Should I Invest in Real Estate During a Recession?
What is a Recession?
The term may conjure up images of the market in 2008, but a recession is simply any period of time when the national gross domestic product (GDP) growth rate is negative for two consecutive quarters. During a recession, layoffs spike, hiring slows down, and businesses slow down or halt expansion. As a result, the government will often issue incentives to stimulate the economy, such as lowered interest rates for borrowers.
Why Buy an Investment Property During a Recession?
- Monthly rent payments do not change during a recession. This means that once you have put up the costs and found tenants, you will get the monthly payments you’ve requested— no matter the state of the current housing market.
- You have the option to increase rent when the lease comes up for renewal. Therefore, even if you temporarily lower rent in hopes of attracting more renters, you can adjust your pricing when the economy has begun to recover.
- Investors are often able to buy real estate at better prices during a recession and turn those properties into revenue generators.
- Property investments produce stable income. Whether real estate investing is your main job or your side gig, it establishes a reliable stream of passive income even when the stock market is suffering or in times of economic volatility.
- Economic experts consider residential real estate to be relatively recession proof.
Challenges of Buying an Investment Property During a Recession
- One area where it becomes a little riskier to invest in real estate during a recession is retail, office or industrial spaces. Commercial tenants are much more affected by economic downturns. This has been especially apparent during the COVID-19 pandemic. With a large percentage of people switching permanently to working from home, the real estate forecast for office space is particularly affected.
- If for any reason you need to suddenly sell an investment property during a recession, you might not get offers as high as you would during a time of economic boom.
Ensure Your Investment Property is Recession-Proof
- Long Term Leases: By only offering long term leases (6 months-1 year minimum) you will help ensure your investment property income is less affected by high turnover and gaps in tenancy.
- Thorough Background Checks: By adequately screening all tenants you are able to make sure they are gainfully employed and have enough skills and education to be able to maintain job security and hireability if a recession happens.
- Keep Your Tenants: Once you find your ideal tenants selected and signed, you want to make sure they stay. You can do this by offering competitive rental rates, amenities and by building a strong relationship with them.
What to Avoid Investing in Leading Up/During a Recession
We discussed the potential cons of investing in retail, industrial and office space. But, you can add hotels and vacation homes to that list leading up to or during a recession. Simply put, people travel a lot less when the economy is down. During the COVID-19 pandemic, we’re seeing this effect as many tourist attractions and public venues are closed or operating at limited capacity.
Overall, housing is always going to be in demand, especially in the city. This makes buying an investment property, even during a recession, a reliable choice for extra income.
Nearly any real estate transaction is about life change. The addition of a new family member, a new job or a new career, or even a move out and into a new neighborhood. It’s about a new direction for your life that’s either just happened or right around the corner. If you are interested in an investment property in any of Seattle’s up and coming neighborhoods, contact Vicinage Real Estate Group and let’s get started on your next chapter!
Written by Laura Highsmith
I can't think of anything more satisfying than helping others find the home that speaks to them. We are all unique individuals with our own personal tastes, whether selling or buying it's my goal to help guide you through the process to a successful close. Let's talk!