One of the most frustrating parts of being an investor is watching investments plummet during a recession. You may know the feeling—every time you check your stocks, bonds, and other investments, they’ve lost a little more value. Even the ones you thought were a good, safe option may have lost a bit. What can you do?
While there’s no investment that is a 100% guarantee, there are some options that are more recession-resistant than others. Real estate is one such investment. Even in real estate, there are certain types of investments that are more recession-resistant than others. Here are some tips for finding the right properties, and type of investments you can rely on even through a recession.
Your Goal with these Investments
First, it’s important to realize what your goal with these investments is. During a recession, very, very few investments are going to grow. You’re not going to find any investment that is going to do exceptionally well during one of these economic periods. Instead, your goal with these investments is to find those that will at least remain steady or decrease very little. You want to look for investments that won’t depreciate so much that you actually lose money.
In fact, with the way the real estate market fluctuates, you may actually find your property values dropping a bit even when it’s not a full economic recession. This is actually somewhat normal for the real estate industry. In the long run, however, real estate values will increase. If you’re buying in the middle of a low value cycle (which many people do in order to snap up good properties for less), you may need to wait a year or more before you see a true increase in value.
Peer to peer lending is also a great way to make money and is recession and risk proof. You receive the note on the property that the real estate investors purchases, they rehab it, while you earn monthly interest payments. Ryan’s Buying offers note investments in the Greater Milwaukee area. What would you do with an extra $500 in your mail box each month?
Characteristics of Recession-Resistant Investments
Before you make any investments, it’s important to take a look at the characteristics of what makes a good property recession resistant. The first of these characteristics is that the property provides a type of service that is either fairly independent from the economy or is actually needed more during a recession.
There are some services that aren’t affected by the economy as much as others. Multi-family rental units, for example, are always going to be a good investment. This is especially true during recessions when people are not looking to buy a house but still need housing. On the other hand, vacation homes are greatly affected by the economy. During a recession, few people are looking to buy a second home because many of them are concerned about being able to afford their first house.
That’s not to say that a vacation home can’t be a good investment even during a recession—thanks to services like Airbnb, many people who own vacation homes have transformed them into sources of income. However, since many people travel less during a recession, even using a second home for income isn’t always guaranteed.
Services that Increase During a Recession
The second type of property investors look at as being recession-resistant are those associated with services that actually increase during a recession. This is rare, but it does happen. Self-storage facilities, for example, often have steady or increased use during a recession. This is because people are often forced to sell their houses or move into smaller apartments. They need somewhere to store their property, and a self-storage unit is often cheaper than purchasing a larger home or renting a two-bedroom apartment instead of a one-bedroom. These assets can continue to turn a profit during recessions simply because they’re an affordable solution to an immediate problem.
Look for Limited Space
While it may cost you more initially, buying in an area where space is at a premium can be a great investment. For example, in Wyoming, much of the land is designated as protected wildlife reserves or forests. This leaves very little property to be fully developed, creating a limited resource that will always be in demand. In other parts of the country, however, this is not the case. If you buy in an area that is actively being developed by multiple investors, it may seem like you’re getting in on the hottest new location. However, if a recession hits, there’s likely to be so many properties in that market that the value drops dramatically.
Location, then, is another major factor to consider in a recession-resistant investment. If you purchase property in an area that is seeing little to no growth, you may not be able to find a buyer or renter. On the other hand, if you purchase a duplex or small apartment complex in an up-and-coming neighborhood, your investment is likely to pay off. It’s important to research trends before you make any investment to see where the demand is. When you can find an area that is in high demand, but also has limited space, you’ve found the perfect target for an investment that can stand the test of a recession.