Real Estate Investing Basics

Do Recession-Resistant Investments Actually Exist? (Hint: Sort Of)

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There's a buzzword that's recently been making the rounds in the real estate investment space: recession-resistant. (Or worse yet, "recession-proof.")

“Protect your investments with this recession-resistant market!”

“Recession-proof your portfolio with this property!”

The reason why this concept is being thrown around is simple. While the country was technically in a recession that is now considered “over,” there is no denying that COVID is still wreaking havoc on the economy and creating instability that is being masked by the government and rhetoric. Unfortunately, if you look closer at these claims, you’ll probably find nothing but a steaming pile of crap.

Let me explain…

Beware of Recession-Resistant Investment Myths

It’s pretty bold to certify anything as recession-resistant. Because unless you’ve got a time machine, no one can say with certainty what the market will do. If nothing else, the pandemic taught us that much.

Related: Top 50 Housing Markets for Home Price Appreciation and Sales Growth in 2021

But here’s the good news. There are markers you can watch for that will give you the best chance to see solid returns that outperform the broader market—even during an economic downturn.

You’ll want to see things like:

  • Promising job stability and income in higher-demand fields like healthcare and technology
  • Landlord-friendly policies
  • A steadily growing population and/or positive migration pattern
  • Affordability (for both owners and tenants)
  • Stable or declining area crime rates

Now, that’s just a jumping point. Picking a great market gives you a good foundation, but it’s still just one marker of a worthy investment opportunity.

So, the fact that a lot of “investors” out there claim their offers are recession-resistant/-proof when they are so obviously NOT really gets to me.

Related: 3 Important Points to Remember When Considering a Potential Real Estate Crash

The Only Investment Niche Proven To Be Recession-Proof

Just to give you some background, “recession-resistant real estate” started making headlines after the Great Recession of 2007-2009. The label was mainly applied to self-storage, and for good reason—self-storage REITs were the only real estate asset class that generated positive returns during that period.

Why did self-storage perform so well before, during, and after the recession? Because the industry provides a service to businesses and consumers in good times and in bad times.

In good times, the demand is tied to growth and expansion of business and lifestyle, which is pretty easy to understand. And in bad times, the demand is tied to the four Ds: downsizing, divorce, dislocation, and death. These life events are exacerbated during economic downturns and recessions, which amounts to storage demand from those experiencing a life expansion to contraction. As companies and consumers downsize, storage demands continue to rise.

That's why applying the "recession-resistant" label to other assets like multifamily bothers me. Regardless of the market, there are several risk factors that make the multifamily claim of being "recession-resistant" misleading.

Related: Some Say the Housing Market Is Poised to Fall Off a Cliff—Here’s How Investors Should Proceed

Now, hindsight is 20/20. In this case, it’s verified that self-storage is actually recession-resistant because it was proven during the Great Recession. Similarly, using the term for any other asset class is speculative—if not entirely misguided.

There’s no denying our need for more affordable housing, but here are some questions that expose the glaring uncertainty right now in multifamily (at least, to me):

  1. How much is the continued government stimulus propping up businesses, and what happens when it ends?
  2. Is there a larger wave of failed businesses—and entire industries—on the horizon?
  3. How many tenants are actually jobless and using unemployment benefits to pay rent?
  4. What if eviction moratoriums keep getting extended and financial support to owners stops?
  5. Could there be a trend of tenants joining forces to not pay rent or renegotiate rates lower?
  6. What is the trickle-down effect of lost revenue from municipalities, and what taxes will they impose to recoup it?
  7. How has COVID changed lifestyles, habits, and behaviors, and what’s the long-term impact to communities and apartment amenities?

These are just some of the questions I have that give me pause in looking at multifamily right now, not to mention how many investors are still flocking to buy up apartment buildings at crazy prices.

It’s for the same reasons that I’m glad we made the pivot to self-storage in 2018. Even during the height of the COVID lockdowns, self-storage was considered an essential business. And there sure aren’t any policies restricting how to handle delinquent tenants.

It doesn’t stop there, though. It’s also worth taking notice where the world’s wealthiest are putting their money when you consider where to invest. Especially when they’re bigwig investors like Blackstone and Bill Gates.

Related: Housing Markets Post-COVID: Which Ones Win? Which Lose?

So, how is it that I managed to make a move on something like self-storage even before Blackstone and Bill Gates?

Well, a few years ago, as we approached the 10th year of an economic expansion cycle—which usually signals an impending recession—I started exploring assets that would be better suited to weather an economic storm. Self-storage wasn’t sexy by any means, and choosing it wasn’t something I anticipated becoming a defining moment in my portfolio’s future. But I could appreciate the returns. Little did I know just how lucrative it would become.

I’ve fallen in love with self-storage for many reasons—it’s a discussion for another time. But basically, it boils down to the fact that I did my homework, ran the numbers, saw it made sense, and made the leap. And now?

Well, it looks like Blackstone and Bill Gates are doing the same. On October 26, Blackstone bought Simply Self Storage for $1.2 billion. And just a few days before that, Bill Gates bought an ownership stake in StorageMart.

So what’s this mean to you?

Well, I hope it means that you’ll explore the perks of investing in self-storage by doing your own research and speaking with investors who have already done it. At the very least, though, maybe you gained some insight into when and how to consider pivoting investing strategies and what the world’s wealthiest investors are up to nowadays.

Recession-Proof Real Estate book blog ad

What do you think of self-storage? Is this niche on your radar?

Leave me a comment and let me know.

Sergio is a real estate investor specializing in syndication investing for beginner to advanced investors. Although he has primarily invested in the greater Philadelphia market, he is expanding into other markets for developing and acquiring self-storage and affordable living assets, like workforce housing, manufactured housing communities, and RV and campgrounds.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 2 months ago
    There's no such thing as a sure thing in life anywhere, but you're right, there are things that can get relatively close
    Sergio Altomare Rental Property Investor from Greater Philadelphia
    Replied 2 months ago
    Yes sir! And nowadays, even with RE still being the best place to invest long-term, minimizing downside risk is still paramount.
    Chris Phillippi Rental Property Investor from Central Washington
    Replied 2 months ago
    I'm in mobile home parks, and while they have been very stable through this period our hands have been tied with proclamations enacting temporary rent control and prohibiting evictions. I've only needed two evictions in 10 years on 100+ spaces, but it can be a useful incentive to make paying the rent a priority. I'm pretty sure self-storage can still charge the rates it wants to, and kick out people who don't pay. I had previously considered diversifying into self-storage but I could not really find an advantage over a mobile home park. Now I see that the regulatory angle is probably better in self-storage. I still consider mobile home parks to be as recession resistant as anything I've encountered.
    Sergio Altomare Rental Property Investor from Greater Philadelphia
    Replied 2 months ago
    Yeah, I strongly considered MHC when we pivoted from MF years ago, but I ultimately landed on SS when considering regulation and the tech angle. I still believe MHC to be great long-term, but there may be some pain to work through in the near term.
    Christopher Smith Investor from brentwood, california
    Replied 2 months ago
    I've owned a medical REIT that's done quite well for many years both in up and down markets. Not that it's free from all risk as an empty headed chest thumping Congress always seems to threaten everyone with regulatory risk to show us all just how tough they think they are. By reinvesting all quarterlies and exploiting temporary market panic sell offs I've accumulated a very nice position in a big cash generator.
    Sergio Altomare Rental Property Investor from Greater Philadelphia
    Replied 2 months ago
    Thanks Chris. I've always loved the idea of private medical space, but my hesitation is that I see it mostly bundled in a class of assets with commercial/office space, in which case my fear is that the overall landscape is ripe for reduced rents from the COVID impact on office demand. Is this accurate or is there more of a specialty insulating it? I'm thinking small/medium practice, not hospitals or large medical complexes.
    Steven Frey from Mansfield, Georgia
    Replied 2 months ago
    Are there some specific REITs for self-storage?
    Sergio Altomare Rental Property Investor from Greater Philadelphia
    Replied 2 months ago
    Hi Steve, yes, see this link. https://www.reit.com/what-reit/reit-sectors/self-storage-reits I would consider private funds as well, as the returns will be higher and you'll be closer to the assets.