The Federal Reserve just increased interest rates again, as predicted, one quarter of a percent. The Fed’s efforts from last year to now are focused on bringing inflation down. To do this, our country will need to go into a recession. Either we will go into a recession now or we don’t and this down-market gets pushed into the next year or two or the Fed pushed too hard and we go into a much deeper recession that takes longer to pull out of.
What is important to understand is that it doesn’t matter which scenario comes to pass. Successful investing is about timing; not timing the market, but investing at the right time. As confusing as that sounds, it’s really very simple. Foresight can be hazy, so predicting the future with complete accuracy is akin to gambling and adds risk to your portfolio. However, a professional investor can always see the changing of the seasons. The point is to be prepared and ready to invest when the right opportunity comes along.
Up, down, or sideways
Years ago when I was investing in the stock market, investors would ask me if the market was going up or down. My answer was always yes. It will always go up and down, that is what makes investing profitable. I have since found it more profitable to focus on investing in real estate, but the principles of volatility are the same. Would you play Russian Roulette with your investments using a three chambered gun with two bullets inside? That is not a low risk scenario. Then why would you try to invest only when the market is going up and try to time it when it’s going to go down? You wouldn’t. Investments can go up, down, or sideways in value, so the best strategy is to make money when values go in all three directions.
Prepared for change
As a third generation investor and developer, I was exposed to a lot of successful real estate investors. All of those lessons and all of my experience make me very excited about what’s happening in the market right now. Opportunities like this don’t come around often. In 2016 and 2017, the seasons were changing in real estate. To mitigate risk and prepare for the next opportunity, I decided to create a new product for the market which is now called “Build-to-Rent” or building homes for rent instead of for sale. I was obviously not the only one seeing this opportunity at the time. This allowed us to be prepared for the next market change regardless of the direction the market decided to go. The unpredictable result of COVID was a sharp downturn due to sheltering in place (from which I now have our seventh child). Our new construction single family rental homes performed amazingly. Following this short downturn was an explosion of upward momentum. We sold everything we had except for undeveloped land and made extraordinarily high returns.
My best investment
The seasons began to change again in March of 2022. At that time, all of my experience was telling me to recapitalize. Strategically, I took all of my real estate equity and interest in the portfolio that we had worked so hard to create and put it into a fund. I even put all of our development companies fees into the fund so we would have cash flow from day one. In effect, I designed this fund to be my best investment, in which I am the largest investor. I didn’t know when I would need this fund, I just wanted to be prepared for the next opportunity, which is now.
So is now a good time to invest? No, it’s the perfect time to invest!
Most of last year was not a good time to buy and I definitely would not be purchasing anything turnkey right now. Distress is hitting the market, that is what we are buying today. In addition to developing the equity that we have already created in our existing portfolio.
If you are looking for exposure to real estate with an equity rich, ready-to-develop portfolio, consider the Arabella Real Estate Fund. The fund is 75% build-to-rent, 15% self-storage & 10% vacation rentals. All 15 of our projects are in various stages of development. Since we are the developer as well as the fund manager, we have chosen to share our development fees with investors of the fund. Our fund pays dividends quarterly in addition to a target IRR of 25%. In a market where investing for returns matters, look no further.