The year was difficult for investors. Inflation at its highest level in 40 years and tremendous market volatility made it difficult to earn a positive return in a difficult environment. This has led an increasing number of investors to seek alternatives to the stock market. And one asset seems increasingly attractive: real estate.

Real estate, unlike the stock market, has maintained strong returns and offers inflation protection. But does that mean it’s a good investment? Let’s take a closer look at why it might make sense to buy real estate as stocks plunge and why it might not.

Reasons for investing in real estate

Real estate can be a terrific investment no matter what the stock market does. It’s one of the proven ways to create passive income, build wealth, and grow net worth. I have actively invested in real estate, both through physical properties like rentals and Real Estate Investment Trusts (REITs) for over a decade, and I don’t plan on stopping anytime soon. .

Rental real estate in particular can be attractive today because it offers a hedge against inflation. Property values ​​and rents tend to rise with inflation, which means your investment retains its value rather than losing it to inflation. Additionally, short-term leases, such as a one-year residential lease, allow investors to adjust rents to reflect rising costs while maintaining a desired yield.

There’s the added benefit of tax deductions through owning a rental property, like depreciation, which can lower your tax bill. However, like the stock market, there are better times to get into real estate than others. And plenty of signs indicate that now may not be the best time.

The case against her

Month after month, the data pours in, further confirming that the real estate market is cooling. Falling demand from rising interest rates has made already expensive homes less affordable, and increased supply from sellers trying to lock in today’s high prices is changing the market. The prices continue to rise despite the changes, but it is very possible that this will change in the near future.

High mortgage rates and higher prices make it harder to achieve positive cash flow, one of the cornerstones of real estate investing, and could lead to vulnerability if we enter a recession. REITs are also hurt by high interest rates because they make borrowing more expensive and squeeze corporate margins, making it difficult to earn the same return.

Focus on discount

When the property market is down, prices are more favourable, which means investors can lock in savings that will result in higher returns in the future. Right now, prices are at historic highs and mortgage rates are rising, making it one of the least affordable times to buy a property in recent history.

With the real estate market constantly changing (with many signs that it’s getting worse), it’s probably a good idea to hold off on buying physical property until things stabilize and the Investors better understand where prices, demand and values ​​are. directed towards the near future.

That doesn’t mean investors should avoid real estate altogether; they should just focus on delivering. With the stock market down, there are several high-quality REITs trading at a deep discount. I recently added to several of my REIT positions, taking advantage of today’s favorable prices while adding to my portfolio.

For example, I recently purchased iron mountain (MRI -1.33%), a REIT specializing in physical storage and data storage for more than 225,000 customers worldwide. Over the past three years, it has produced an annualized return of just under 24%, more than double the S&P500. Plus, it pays a 5% dividend yield. It’s in an essential industry, which means it should maintain a healthy performance even if the economy heads into a recession. And he’s in a strong financial position.

When stocks plunge, it might seem like a good time to withdraw your money and invest elsewhere, but I strongly encourage you to ride out the turbulence and simply seek out the best discounts available today. For now in real estate, that means REITs.