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Posted almost 2 years ago

Reasons to Invest in Real Estate During a Recession

The unfortunate reality is that recessions are part of the economic cycle, and nearly impossible to avoid. With economic uncertainty abound, many people are asking how to prepare themselves. Historically, real estate values have continued to increase the past few decades - sometimes even during a recession - despite several recessions. Here are some reasons why real estate is a relatively safe investment, even with a possible recession on the horizon:

1. Cash flow

    Even during a recession, an investment property should be producing monthly cash flow. This cash flow is generally a hedge against a recession, and inflation, because as more money is printed, rental rates increase. While many other investments, like stocks for example, fluctuate in value, they do not produce monthly tangible cash to put in your pockets. Conversely, real estate investors are still collecting monthly rent during a recession, and in most cases, locked in with long term fixed rate bank financing.

    2. Less Sensitive to Volatility

      Real estate values, particularly commercial real estate values, are less sensitive to economic volatility than the stock market or other investments. Real estate is often referred to as a “get rich slow” investment, so short-term economic instability will have less impact on real estate.

      In fact, certain real estate classes, like self-storage and multifamily, outperformed during the Great Recession. From 2008 to 2012, the major publicly traded self-storage companies - CubeSmart, Public Storage, Extra Space Storage, and Life Storage - saw a brief share price decline in 2008 before soaring the following three years. Not only did commercial real estate assets like self-storage outperform the market during the Great Recession, they increased in value dramatically.

      3. Tax benefits

        Tax benefits are not eliminated during a recession. As many know, real estate investors have tremendous tax advantages. Some of the many benefits are: depreciation and reducing tax burdens.

        4. Forced Appreciation

          Because real estate is a “get rich slow” play, investors should look at the appreciation they will achieve during the life of a project. While smaller residential properties are valued based on comparable properties in the market, larger commercial properties are valued based on their net operating income. An investor can force appreciation, even during a recession or inflationary period, by raising rents or reducing expenses.

          Planning for a recession is paramount. Diversifying with real estate investments can help balance your portfolio. Investors may even find some properties “on sale” as a result of mismanagement leading up to a recession, leaving even more meat on the bone for investors.

          What are some other reasons to invest in real estate during a recession?



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