INVESTMENT STRATEGY
RECESSION
Tangible Assets in a Shrinking Economy RESIDENTIAL PROPERTIES, ESPECIALLY RENTALS, CAN HELP YOU RIDE OUT A RECESSION OR MARKET DOWNTURN.
by Robert Knight
hen the pandemic began upending society, the market
prepared for its eventuality so you won’t join the panicking stampede out of the markets and into cash. Instead, you’ll remember that certain assets can perform well even during a recession. You just need to know which ones. The 2008 housing market collapse was a nightmare for homeowners, but it turned out to be a boon for some real estate investors. When a recession hits and home values drop, it may be a buying opportunity for investment properties. If you can rent out the property to a dependable tenant, you’ll have a steady stream of income while you ride out the recession. Once real estate values rebound, you can sell it for a profit. PEOPLE ALWAYS NEED HOUSING Housing is different from most investments because it is a basic need. People may hold off on buying a car or a new cellphone during a recession, but it would be quite rare for someone to decide to live on the street. You may hear stories during times of economic downturn of people los- ing their homes to foreclosure. But in the case of rental properties, there is always someone to replace any tenants who move out. If your rental property isn’t completely neglected, you probably won’t have much
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sank for a few weeks and then recorded one of the greatest rallies in history. Stock prices rose the day rioters breached the U.S. Capitol, and they were up during the week that protests roiled many American cities after the murder of George Floyd. During this time of great upheaval, the market seemed to flash a con - trarian signal that things were going to be OK—economically, at least. But real-world problems such as inflation, supply chain disruptions, and the war in Ukraine have finally crashed the stock market’s party, prompting the Federal Reserve to raise interest rates significantly for the first time in many years. That action has sent stock prices plummeting. Some experts are even warning of a recession. The stock market is not a per- fect measure of the real economy. Unemployment is low, and consumer spending is still holding up. Still, more than a month of punishing losses can damage the country’s financial psyche. When the market is soaring, it’s easy to forget that what goes up can also come down. Economic slowdowns tend to be cyclical, which means another recession is in the future. Whether it’s fast approach- ing or still a way off, it’s wise to be
trouble finding tenants, even during a recession. In general, though, proper management of your proper- ties (including helping your tenants) is key to real estate success. RESIDENTIAL REAL ESTATE CAN BE MORE STABLE The pandemic has served as a harsh reminder of why commercial real estate isn’t always reliable. After all, the pandemic forced many businesses to close, even some that had been in business for decades. The commercial real estate market can be volatile. Commercial real estate is subject to market forces that don’t necessarily affect residential units. Individuals and families are not going to move out on the street because times are tough. But when the burger joint in the neighborhood stops selling burgers because no one is eating out, they may well have to vacate. People will always need a place to stay, no mat- ter what the U.S. average rent may be, which means that residential real estate will remain stable. As an investment, real estate is widely considered to be a more
18 | think realty magazine :: july – august 2022
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