Growing Your Portfolio in a Recession

Should you add real estate to your portfolio in a recession? 

In times of economic uncertainty, prudent investors tend to become cautious and seek safe havens for their capital. While the stock market can be volatile during a recessionary market, real estate has historically emerged as a stable and lucrative investment option (for a recap, visit our last two blogs). This blog post delves into the reasons why real estate can be a solid investment option, particularly during a recession, and highlights its key benefits including the potential for long-term financial growth, stability, and wealth preservation

Real estate is a tangible, or physical, asset that is distinct from other investment vehicles like stocks, bills, notes, and bonds.  We need real estate for just about everything we do, from housing, building, heating (coal, natural gas, lumber), manufacturing…and the list goes on.  We need land, or real estate, to do it on, take it from or to mine it out.  Land has an intrinsic value not found in most traditional types of investments, and real estate that has a house on it offers both an investment and the ability to meet a basic human need. The multifaceted role of real estate, particularly residential real estate, ensures its inherent value, making it a reliable investment even during an economic dip.

Investments in rental properties can provide a regular source of cash flow. Rental demand tends to remain relatively stable (and here in California, it remains strong–but that’s a topic for a different blog). Faced with the economic uncertainty of a recession, individuals who might otherwise have purchased a home, elect to stay in the rental market.  This decision may be motivated by an inability to qualify or overall financial uncertainty–but it keeps the renter pool full and vacancies down. By investing in income-generating properties, investors may be able to secure steady to increasing rental payments and help offset other financial impacts of a recession (like increasing prices, decreasing wages).  In this market, we are seeing that increased rental demand and our owner investors are benefiting from it.   

Real estate investments offer not only cash flow but the potential for long-term appreciation (or increase) in value. While real estate can drop in price, historically, the real estate market tends to appreciate in the long run. Also, unlike stocks, you typically don’t wake up and find an unexpected, significant drop in value like you might on wall street.

Developed land offers tax benefits like the option of depreciation. If the land you buy has a home or building on it, you can depreciate the value of the building over time. It also offers the option to “defer” gains and also to defer them while you transfer your ownership from one investment property to another (through a 1031-like-kind exchange).  Definitely consult your tax professional, but real estate can provide some tax advantages. 

There is nothing quite like real estate and although it may seem counter-intuitive, a down economy can be an excellent time to expand your portfolio.  Whether it's your first investment property or just one more in your portfolio, we can help you evaluate, secure, and benefit from residential real estate ownership.  

Ready to explore? Call or text us at (714) 305-2409.  Let’s grow your portfolio.