tend to vary as quickly.

The real estate market is not completely immune to volatility.

He quality of the property investment can directly dictate how well real estate performs compared to other securities.

"Real estate tends to be a better hedge for inflation than bonds, especially in this low-interest-rate environment,"

In short, a recession can open up opportunities to invest in real estate. Investing wisely means managing the balance between supply and demand. When supply is high and demands low, it is possible to purchase property at deep discounts.

Investors can position those properties as rentals or rent-to-own until the needle shifts back to low supply and high demand. At that point, the property can be sold for a profit. When evaluating properties, focus on quality and return potential, as well as the time frame involved.

"As an investor, you have to be comfortable with the long-term nature of this investment and understand the liquidity risk associated with real estate.