Recession Investing: Things You Need To Know

Most people don’t know however, real estate has a market cycle.

A property cycle is a sequence of recurrent events reflected in demographic, economic and emotional factors that affect supply and demand for property subsequently influencing the property market.
Given the COVID-19 Pandemic, a lot of markets have been dropped into a recession.

With several market cycles already under my belt as a real estate analyst and investor, I no longer hear the word “recession” and cringe. Recessions are simply a natural part of the real estate cycle that occurs based on supply and demand. And they’re not something to be feared. Rather, like every stage of the cycle, recessions offer unique opportunities.

The coronavirus has created an economic storm that is putting stress on several business sectors. But an economic slowdown may be a reason to buy real estate since this investment speaks to a variety of investor needs, including diversification and income generation. So it is important to understand the value of property investment in a portfolio during a recession.

These are 3 reasons why I would suggest that a property investment is the solution for wealth security during a recession.

  1. Property investments can produce stable income.
  2. Real estate may be less sensitive to volatility.
  3. Property may outperform stocks and bonds.

Property Investments Can Produce Stable Income.
One of the chief reasons to consider making property investments is the opportunity to generate income. As an income stream, real estate investing tends to offer predictability in a recession.

Consistency of the yield is what makes real estate investments more suited for riding out a recession. Some of our investments at Muna Real Estate Limited which the rents have been paid down for 2-5years already covered the possibility of being hit from the pandemic.

If we look to rental properties, consistent rent payments from tenants do not fluctuate in a recessionary period. Their monthly/ annual rent payment is always due and is not tied to the stock market.

Real estate investors have another edge when it comes to using rental income to offset the effects of a recession.

As a real estate investor, you are always in a position to hedge against inflation and changing interest rates when you have control over rental prices. Raising the rent at lease renewals, for instance, allows you as an investor to keep up with rising prices associated with inflation.

In that respect, this asset class can offer more flexibility than stocks and bonds in a recession.

Real Estate May Be Less Sensitive to Volatility
Stock market volatility can add to an investor’s recession woes if stock prices are making wide swings. That can directly affect the return profile of a portfolio. Real estate’s relative low correlation to stock market movements, on the other hand, can make it a more reliable choice during a recession.

Because of the steady nature of revenues from real estate, it can often be a good hedge against volatility. Even in times of recession, people need places to live, work and get services. So the market will always exist.

One of the hallmarks of real estate investing is its slower-to-move nature.
Value on paper may change, but value, as it relates to the yearly income, doesn’t tend to vary as quickly.

The real estate market is not completely immune to volatility.
The 2008 financial crisis and the following downturn in the housing market are evidence of that. But managing volatility risk is all about analysis and strategy when investing in real estate in an economic downturn.
Consult Muna Real Estate Limited for your investment analysis and property annual review.

Property May Outperform Stocks and Bonds
Past performance is not a guarantee of future performance – that is one of the oldest investing rules. But real estate could prove profitable when the economy moves toward a recession if stocks and bonds falter.

Historically, there are a range of potential outcomes when it comes to performance during a recession. For example, retail commercial space may present more downside risk compared with multifamily homes and apartment buildings.

An investor’s success with real estate in a recession depends largely on their strategy.

 

If your investment model is dependent on appreciation, then the recession is going to be a tough time, as property prices are going to drop.
This is a major reason why I don’t advice investors to acquire land.
Most people ask me,

  • “Muna, why don’t you sell land?
  • Why don’t you advice clients to invest in land?”

I simply reply saying;

“investing in land is a game of speculation as it doesn’t produce cashflow, as an investor, I don’t speculate and I only invest or advice investments that produce cashflow”

To wrap it up.
Real estate is the safest place to keep your money and multiply your money during a recession. I would advice to invest in areas with high rental demand and for long term investments, commercial properties will be your safest bet!

Do you think during a recession is a good time to invest in Real Estate?
Let me know with a comment.

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