3 Reasons to Invest in Real Estate During a Recession
While the Coronavirus is producing economic stress and a slowdown in many business sectors, it could be a good time to invest in real estate. Property investments can provide a stable income during uncertain times, can be less sensitive to unpredictable rapid changes, and can outperform the returns on stocks and bonds.
Regarding stability, Jason Laux, advisor at Synergy Group, states that "Consistency of the yield is what makes real estate investments more suited for riding out a recession." Monthly rent payments do not fluctuate during a recession. Additionally, the ability to increase the rent when renewing leases allows investors to keep up with inflation and changing interest rates.
The low correlation that real estate has with stock market fluctuations makes it a reliable choice. People will always need places to live, work, and access services, even during a recession, which means that the market will continue to exist. Diana Hill, of OTA Real Estate, states that "Value on paper may change, but value, as it relates to the yearly income, doesn't tend to vary as quickly." However, investment in retail, industrial, or office space may be riskier during a recession than investment in homes, since commercial tenants may be more affected by a slower economy.
Finally, real estate investments are not tied to the stock market, and wise property investments during a recession can give higher returns than stocks and bonds. Investors can purchase properties at discount prices when the supply is high, and there is low demand. They can then position these as rent-to-own or rental properties, gaining a regular monthly income. When the time is right and the demand is higher than the supply, they can sell for a profit. These are long-term investments, and the quality and return potential of each property should be carefully assessed.