When is it a good time to invest in real estate? You must have some concerns if this were a recent interest, especially with everything happening in the world. For some time, the real estate bubble has been growing unsustainably raising concerns of another recession. In addition to concerns of another recession, the Covid-19 pandemic amplified the fears of investors and potential homebuyers.
The biggest issue alongside depressed real estate prices is the inaccurate assumptions about recessions and the effects on the real estate market. Because the last recession was caused by the bursting of the real estate bubble investors took a strong mental note and convinced themselves that a decline in real estate prices are caused by recessions. However, if you research the last five recessions you will see that the real estate market increased during three of those periods.
Before we dive deeper into the pros of real estate investing I want you to understand that fear is good because it keeps you humble and sound in decision making. However, being misinformed and fearful can cause you to miss out on great opportunities.
With that being said, understand that recessions will always happen! If the thought of the market crashing paralyzes you then you will continuously miss out on opportunities whereas the investor who knows how to work the market plays fearlessly to win. Here are a few wins to keep in mind while the economy moves downward:
Why do you think people get stuck in Corporate America, is it their fancy title or is it a consistent paycheck? You absolutely guessed it, it is the stability. Investing in properties provides just that except you are not reporting to a 9-5.
There are different ways to enter real estate investing and can be done so through REITs and direct ownership. REIT stands for real estate investment trust and is a company that owns as well as operates income-producing commercial real estate.
A REIT will provide you with dividend income and direct ownership will allow you to pocket rental income. No matter what the condition of the market is rent will always be due. Most real estate investors have an advantage when it comes to weathering a recession. Investors can keep up with inflation by raising the rent at the beginning of a new lease and also hedge against inflation. An investment property can be a lot more flexible than the stock market during a recession.
Real Estate May Be Less Sensitive to Volatility
The real estate market has a relatively low impact on the movements of the stock market. Because the real estate market is less sensitive to the volatility of the stock market it makes real estate investing a safer choice during a recession.
As stated before real estate can be a reliable stream of revenue because rent will always be due to you and this can hedge against volatility. Though the economy will always take a downturn people will always need a place to live, work, provide, and receive services.
However, the real estate market is not 100% vulnerable to volatility. In 2008 the real estate market took a big dive and many homeowners suffered severely. However, single-family and multi-unit rental properties were stable during the Great Recession. As for owning retail spaces, well that was a little volatile due to the investor’s income being based on if the retailer was operating a recession-proof business.
Property May Outperform Stocks and Bonds
One rule of understanding in the investment world is “Past performance is not a guarantee of future performance”. In contrast real estate has proven to be rewarding when the market shifts from green to red. This is severely dependent upon your strategy. Setting long term goals and short terms goals can reduce your risk exponentially and boost the much-needed confidence to invest.
Quoting the CEO of a financial group in California “ If your investment model is dependent on appreciation, then the recession is going to be a tough time, as home prices are going to drop”.
Joining the real estate market starts with your attitude then your tolerance for risk. Do not fear the natural and inevitable occurrence of a recession instead look for the opportunity to score a great deal on a rental property.
Although there is no such thing as a recession-proof rental property you can still invest in a quality property in a high demand area. ALWAYS remember that cash is king and if your rental property is producing revenue now it will produce during a recession. No worries if the value of the property declines, rent will still be the same.