Why Now is a Good Time to Invest in Real Estate

Now that we have entered a recession, some real estate buyers are on the sidelines. As Warren Buffet so often says: ‘Be greedy when others are fearful and fearful when others are greedy.’

Real estate investing during the current state of the economy, like most other things in life, absolutely comes with risk. There is, however, risk with most of our traditional income sources, too. If the pandemic taught us anything, it is that some “safe” streams of income are not so safe after all. Most recently, some companies have enacted hiring freezes, and we have seen some mass layoffs, as can be expected during a recession. Stocks and mutual funds have seen wild swings during the past two years, leaving many investors uncomfortable with the volatility and access to capital.

Additionally, rampant inflation has many rethinking their cash on hand. If inflation is, let’s say 8% - meaning at its core that most things we purchase are becoming 8% more expensive - and our “high-yield” savings accounts are collecting a 1% return, it is becoming clear to many what is happening to our cash. Our cash is literally becoming less valuable by the day, and our buying power is decreasing.

All of this is to say that there are always risks in life.

Think of real estate as a hedge against some of the risks described here. Real estate returns give investors a baseline of cash flow in the event that their traditional income sources decrease or are eliminated. Moreover, real estate investing is also a hedge against inflation because investors typically leverage long term fixed debt, where loan payments remain largely similar over time, while rental rates and real property values increase during inflationary times.

Now, real estate prices are beginning to level. While we should not expect a real estate crash, as detailed here, now is the time to take advantage of less buyer competition and purchase professionally vetted and cash-flowing property.

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.

Furthermore, real estate values, particularly commercial real estate values, are less sensitive to economic volatility than the stock market or other investments. In fact, certain real estate classes, like self-storage and multifamily, outperformed during the Great Recession. Couple this with the forced appreciation that you can implement by increasing income and reducing expenses, thereby making a property more valuable.

Finally, tax benefits are even more important during a recession because it can help keep cash on hand.

The lesson to some is, perhaps, the riskiest thing of all is relying on a single source of income, or single strategy, to sustain your livelihood. Now is the time to mitigate your risk by pairing real estate investing with other parts of your life and portfolio.