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We’ve been hearing it for months now: a recession is coming and it’s time to batten down the hatches and get ready. But instead of just laying low and hoping for the best, what if you could build up your investment portfolio to balance risk and provide stability during a downturn?
In times of economic uncertainty, many investors turn to real estate as a safe haven asset. There are certain asset types that stand out from the crowd because they offer lower volatility and can be a smart investment in a recessionary environment.
Multifamily Properties
During a recession, many people are unable to purchase homes and may instead turn to renting. This increased demand for rental properties can make multifamily properties a smart investment option. Multifamily properties can provide a stable source of income for property owners, even during uncertain times. Additionally, because multifamily properties have multiple units, they offer a level of diversification that can help protect against market volatility.
Industrial Properties
Industrial properties, such as warehouses and distribution centers, can also be a good investment option during a recession. The rise of e-commerce has increased the demand for industrial properties, as companies need more space to store and distribute their products. This increased demand can result in higher rental rates and a stable source of income for investors. Additionally, industrial properties are often leased on long-term contracts, providing investors with a reliable source of cash flow.
Self-Storage Facilities
Another real estate asset class that can be particularly resilient during a recession is self-storage facilities. During tough economic times, people may downsize their homes or need to store their belongings while in transition. This increased demand for self-storage facilities can result in higher occupancy rates and steady cash flow for property owners. Additionally, self-storage facilities often require less maintenance than other types of properties, making them a low-risk investment option.
Mobile Home Parks
Mobile home parks generally make money from ground rent which means there is minimal maintenance for the investor. It’s not uncommon for mobile home park tenants to receive government funding to cover the cost of their ground rent, thus making it a more reliable source of income.
Senior Housing
Similar to multifamily properties, senior living facilities offer diversification and a stable source of income. This asset class will always be a necessity as our population ages and becomes unable to live independently, meaning the demand will never decrease.
A common theme throughout all of these asset types is that they provide a steady cash flow due to long-term leases with built-in rent increases. By diversifying across multiple asset types, investors can spread their risk across multiple income streams. While investing in real estate during a recession can be a smart move, it's important to remember that all investments come with risks.
Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.