{"id":132724,"date":"2020-12-23T09:00:11","date_gmt":"2020-12-23T16:00:11","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=132724"},"modified":"2023-04-03T23:43:18","modified_gmt":"2023-04-04T05:43:18","slug":"recession-proof-real-estate-investment-fact-fiction","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/recession-proof-real-estate-investment-fact-fiction","title":{"rendered":"Do Recession-Resistant Investments Actually Exist? (Hint: Sort Of)"},"content":{"rendered":"<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC7287929883&#038;light=false\" width=\"100%\"><\/iframe><\/p>\n<p>There\u2019s a buzzword that\u2019s recently been making the rounds in the real estate investment space: recession-resistant. (Or worse yet, \u201crecession-proof.\u201d)<\/p>\n<p><em>\u201cProtect your investments with this recession-resistant market!\u201d<\/em><\/p>\n<p><em>\u201cRecession-proof your portfolio with this property!\u201d<\/em><\/p>\n<p>The reason why this concept is being thrown around is simple. While the country was technically in a recession that is now considered \u201cover,\u201d 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\u2019ll probably find nothing but a steaming pile of crap.<\/p>\n<p>Let me explain\u2026<\/p>\n<h2>Beware of Recession-Resistant Investment Myths<\/h2>\n<p>It\u2019s pretty bold to certify <em>anything <\/em>as recession-resistant. Because unless you\u2019ve got a time machine, no one can say with certainty what the market will do. If nothing else, the pandemic taught us that much.<\/p>\n<p><strong><em>Related:<\/em><\/strong> <em><a href=\"https:\/\/www.biggerpockets.com\/blog\/top-housing-markets-2021\" target=\"_blank\">Top 50 Housing Markets for Home Price Appreciation and Sales Growth in 2021<\/a><\/em><\/p>\n<p>But here&#8217;s the good news. There <em>are <\/em>markers you can watch for that will give you the best chance to see solid returns that outperform the broader market\u2014even during an economic downturn.<\/p>\n<p>You\u2019ll want to see things like:<\/p>\n<ul>\n<li>Promising job stability and income in higher-demand fields like healthcare and technology<\/li>\n<li>Landlord-friendly policies<\/li>\n<li>A steadily growing population and\/or positive migration pattern<\/li>\n<li>Affordability (for both owners and tenants)<\/li>\n<li>Stable or declining area crime rates<\/li>\n<\/ul>\n<p>Now, that\u2019s just a jumping point. Picking a great market gives you a good foundation, but it\u2019s still just one marker of a worthy investment opportunity.<\/p>\n<p>So, the fact that a lot of \u201cinvestors\u201d out there claim their offers are recession-resistant\/-proof when they are so obviously NOT really gets to me.<\/p>\n<p><strong><em>Related:<\/em><\/strong> <em><a href=\"https:\/\/www.biggerpockets.com\/blog\/potential-real-estate-crash\" target=\"_blank\" rel=\"noopener\">3 Important Points to Remember When Considering a Potential Real Estate Crash<\/a><\/em><\/p>\n<h2>The Only Investment Niche Proven To Be Recession-Proof<\/h2>\n<p>Just to give you some background, \u201crecession-resistant real estate\u201d started making headlines after the Great Recession of 2007-2009. The label was <a href=\"https:\/\/www.biggerpockets.com\/blog\/multifamily-niche-alternative\" target=\"_blank\" rel=\"noopener\">mainly applied to self-storage<\/a>, and for good reason\u2014self-storage REITs were the <em>only <\/em>real estate asset class that generated positive returns during that period.<\/p>\n<p>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 <em>and<\/em> in bad times.<\/p>\n<p>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.<\/p>\n<p>That\u2019s why applying the \u201crecession-resistant\u201d label to other assets like multifamily bothers me. Regardless of the market, there are several risk factors that make the multifamily claim of being \u201crecession-resistant\u201d misleading.<\/p>\n<p><strong><em>Related:<\/em><\/strong> <em><a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-market-collapse-real-estate-investors-respond\" target=\"_blank\" rel=\"noopener\">Some Say the Housing Market Is Poised to Fall Off a Cliff\u2014Here\u2019s How Investors Should Proceed<\/a><\/em><\/p>\n<p>Now, hindsight is 20\/20. In this case, it\u2019s verified that self-storage is <em>actually <\/em>recession-resistant because it was proven during the Great Recession. Similarly, using the term for any other asset class is speculative\u2014if not entirely misguided.<\/p>\n<p>There\u2019s 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):<\/p>\n<ol>\n<li>How much is the continued government stimulus propping up businesses, and what happens when it ends?<\/li>\n<li>Is there a larger wave of failed businesses\u2014and entire industries\u2014on the horizon?<\/li>\n<li>How many tenants are actually jobless and using unemployment benefits to pay rent?<\/li>\n<li>What if eviction moratoriums keep getting extended and financial support to owners stops?<\/li>\n<li>Could there be a trend of tenants joining forces to not pay rent or renegotiate rates lower?<\/li>\n<li>What is the trickle-down effect of lost revenue from municipalities, and what taxes will they impose to recoup it?<\/li>\n<li>How has COVID changed lifestyles, habits, and behaviors, and what\u2019s the long-term impact to communities and apartment amenities?<\/li>\n<\/ol>\n<p>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.<\/p>\n<p>It\u2019s for the same reasons that I\u2019m 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\u2019t any policies restricting how to handle delinquent tenants.<\/p>\n<p>It doesn\u2019t stop there, though. It\u2019s also worth taking notice where the world\u2019s wealthiest are putting their money when you consider where to invest. Especially when they\u2019re bigwig investors like Blackstone and Bill Gates.<\/p>\n<p><strong><em>Related:<\/em><\/strong> <em><a href=\"https:\/\/www.biggerpockets.com\/blog\/housing-markets-biggest-winner-loser-post-covid-19\" target=\"_blank\">Housing Markets Post-COVID: Which Ones Win? Which Lose?<\/a><\/em><\/p>\n<p>So, how is it that I managed to make a move on something like self-storage even before Blackstone and Bill Gates?<\/p>\n<p>Well, a few years ago, as we approached the 10th year of an economic expansion cycle\u2014which usually signals an impending recession\u2014I started exploring <a href=\"https:\/\/www.biggerpockets.com\/blog\/why-invest-self-storage-commercial-real-estate\" target=\"_blank\" rel=\"noopener\">assets that would be better suited to weather an economic storm<\/a>. Self-storage wasn\u2019t sexy by any means, and choosing it wasn\u2019t something I anticipated becoming a defining moment in my portfolio\u2019s future. But I could appreciate the returns. Little did I know just how lucrative it would become.<\/p>\n<p>I\u2019ve fallen in love with self-storage for many reasons\u2014it&#8217;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?<\/p>\n<p>Well, it looks like Blackstone and Bill Gates are doing the same. On October 26, <a href=\"https:\/\/www.blackstone.com\/press-releases\/article\/blackstone-real-estate-income-trust-to-acquire-simply-self-storage-for-approximately-1-2-billion\/\" target=\"_blank\" rel=\"noopener\">Blackstone bought Simply Self Storage for $1.2 billion<\/a>. And just a few days before that, <a href=\"https:\/\/www.sparefoot.com\/self-storage\/news\/9728-bill-gates-becomes-part-owner-of-one-of-the-countrys-largest-self-storage-operators\/\" target=\"_blank\" rel=\"noopener\">Bill Gates bought an ownership stake in StorageMart<\/a>.<\/p>\n<p>So what\u2019s this mean to you?<\/p>\n<p>Well, I <em>hope <\/em>it means that you\u2019ll 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\u2019s wealthiest investors are up to nowadays.<\/p>\n<p><a href=\"https:\/\/store.biggerpockets.com\/collections\/all-books\/products\/recession-proof-real-estate-investing?utm_source=blog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-123402\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-link-button.jpg\" alt=\"Recession-Proof Real Estate book blog ad\" width=\"700\" height=\"120\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-link-button.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-link-button-300x51.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>What do you think of self-storage? Is this niche on your radar?<\/em><\/p>\n<p><strong>Leave me a comment and let me know.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cRecession-resistant\u201d is a buzzword today in the real estate investment space. But if you look closer at these claims, you\u2019ll probably find nothing but a pile of crap.\u00a0<\/p>\n","protected":false},"author":45072,"featured_media":120550,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524,7119],"tags":[],"class_list":["post-132724","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/132724","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\/45072"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=132724"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/132724\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/120550"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=132724"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=132724"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=132724"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}