Investing in a downturn

Is this a bad time to invest in Real Estate ?   Well that depends   –  Real estate investors and homeowners who were hard hit by the recession of 2008 —and those disappointed by the cooling real estate market at the end of 2018 are looking for that elusive investment that’s guaranteed to offer returns amid economic fluctuations.   Though the U.S. housing market recovered dramatically in the years since the recession, there are concerns that stock market volatility, global trade tensions, and uncertainty could compound the slowdown of the current real estate market.  And some are even bracing for another recession. 

 

There’s no such thing as an entirely recession-proof investment.

Recession-proof implies that if we’re in a recession and someone needs to dispose of a property, they can get all their money back.   And that simply does not happen.  In fact no investor should think any investment they make is recession-proof.

Fortunately, there are real estate purchases better able to weather the ups and downs of the market than others

Multi-family homes that bring in rental income, and properties in high-demand, low-supply locations both tend to offer greater protection from losing substantial value during economic slowdowns.But be aware you’re never going to get something that in an economic downturn will continue to go up.

It’s really a question of, what can I buy that is not going to kill me from a depreciation standpoint?  Investors should keep in mind not only that certain types of property are more vulnerable to market fluctuations than others, but also, with a long enough time horizon, their investments will most likely pay off.

 

Because real estate has gone up so much over the years, people have looked at it as something that is an investment that will always appreciate.  But in the short term that is not always the case. Economic cycles, and property values go up and down, but over the long haul  real estate will always goes up

Vacation Homes

Vacation homes tend to be hit particularly hard during recessions. Investors in vacation properties should be aware, then, that these can be risky purchases.

Second homes 

Second homes have a higher risk because the owner pays the debt service on that asset after they pay for their primary residence making it also a more vulnerable asset during a recessions.  The caveat to that is AirBnB which allowed vacation homeowners to earn extra income through short-term rentals which can provide some insulation from market downturns

 

Duplexes and Triplexes

Investors in multifamily properties are lured by the prospect of rental income, which can be especially promising in central, walkable urban areas.  But location is key –  you want an area that is low in volatility that has high rental demand like…     Los Angeles

 

With duplexes and triplexes investors get preferred interest rates, financing, and loans, and an owner can live in one unit and rent out the others and receive income from those.   Again, location dictates just how safe an investment will be under shifting market conditions, but generally, duplexes and triplexes offer some insulation during hard times.

In the end taking the long view is a smart approach for any type of real estate investment.  It is all cyclical.   If you can wait out any downturn you will be fine in the end.  

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