Why Real Estate Could Be Safe Against Recession

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This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

It would be foolish to predict the long-term fate of the economy, but it’s not difficult to peer several months or a year down the road and anticipate some rough times ahead. A glance at past history will tell you we’re due for a major economic correction fairly soon.

Plus, if you add such factors as high inflation, rising interest rates, stagnant wages, and high unemployment into the mix… well, you get the idea.

When you’re an active investor, it’s great to play a role in a healthy and growing economy. But you can also make substantial income during a recession.

It depends on whether you can pick the right investments and be strategic about where you allocate your resources. And though every situation is different, real estate is often considered a solid choice.

Why Real Estate Investments Thrive During Recessions

As counterintuitive as it might seem, recessions don’t necessarily spell disaster for the housing market – at least not for investors. Because the recession we had in 2008 was caused by a real estate bubble, many investors are skittish about the industry and assume the next recession will inevitably entail a similar crash.

However, if you study the past five recessions, dating back to the 1970s, real estate values have taken a major hit only once: in that 2008 example. The only other time land lost any value was in 1991 when real estate took a 1.9% dip.

If we take an objective look at the real estate market, it should be apparent that investments in this realm are actually among the most stable and recession-proof options for you. This is true on the basis of a number of reasons, including: 

• Stable income. The number of people renting properties versus owning actually rises during recessions. This creates greater demand for suitable rental properties, which means stable income for the owners. 

• Less volatility. As we’ve already stated, the recession of 2008 was an anomaly in terms of real estate. Typically, there’s much less volatility in this area than in others. If it does take a dip, you may regard this as an opportunity to buy real estate “on sale.” History says it’ll bounce back sooner or later. 
• Comparative performance. When compared to stocks and bonds, which often take a beating during recessions, real estate tends to hold strong. This makes it a better place to stash money than Wall Street.

This trio of benefits should help you begin to change your mind about the value of investing in real estate during a recession. The question becomes, how do you do it?

Four Tips for Making Smart Real Estate Investments During a Recession

Just because real estate can be a good investment in a recession, that doesn’t mean it automatically will be. You still have to be disciplined and discerning in your approach. Here are four essential tips.

1. Buy the Location, Not the Property

When you shop for an investment property in a recession, buy the location – not the house. This is true regardless of what kind of economy you’re in, but it becomes especially vital when the market takes a dip.

You want to own property in a location where people will wish to live regardless of the state of the economy. You also want to think about which regions are likely to rebound the quickest once the economy starts to recover.

Cash flow is typically the primary goal in a rental property investment, but you should perceive the dollar signs and decimal points adding up when you purchase properties that have temporarily suppressed values.

2. Hire a Property Manager

If you’re smart, you’ll be aware that your time is best spent analyzing potential deals and working with lenders and other partners to secure financing. You don’t want to spend most of your valuable hours chasing down late rent checks or fixing leaky faucets. Hire a property manager to handle the day-to-day tasks so you can concentrate on the big picture. 

3. Consider Tapping Your IRA

During a recession, lenders have a tendency to tighten their purse strings, which means it’s harder to borrow. One way to get around this is to tap into your IRA and buy property with it. Certain restrictions and limitations will apply, but consult a financial advisor about your options here.

4. Don’t Forget About REITs

Finally, don’t underestimate the power of a good real estate investment trust (REIT). Many REITs are perfectly optimized to deliver high returns during a recession. You just have to do the necessary research to find the right ones.

Putting it All Together

As we sail toward unknown territory with the current economy, it’s nice to know that real estate offers opportunities in almost any climate. It’s simply a matter of adapting your strategy to fit what the market has to offer you. Keep that in mind as you plan your moves over the next couple of years.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.