Welcome to The Real Estate Venturist. Every other week, this newsletter will give you a behind-the-scenes look at what it’s like to be a real estate entrepreneur. As always, this is not investment advice and merely my opinion. Here’s what’s in today’s newsletter:

• Tariff-induced recession?

• Real estate is inefficient

• Diversification is needed

• Authentic Mentor

Tariff-induced recession?

Apparently, you can’t suggest real estate for an investment portfolio if the stock and bond markets go haywire. That’s the sentiment circulating online this past week. Many so-called real estate “experts” believe that any drop in interest rates is a positive for property investments (they’re wrong). And if the tariff saga sends the US—and possibly the world—into a recession, few investments are safe. However, I still believe multifamily real estate has a place in a diversified portfolio, regardless.

How does real estate, specifically multifamily, perform in a recession? Typically, rents decline, cap rates rise, and property values fall. How long this lasts depends on the depth of the recession and any geographical differences. Want to jump into real estate ahead of everyone’s recession predictions? Not really—unless there’s downside protection, future growth potential, and a long-term strategy.

The entire multifamily industry expects rents to increase meaningfully in the next 12-18 months. With record levels of new supply now down to a trickle, those units mostly absorbed (leased), and constant renter demand, rents should reaccelerate. When evidence of this materializes, capital will flow back in, and cap rates will fall (who knows how far), increasing values. We all believe a version of this. But a recession could upend this multifamily recovery theory. We’re all tired of waiting for improvement, and the trade war may extend this uncertainty.

Real estate is inefficient

So, why do I still advocate for real estate? Because it’s one of the most inefficient investment markets, and cash is commonly a poor place to be. It’s inefficient because properties are frequently sold by the wrong broker at the wrong price, or are severely under-rented due to long-term ownership. Additionally, specific property tax abatement strategies can generate even more cash flow. In short, there are numerous ways to extract value from real estate investments.

Real estate is also an operating business. If you (or your investment sponsor) are hands-on, you can directly impact the investment’s cash flow. Yes, the rents are often beholden to market forces, but expenses can be managed, and cash flow maintained even in a recession. In times of inflation, rents and values tend to increase. Real estate also isn’t marked-to-market daily, keeping you out of the trap of obsessively watching portfolio performance.

The key to making real estate a ballast for your portfolio is twofold: 1) stabilizing at a sufficiently high cash yield, and 2) having a long-term investment horizon. The so-called “experts” of the past 5 years didn’t care about basis or cash yield, and their time horizons were often 3 years or less. It’s very difficult to make money in apartments with this strategy unless the market is surging. We all know that’s not the case anymore.

That’s why time and yield are so crucial. Time is needed to ride out market cycles. A strong cash yield provides cash flow to cushion against market fluctuations. With the right deal, you can make money in real estate today. Alternatively, you can wait for the dust settles on the tariff tantrum. Market volatility may subside next week, in the next 30 days, in the next quarter, or it could push us into a recession. Who knows?

Diversification is needed

If recent stock and bond market volatility has demonstrated anything, it’s that a diversified portfolio remains essential. The stock market doesn’t generate 20% annual returns forever, and neither do apartment investments. But when paired together, they can work in your favor.

This is a tough sell to investors today—and rightfully so. A quick peek at their 401k balance probably isn’t motivating them to invest in something new. But, now is as good a time as any to start evaluating potential real estate investments. Identify the type of property that suits you, the specific market (with either high cash yield and/or growth potential), and determine your acceptable yield. When investors are in a more positive frame of mind, they’ll be ready to add real estate to their portfolios.