There’s a buzzword that’s recently been making the rounds in the real estate investment space: recession-resistant. (Or worse yet, “recession-proof.”)
“Protect your investments with this recession-resistant market!”
“Recession-proof your portfolio with this property!”
The reason why this concept is being thrown around is simple. While the country was technically in a recession that is now considered “over,” there is no denying that COVID is still wreaking havoc on the economy and creating instability that is being masked by the government and rhetoric. Unfortunately, if you look closer at these claims, you’ll probably find nothing but a steaming pile of crap.
Let me explain…
Beware of Recession-Resistant Investment Myths
It’s pretty bold to certify anything as recession-resistant. Because unless you’ve got a time machine, no one can say with certainty what the market will do. If nothing else, the pandemic taught us that much.
But here’s the good news. There are markers you can watch for that will give you the best chance to see solid returns that outperform the broader market—even during an economic downturn.
You’ll want to see things like:
Promising job stability and income in higher-demand fields like healthcare and technology
A steadily growing population and/or positive migration pattern
Affordability (for both owners and tenants)
Stable or declining area crime rates
Now, that’s just a jumping point. Picking a great market gives you a good foundation, but it’s still just one marker of a worthy investment opportunity.
So, the fact that a lot of “investors” out there claim their offers are recession-resistant/-proof when they are so obviously NOT really gets to me.
The Only Investment Niche Proven To Be Recession-Proof
Just to give you some background, “recession-resistant real estate” started making headlines after the Great Recession of 2007-2009. The label was mainly applied to self-storage, and for good reason—self-storage REITs were the only real estate asset class that generated positive returns during that period.
Why did self-storage perform so well before, during, and after the recession? Because the industry provides a service to businesses and consumers in good times and in bad times.
In good times, the demand is tied to growth and expansion of business and lifestyle, which is pretty easy to understand. And in bad times, the demand is tied to the four Ds: downsizing, divorce, dislocation, and death. These life events are exacerbated during economic downturns and recessions, which amounts to storage demand from those experiencing a life expansion to contraction. As companies and consumers downsize, storage demands continue to rise.
That’s why applying the “recession-resistant” label to other assets like multifamily bothers me. Regardless of the market, there are several risk factors that make the multifamily claim of being “recession-resistant” misleading.
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