What to Invest in During a Recession? Real Estate

Should you begin thinking about what to invest in during a recession?

But wait, why are we talking about a recession in the first place? COVID-19 is disrupting industries and economies worldwide, and it wouldn’t be a surprise if the US housing market went into its first recession since 2008. And if we learned anything from the last recession, it’s that real estate investors played it smart. While the housing crisis took a hit on homeowners, real estate investors were able to benefit. So if you’re wondering where to put money during a recession, consider real estate – the best investment during a recession.

Will the Coronavirus Actually Cause a Recession?

Economists have been talking about a possible recession for a couple of years now, and current conditions may indicate an upcoming recession due to the coronavirus in the US. COVID-19 is a global pandemic that has affected global travel, economy, and overall well-being. We’ve seen major events and conferences canceled nationwide, as well as globally. Just last week, Bill Ackman, billionaire investor and hedge-fund manager, affirmed that the US economy is headed towards a possible recession.

The US stock market has also taken a hit. These times are quite uncertain, but US housing market predictions indicate that the economy will most likely contract in 2020’s second quarter, affecting multiple industries, including real estate. So should you avoid investing in real estate? Quite the opposite. When wondering about what to invest in during a recession, real estate is your answer – but not just any type of real estate…

Residential Real Estate During a Recession

here's what to invest in during a recession

Experts agree that the best recession-proof investment in real estate is residential real estate. Other types of real estate investments can incur high risks, which you should be actively trying to avoid during times of recession. Real estate wholesaling and fix and flips, for example, are types of investments that are less likely to endure a recession. This is because their operation relies on quick buying and selling of rental property, which is less likely to happen during times of recession. So when considering what to invest in during a recession, definitely opt for residential real estate and implement the traditional rental strategy.

Reasons to Invest in Residential Real Estate During a Recession

There will always be demand for residential property: Even as a pandemic hits, people will still need a place to live. Therefore, there will always be demand for rental property, and a recession will not change that. This is why, while other types of investments can take a hit during recessions, residential real estate is less likely to.
Long-term rental properties produce stable income (if they’re occupied): Residential real estate (or buy-and-holds) provides a steady monthly income, given the rental property is occupied. At dire times such as recession, having that source of income is crucial. Other types of real estate investments, such as commercial properties, may not provide income as stable as that of residential properties.
Real estate, in general, is less volatile during economic downturns: Usually, investments such as stocks and bonds are more affected and are a less reliable investment. Our current stock market is proof of that. Stock prices across different industries are making unpredictable swings. This is one of the general benefits of investing in real estate. While all types of investments bear a certain degree of risk, residential real estate bears the least.
Recession leads to a drop in housing prices: During the 2008 recession, homeowners lost significantly. Real estate investors, on the other hand, turned the difficult market conditions into opportunity. Recessions are not ideal times for homeowners or sellers. But if you’re looking to buy a property to invest in during a recession, now is the time. Once real estate prices begin to increase, you can either continue to rent out your property, or you can sell the investment property for a profit.

What to Invest in During a Recession: Positive Cash Flow Properties for Sale

It can be quite challenging to find investment properties for sale, especially prior to or during a recession. To look for and analyze investment properties, you can use Mashvisor. Once you’ve chosen a location, plug it into our search engine to start searching. This will give you access to numerous properties for sale to browse through and select what to invest in during a recession. You can also use real estate analytics to analyze information on return on investment (ROI), expected rental income, CoC return, cap rate, among other important real estate indicators. This will ensure you find and invest in positive cash flow properties.

To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.

Ways to Recession-Proof Your Investment Property

- Apply long-term leases: This is one of the best ways to recession-proof investment property. Signing long-term leases (a minimum of 6 months) will guarantee that you have a steady flow of income. Sign any less, and you may incur long turnover times – which you can’t afford. To “convince” possible tenants with long-term leases, you could offer competitive rental rates.
- Screen Tenants: Be sure to conduct background checks on tenants, with a focus on employment. Based on current events, are they likely to maintain job security and be able to pay rent?
- Work on tenant retention: Tenants come and go, and can always be drawn to lower rental rates or better properties. But turnover can be costly, especially during a recession. This is why you should be offering your tenants fair rental rates as a way to recession-proof rental property. In addition, you should attempt to provide an overall positive rental experience for your tenants.
- Reduce costs for tenants: Apart from the monthly rent, review whether you can cut some costs for tenants. Can you afford to reduce electricity, water, and heating bills? If so, now may be a good time to do so.

Final Words

Are you still wondering what to invest in during a recession? We’ve established that real estate is a good investment during a recession. It’ll provide you with a steady source of income, can endure market volatility, and will still be in demand during the toughest of times.

Finally, it’s vital to be alert, but not to panic. Yes, the real estate market could suffer, and yes we are already witnessing the effects of this pandemic. But as cheesy as this sounds, try to make the best out of a bad situation. You have the facts, now what do you do with them?

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