What are “recession-resistant” real estate investments?
Did you know that real estate has created more millionaires than any other asset class? What you may NOT have heard is that real estate has also caused more bankruptcies than any other investment.
How is this possible?
No two real estate investments are the same. More importantly, the vast majority of real estate investments rely on the overall economy performing well and the capital markets being loose. Being dependent on these market conditions leaves investors at the whims of unpredictable forces, which cannot be controlled.
Knowing this, do you think it is a good time to be investing in typical real estate opportunities?
Let’s look at the economic data…
- 10,000 baby boomers enter retirement every day with very little savings.
- The average social security check is $1,200.
- The average 2-bedroom apartment in the U.S. rents for $1,231.
- Despite claims that millions of jobs have been created since the Great Recession, as of Q2 2016, the U.S. economy is still 3.3 million breadwinner jobs short of the pre-recession levels.
- Non-farm payroll hours have not meaningfully increased since pre-recession levels.
- The Federal Reserve interest rate suppression has inflated asset prices, making appreciation-based investing very unpredictable.
- Despite the Fed’s money printing and interest rate suppression, the S&P 500 has only yielded 5% annually over the last 15 years.
- The potential of contagion of the Chinese bear market has also caused great uncertainty in U.S. markets.
So what does this mean to investors?
It is NOT the time to focus on speculative investments, but it’s a great time to invest in recession-resistant assets that perform well during economic downturns.
What are some examples of recession-resistant assets?
- Mobile Home Parks
- Self-Storage Facilities
- Grocer-Anchored Shopping Centers
- Performing Real Estate Notes
These asset classes all perform well during economic downturns for different reasons, but the overarching theme is that they all provide a service whose demand is either unaffected by the economy or is increased during recessions.
The interesting thing is that despite these asset classes providing a lucrative ROI for investors without the headaches that come with typical real estate investments, very few large institutions focus on them, making the market substantially less competitive.
Is your portfolio prepared for the next economic correction?