Listening to real estate experts and economists lately, you’ll see that the writing is on the wall: if we’re not already in a recession, we’ll be in one soon. The past few years have been an economic rollercoaster, particularly for those of us in the real estate industry. After riding the wave of a white-hot market, it can feel as though an era of unprecedented growth is over.
And while a recession will change the real estate market, you can rest soundly: no matter what stage of the market cycle, residential real estate remains one of the best investments you can make.
Here’s why...
5 Reasons Residential Real Estate is an Ideal Recession-Era Investment
#1. Housing is a necessity
Recessions shrink consumer spending on all but the essentials. This creates volatility among many asset classes, including stocks. Residential real estate doesn’t have the same problem though. As an essential asset – everyone needs a roof over their heads – real estate remains largely stable throughout recessions. Remember, the 2008 housing market crash was an anomaly among recessions! And even so, the Great Recession opened opportunities for real estate investors in its wake.
#2. Cash flow balances recession risks
Inflation is one of the primary causes of a recession, which is what we’re seeing now. It’s effectively a collective tightening of purse strings as the economy grows more and more expensive. The dollar is worth less, so consumers are much more diligent in controlling their spending habits. For the real estate investor, owning rental properties generates cash flow. These additional streams of passive income can help bolster your wealth even as inflation makes its mark.
Even if real estate values waver during the recession, your cash flow will remain steady.
#3. Real estate rarely depreciates
As we mentioned in our first point, the Great Recession presented a housing market anomaly. It’s not normal for the housing market to be at the center of an economic crisis, nor is it normal to see the level of foreclosures and falling values we saw at the time. The truth is real estate is a famously stable investment. As a real, tangible asset, you can always do something with it to generate value and income. Real estate both keeps up (and even surpasses) inflation rates while also providing a largely recession-proof reservoir of wealth.
Real estate may even continue to grow in value during a recession. It doesn’t automatically mean you’re going to lose value!
#4. Recessions create investment opportunities
Real estate investors are in a position to make the best out of a difficult economic situation. A tighter economy means that we may see an increase in foreclosures along with more deals on the real estate market. Investors would do well to take advantage of these opportunities! A slower, more balanced real estate market might not mean prices will drop dramatically, but it does mean there are more options on the market and room for negotiation.
We saw that real estate investors were primarily responsible for the housing market rebound in the wake of the Great Recession. Not only can investors directly benefit from investing in rental properties, but they can help keep the real estate market strong.
#5. You create a multi-faceted wealth generator
The thing we’ve got to understand about investing in real estate is that there’s no one primary benefit. Investing in real estate generates wealth in more ways than one! Renting out properties creates passive income. Holding the property long-term means that you benefit from increasing property values and equity. Owning real estate assets protects your cash from the effects of inflation. Then there are plenty of tax benefits to consider!
A single property by itself has multiple ways to generate and preserve long-term wealth. Multiple properties only compound that potential. In times of recession, you want to have an asset like that! Where one of the benefits may wane under certain economic conditions, the others can pick up the slack.
Inflation and recessions alike are tough on consumers and investors. We’re not going to pretend every stage of the real estate market is ideal. However, each stage of the market cycle provides opportunities for those willing to put in the work. You don’t have to worry about one season or another ruining your hard-earned passive wealth: real estate stands up against the toughest of conditions. And should it falter, it always bounces back!
Find investment success with the team that knows how to handle anything the market will throw at you: REI Nation!
