{"id":124169,"date":"2020-04-15T15:22:51","date_gmt":"2020-04-15T21:22:51","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=124169"},"modified":"2024-01-05T11:24:28","modified_gmt":"2024-01-05T18:24:28","slug":"crisis-investing-101-the-most-recession-proof-real-estate-niches","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/crisis-investing-101-the-most-recession-proof-real-estate-niches","title":{"rendered":"Crisis Investing 101: The Most Recession-Proof Real Estate Niches"},"content":{"rendered":"<p>No one saw it coming. No one could have predicted it. It\u2019s crazy to think that an infection that started with one or two people on the other side of the globe has brought the entire world to its knees.<\/p>\n<p>And this thing is far from over. We all know that.<\/p>\n<p>But consider that crisis is indisputably the absolute best place for smart entrepreneurs and investors to create wealth like never before.<\/p>\n<h2>Creating Wealth in a Time of Crisis<\/h2>\n<p class=\"p1\"><span class=\"s1\"><a href=\"https:\/\/en.wikipedia.org\/wiki\/Joseph_P._Kennedy_Sr.#Business_career\" target=\"_blank\" rel=\"noopener\">Joseph Kennedy<\/a><\/span>, <a href=\"https:\/\/www.gatesfoundation.org\/\" target=\"_blank\" rel=\"noopener\"><span class=\"s1\">Bill Gates<\/span><\/a>, and <a href=\"https:\/\/en.wikipedia.org\/wiki\/Steve_Jobs\" target=\"_blank\" rel=\"noopener\"><span class=\"s1\">Steve Jobs<\/span><\/a> created their companies in times of crisis. And you can be a hero too if you position yourself NOW to capitalize on opportunities in the coming months and years.<\/p>\n<p>Did you know that <a href=\"https:\/\/www.fool.com\/investing\/2018\/09\/23\/10-years-later-warren-buffett-and-the-financial-cr.aspx\" target=\"_blank\" rel=\"noopener noreferrer\">Warren Buffett made a fortune buying <em>financial stocks<\/em> in the midst of the <em>financial<\/em> panic in the fall of 2008<\/a>? He is known for his saying: \u201cBe fearful when others are greedy, and be greedy when others are fearful.\u201d<\/p>\n<p>Buffett also said, when discussing going against the crowd:<\/p>\n<blockquote><p><em>\u201cYou pay a very high price in the stock market for a cheery consensus.\u201d<\/em><\/p><\/blockquote>\n<p>Legendary investor, Howard Marks, of Oaktree Capital was buying financial stocks in Fall 2008, too. A reporter interviewing Marks asked about what he was <em>selling<\/em>. He informed her that he was <em>buying <\/em>financial stocks to the tune of <strong>half a billion per week<\/strong>\u2014as much as he could get his hands on.<\/p>\n<p>She seemed perplexed, to which Marks said, \u201cIf not <em>now<\/em>&#8230; when?\u201d<\/p>\n<p>(By the way, have you taken my repeated advice and read the wonderful Howard Marks book called <em><a href=\"https:\/\/amzn.to\/2wEkatI\" target=\"_blank\" rel=\"noopener noreferrer\">Mastering the Market Cycle: Getting the Odds on Your Side<\/a><\/em>? You should buy that right now. Then buy and read my friend Brian Burke\u2019s new book on <a href=\"\/renewsblog\/due-diligence-ultimate-guide\/\" target=\"_blank\" rel=\"noopener noreferrer\">due diligence<\/a> and passive investing called <a href=\"https:\/\/www.biggerpockets.com\/store\/hands-off-investor-ultimate\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Hands-Off Investor<\/em><\/a> by BiggerPockets Publishing\u2014but I digress.)<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/I5Kz0D-gEug\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Marks and Buffett repeatedly talk about the concept of <em>catching a falling knife<\/em>.<\/p>\n<p>You see, it\u2019s easy to pick up a sharp knife from the kitchen floor without being cut. Even a child can do that well.<\/p>\n<p>But the real skill is in learning to catch a falling knife. It takes skill, focus, and nerves of steel. But if you can do it well, as Buffett and Marks did in the Great Recession, you could be positioned to make yourself and your investors a lot of profit and wealth.<\/p>\n<p><a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2019-01-14\/howard-marks-says-investors-should-try-to-catch-falling-knives\" target=\"_blank\" rel=\"noopener noreferrer\">Marks says that to do this right, you don\u2019t want to wait until the panic is over<\/a>. Don\u2019t wait until the dust settles, and the world is on the way back to normal. Don\u2019t wait until people take a deep breath and see the light at the end of the tunnel.<\/p>\n<p>He says you need to pull the trigger when things look worst\u2014when gloom and doom abound and when pundits are saying, \u201cThe world as we know it is over.\u201d<\/p>\n<p>(Sound familiar?)<\/p>\n<p>Though I don\u2019t like the imagery, British nobleman Baron Rothschild <a href=\"https:\/\/www.investopedia.com\/articles\/financial-theory\/08\/contrarian-investing.asp\" target=\"_blank\" rel=\"noopener noreferrer\">reportedly said<\/a>&#8230;<\/p>\n<blockquote><p><em>&#8220;Buy when there&#8217;s blood in the streets,\u00a0<strong>even if the blood is your own<\/strong>.&#8221;<\/em><\/p><\/blockquote>\n<p>So, needless to say, I\u2019m a huge advocate of buying real estate in a down market. While Marks&#8217; knife is falling, and pessimism is at its height.<\/p>\n<p>But I have a thought on how to play this card even better.<\/p>\n<p><em><strong>Related: <\/strong><\/em><a href=\"https:\/\/www.biggerpockets.com\/blog\/123770-2-real-estate-investing-during-a-recession\" target=\"_blank\" rel=\"noopener noreferrer\"><em>Recession Prep 101: Investing in Real Estate During a Financial Crisis<\/em><\/a><\/p>\n<h2>Assets That Do Well in Any Market<\/h2>\n<p>What if you could invest in real estate asset types that perform well in a great market&#8230;<em> and in a recession, as well? <\/em><\/p>\n<p>What if you could invest in or acquire assets that benefit from a degree of unwarranted panic-selling\u2014and pay a very fair price to acquire them from mom-and-pop operators who were about ready to retire anyway?<\/p>\n<h3>2 Types of Investments Well Worth Your Consideration<\/h3>\n<p>The other day I was listening to a <a href=\"https:\/\/www.crowdstreet.com\/learning-center\/market-trends\/investing-volatile\/?utm_campaign=COVID-19%20Livestream&amp;utm_source=hs_email&amp;utm_medium=email&amp;utm_content=85208500&amp;_hsenc=p2ANqtz--n9s-liol_lJFaT8GX355HxKhx4OMrbjQrAfbNqf3XdEUECugyWi3Uzm7fM7FzDC6rq1sdbk_NcB8mQwK2nDsSHpWSZw&amp;_hsmi=85208500\" target=\"_blank\" rel=\"noopener noreferrer\">Crowdstreet webinar on the devastating effects of the coronavirus crisis to real estate markets<\/a>.<\/p>\n<p>(Please don\u2019t listen unless you want to be depressed. It was full of doom and gloom, and honestly, it was unnerving to hear how bad things really are in so many sectors.)<\/p>\n<p>About 44 minutes in, however, the expert panel took on a brighter tone. They said, in essence, that they wanted to turn to two asset types that were actually performing well in the past month\u2014in the face of the devastating stock market roller coaster and real estate volatility among other asset types.<\/p>\n<p>Can you guess what they are?<\/p>\n<h3>Self-Storage and Mobile Home Parks<\/h3>\n<p>They went on to say that&#8230;<\/p>\n<blockquote><p>\u201c<em>As we know, self-storage can be a counter-cyclical asset&#8230; Within the industry, they talk about the 4Ds. We\u2019ve got <strong>downsizing<\/strong>, <strong>divorce<\/strong>, <strong>dislocation<\/strong>, and unfortunately <strong>death<\/strong>. These are real things, and this is where the self-storage market sits and the needs that it serves&#8230;. therefore, it puts <strong>self-storage<\/strong> into a relatively good spot from an asset class perspective.<\/em><\/p>\n<p><em>&#8220;Arguably right now [manufactured housing] is the darling of the <a href=\"\/renewsblog\/2013\/05\/15\/commercial-real-estate-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\">commercial real estate industry<\/a>. You know, if there is one thing that you can look at in terms of wanting to see the leading edge of where we are, go look at the public CRE markets, right? You&#8217;ve got hospitality REITs that are getting wacked 40 to 50 percent&#8230; They [manufactured housing] are positive because there has been no supply. It\u2019s the most affordable form of housing in the United States and the NIMBY-ism (not-in-my-backyardism) basically makes this stuff difficult to obtain.&#8221;<\/em><\/p><\/blockquote>\n<h2>What Makes Self-Storage and Mobile Home Parks Recession-Proof Investments?<\/h2>\n<p>So, you may be asking&#8230; <em><strong>WHY<\/strong><\/em>? What\u2019s so great about these two asset classes?<\/p>\n<p>I\u2019m glad you asked.<\/p>\n<h3>Why I Love Investing in Mobile Home Parks<\/h3>\n<p>Mobile home parks have been called \u201cthe darling of all commercial real estate.\u201d That\u2019s a pretty big label considering this asset class was basically laughed at a few years ago.<\/p>\n<p>But real estate\u2019s most successful investor, Sam Zell, was laughing, too&#8230; <em>all the way to the bank<\/em>.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-124170 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/04\/Wellings-MHP-702x336.png\" alt=\"\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p>Here\u2019s a quick list of what I love about this overlooked asset class:<\/p>\n<ul>\n<li><em><strong>Recession resistant:<\/strong><\/em> Steady in all cycles<\/li>\n<li><em><strong>Shrinking supply:<\/strong><\/em> Unique asset class<\/li>\n<li><em><strong>Affordable housing crisis:<\/strong><\/em> Equates to increased demand<\/li>\n<li><em><strong>High switching costs:<\/strong><\/em> Equates to low tenant turnover<\/li>\n<li><em><strong>Fragmentation:<\/strong><\/em> Mom-and-pop owners<\/li>\n<li><em><strong>Reduced costs:<\/strong><\/em> Low maintenance &amp; capital expenses<\/li>\n<li><em><strong>Less competition:<\/strong><\/em> Stigma of mobile homes<\/li>\n<li><em><strong>Portfolio opportunity:<\/strong><\/em> REITs looking to buy stabilized assets from us<\/li>\n<\/ul>\n<h3>Why I Love Investing in Self-Storage<\/h3>\n<p>I just spoke to our operating partner who we invest heavily with. He informed me that he is renting self-storage at record rates in certain locations.<\/p>\n<p>(This is in a week where hotels, airlines, retail, and restaurants are sucking wind like never before.)<\/p>\n<p>Why?<\/p>\n<p>He said that the four Ds\u2014<strong><em>downsizing<\/em><\/strong><em>, <strong>divorce<\/strong>, <strong>dislocation<\/strong>, and <strong>death<\/strong><\/em>\u2014are causing increased rental activity. And his facilities near colleges are getting an influx of students who are heading home for the year&#8230; or permanently. They are leasing online and going straight to their units while keeping their social distancing intact.<\/p>\n<p>Wow.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-124171 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/04\/Wellings-Self-Storage-702x336.png\" alt=\"\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p>Self-storage REITs are the only real estate asset type that was positive in 2008. That doesn\u2019t guarantee this will repeat in this cycle, but as you will see below, there are many reasons to believe this will happen again in the black swan event that we find ourselves in during 2020.<\/p>\n<p><em><strong>Related: <\/strong><\/em><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/covid-19-black-swan-prepare-for-next-economic-downturn\" target=\"_blank\" rel=\"noopener noreferrer\">Caught Off-Guard by COVID-19? Prepare Yourself for the Next Black Swan\u2014Here\u2019s How<\/a><\/em><\/p>\n<p>Here\u2019s what I love about this asset class:<\/p>\n<ul>\n<li><em><strong>Win-win<\/strong><\/em>: Recession resistant and strengthened in economic booms<\/li>\n<li><em><strong>Rents are price inelastic:<\/strong><\/em> Tenants not particularly price-sensitive<\/li>\n<li><em><strong>Tenancy duration: <\/strong><\/em>High switching costs &amp; perceived vs. Actual length of stay<\/li>\n<li><em><strong>Fragmentation:<\/strong><\/em> About 75% independent operators (top 3 &lt;15%)<\/li>\n<li><em><strong>Industry size:<\/strong><\/em> Similar to number of Subway, McDonald\u2019s, &amp; Starbucks combined<\/li>\n<li><em><strong>Management: <\/strong><\/em>Easy to manage a mediocre facility\u2014hard to manage a great one<\/li>\n<li><em><strong>Powerful business plan:<\/strong><\/em> Mom-and-pop seller\u2014institutional buyer<\/li>\n<li><em><strong>Ability to meet demand: <\/strong><\/em>Simplicity of unit reconfiguration<\/li>\n<li><em><strong>Ancillary income:<\/strong><\/em> Significant opportunities<\/li>\n<li><em><strong>Staffing: <\/strong><\/em>Highly trained and supported staff vs. lockbox model<\/li>\n<li><em><strong>Competition: <\/strong><\/em>Prohibitive cost of land for new competitors<\/li>\n<li><em><strong>Value-adds: <\/strong><\/em>Low-cost opportunities<\/li>\n<li><em><strong>Adaptability: <\/strong><\/em>Flexible lease terms &amp; easy eviction process<\/li>\n<\/ul>\n<p>Here is a graphic showing the performance of various real estate asset classes since 2000. Manufactured housing and self-storage lead the pack. And check out the dip in manufactured housing.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-123110\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Same-Property-NOI-Growth.png\" alt=\"\" width=\"702\" height=\"432\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Same-Property-NOI-Growth.png 974w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Same-Property-NOI-Growth-300x185.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Same-Property-NOI-Growth-768x473.png 768w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><em>There was no dip!<\/em><\/p>\n<p>This doesn\u2019t mean that this cycle will repeat this time around. But it sure is encouraging for those of us who invest in these two asset classes.<\/p>\n<h2>So, Now What?<\/h2>\n<p>There may be a few more that will perform well. I\u2019m thinking of data centers and perhaps healthcare facilities. I would look into both of those if I was you.<\/p>\n<p>I\u2019ve only touched on these two recession-resistant asset classes briefly here. But I&#8217;ve written e-books on mobile homes and self-storage. And look out for the new book I&#8217;m writing on self-storage investing to be published by BiggerPockets!<\/p>\n<p>I hope and pray that you all stay safe in this unprecedented time. And I hope you utilize this time to prepare for some of the greatest investing opportunities of your lives! Because they are right around the corner.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/store\/wealth-magazine-one-year\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-123232\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-700x120-v2.jpg\" alt=\"Blog ad for Wealth magazine\" width=\"700\" height=\"120\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-700x120-v2.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-700x120-v2-300x51.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>So, what are you doing to prepare to build wealth right now?<\/em><\/p>\n<p><strong>Share below in the comment section!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>No one saw it coming or could have predicted it. An infection that started with a few people on the other side of the globe brought the world to its knees. And it&#8217;s far from over. But consider that crisis is indisputably the absolute best place for smart entrepreneurs and investors to create wealth like never before.<\/p>\n","protected":false},"author":214608,"featured_media":121981,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5527,4242],"tags":[],"class_list":["post-124169","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-real-estate-investing","category-mobile-homes"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/124169","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=124169"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/124169\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/121981"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=124169"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=124169"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=124169"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}