In a period of recession, the real estate sector can stabilize the portfolio of
securities in a country's economy.
Before talking about the benefits of investing in real estate during a crisis, we must understand what the value of investments in a portfolio is during a recession.
According to Mihal Gartenberg, an agent at Warburg Realty, he says, “When the stock market works well, prices tend to rise as investors own more capital. When the stock market malfunctions, investors find real estate a safe haven when looking for new opportunities”.
In summary, when the economy slows down investing in real estate is an opportunity to see your capital grow.According to Gartenberg, incorrect assumptions about property prices and recessionary periods can prevent investors from seeking a real estate investment, whether it be a trust or buying rental property. According to Jim Egan, head of commercial real estate banking and senior vice president at the Bryn Mawr Trust, a recession indicates a good time to invest in real estate. Falling asset prices create a market for big consumers if other investors think they need to sell them. "An investment in a real estate investment trust is an alternative that involves less capital and can add diversification to your portfolio. "Here are the top 3 reasons to invest in real estate when the stock market moves slowly:
- Investments can produce stable income
- Real estate tends to be less sensitive to volatility
- Property can outperform stocks and bonds
Investments create stable income Generating income is one of the main reasons to consider making real estate investments. Real estate investment trusts can create dividend income.
The property allows investors to earn rental income directly. As a stream of income, investing in real estate tends to provide predictability in a recession. According to Jason Laux, owner and retirement advisor to the Synergy Group in White Oak Pennsylvania, Laux is looking for rental properties because tenants don't fluctuate in a period of recession.
"Your monthly rent payment is always due and not tied to the stock market," he says. Increasing the rent on lease renewals allows investors to stay up-to-date with rising prices associated with inflation.
This asset class may offer more flexibility than stocks and bonds in a recession. Real estate is often less sensitive to volatility" Even in times of recession, people need places to live, work, and get services so the market always exists," says Diana Hill, director of real estate education for OTA Real Estate. He also adds that one of the main characteristics of real estate investment is its slower nature to move.
"The value on paper can change, but the value, relative to annual income, does not tend to vary as fast," she says. The real estate sector is not completely immune to volatility. Proof of this was the financial crisis of 2008 and the following recession in the real estate market. But volatility risk management has to do with the strategy of investing in real estate in an economic downturn. Industrial, retail, and office space can be riskier compared to single-family, storage, and multi-family rental assets that historically have lasted longer in recessionary periods. Property can outperform stocks and bonds Rule that every investment should know “Past performance is not a guarantee of future performance.
But real estate could be profitable when the economy moves into recession if stocks and bonds fail. Retail business space may present a higher downside risk compared to multi-family homes and apartment buildings.
According to Joseph Polakovic, owner and CEO of Castke West financial in San Diego, "If your investment model depends on appreciation, then the recession will be a difficult time as home prices will fall."
The sweet spot for Polakovic would be a real estate investment with good neighborhoods and good jobs."Real estate tends to be a better hedge for inflation than bonds, especially in this environment of low interest rates."
In short, a recession can open up opportunities to invest in real estate. Doing it wisely will mean managing the balance between supply and demand.