3 Reasons to Invest in Real Estate During a Recession
3 reasons to invest in real estate during a recession
The virus has created an economic turmoil that puts pressure on several business sectors, from transportation to hospitality and agriculture. However, an economic slowdown may be a reason to buy real estate, as this investment speaks to a variety of investor needs, including diversification and revenue generation. Therefore, it is important to understand the value of the portfolio's investments during a recession.
"Real estate is an interesting asset," says Mehel Gartenberg, an agent with New York's Warburg Realty Partnership. "When the stock market is doing well, investors looking for other opportunities find that real estate is a safe haven."
Gartenberg says incorrect assumptions about real estate prices and recession environments can keep investors from investing in real estate, whether it's real estate investment trust, known as REIT, or buying rental properties.
"The fact that the recent recession was caused by the real estate bubble has remained strong in the minds of investors, making them think that a recession is bringing down real estate prices," she says. "Although in three of the last five recessions, real estate value has actually risen."
A recession could be the best time to invest in real estate, says Jim Egan, head of commercial real estate banking and senior vice president of Bern Maor Trust.
"Investing in real estate investment trusts is also an option that involves less capital and may add diversity to your portfolio." Egan says.
Still not sold in real estate investment? Below is a look at the body of property investment as the stock market moves into a slow cycle:
- Investment in assets can generate stable income.
- Real estate may be less sensitive to volatility.
- Assets may outweigh stocks and bonds.
Investment in property can generate stable income
One of the main reasons to consider investing in assets is the opportunity to generate income. REIT can provide dividend income; Direct ownership enables investors with rental income.
As a revenue stream, real estate investments tend to offer predictions in a recession.
"The consistency of the return is what makes real estate investment more about riding a recession," says Jason Lowe, owner and retirement adviser at Synergy Group in White Oak, Pennsylvania.
Lowes looks at rental properties, and says that tenants' fixed rent payments don't change during a recession.
"Their monthly rent payment is always intended and unrelated to the stock market," he says.
Real estate investors have another advantage when it comes to using rental income to offset the effects of a recession.
Lowes says they can hedge against inflation and change interest rates when they have rent control. Raising rents in renewal of leases, for example, allows investors to keep up with rising inflation-related prices.
In that regard, this type of asset could offer greater flexibility than stocks and bonds in recession, he argues.
Real estate may be less sensitive to volatility
Stock market volatility can add to the investor recession if stock prices make wide volatility. This can directly affect the return profile of a portfolio. The relatively low real estate correlation to stock market movements, on the other hand, could make it a more reliable choice during a recession.
Diana Hill, director of real estate education at OTA Real Estate, “Because of the constant nature of real estate revenue, it can often be a good hedge against volatility. "Even in times of recession, people need places to live, work and receive services. So the market will always exist."
Hill says one of the hallmarks of real estate investment is his slow-moving nature.
"The value on paper may change, but the value, relative to annual revenue, does not tend to change as quickly," she says.
The real estate market is not completely immune to volatility, Egan says.
The 2008 financial crisis and the next downturn in the housing market are evidence of this. But volatility risk management is a matter of strategy when investing in real estate in an economic downturn.
During the Great Recession, real estate investment assets were affected differently.
"Homeowners have lost significantly, and yet single-family rental properties have actually been positive as a sector," says Kevin Plumino, director of Virtua Partners in Scottsdale, Arizona. "Other assets such as storage and multifamily have historically been more resilient to decline."
At the same time, industrial, retail and office space may prove to be more risky in a recession, as the cash flow of those assets depends on how basic tenants can navigate a slower economy.
The property may outweigh stock and bond execution
Past performance is no guarantee of future returns
3 Reasons to Invest in Real Estate During a Recession
"Real estate is an interesting asset," says Mihal Gartenberg, an agent at New York-based Warburg Realty Partnership. "When the stock market is doing poorly, investors who are looking for other opportunities find that real estate is a safe haven." Gartenberg makes incorrect assumptions
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