Recession Proof Real Estate Investing: Is It A Good Idea In 2024?

by Anthony Zhang

A recession is looming in the distance, particularly in the United States. And as a real estate investor, you likely have plenty of concerns, including how you recession proof your real estate investments.

Generally, when a recession is on the horizon, the real estate market experiences a shift.

Real estate prices relax, and the market shifts from being a seller’s market to a buyer’s market. Borrowing becomes rigorous, making it challenging for people to buy and sell homes.

But, it is possible to withstand an economic downturn by changing your approach to investing. In the past, even during the worst times, real estate professionals could grow and scale their businesses.

In this article, we’ll explore the best tips for recession proof real estate investing, our recommendations for real estate investment opportunities, and other essential real estate investing information. You won’t ever find a real estate market shift daunting in the future!

We’ll also share another recession proof alternative investment option - investing in wine with Vinovest.

7 Tips To Recession Proof Real Estate Investing

There’s no way to avoid economic turmoil and a recession, but as a savvy investor, you shouldn’t let this stop you from investing. Instead, implement some steps to ensure your real estate portfolio is recession proof.

There are multiple ways to do this, but here are our top investing tactics:

Maximize Cash Flow
Reduce Your Debt
Consider Risk and Yield
Increase Liquidity
Diversify Your Assets
Buy and Hold Real Estate
Invest in Primary Markets

1. Maximize Cash Flow

During any recession, it’s crucial to maintain a steady cash flow to endure an economic downturn.

One of the easiest ways to do this is by increasing the rental fees on your rental property. Another is determining inexpensive ways to improve your revenue, like coin-operated laundry machines or allowing pets for an extra cost.

2. Reduce Your Debt

Seize the opportunity of lower interest rates and pay off as much of your loan balances as you can. This will help you improve cash flow and have sufficient equity to endure a decline in values.

3. Consider Risk and Yield

Ahead of an economic recession, banks will ease their lending requirements and lower interest rates.

This tempts an inexperienced real estate investor to dive into high-risk deals, anticipating higher, short-term yields. More often than not, as an investor, you will lose the most when the recession does hit.

So before a recession, ensure your debt is low and avoid investing in high-risk deals.

4. Increase Liquidity

Unlike other real estate vehicles like stocks, you can buy and sell real estate quickly. So, offload underperforming assets to increase your liquidity.

Cash that’s readily available during a recession will go the distance when real estate prices drop, and lending gets stricter.

5. Diversify Your Assets

Protect your portfolio by diversifying your assets. This can be done in many ways, like equity investment, real estate investment trusts, Treasury Inflation-Protected Securities (TIPS), and more.

6. Buy and Hold Real Estate

Buying and holding real estate properties will keep your business lucrative and stable during a recession and the inevitable market shift.

Hold onto your purchased real estate investment property and rent it out for a monthly income. With this rental income, you can pay for investment expenses and mortgage payments.

If you’re in the commercial real estate space, consider setting up long-term lease agreements with your tenant.

7. Invest in Primary Markets

Make the most out of your long-term returns by investing in primary markets like Boston, New York, San Francisco, and others.

Real estate in primary markets like these generally holds a higher value than in secondary markets like Las Vegas or Phoenix.

Now, let’s explore four real estate options you should consider investing in.

4 Real Estate Business Options To Invest In

It’s no surprise that certain asset classes are better and safer to invest in than others. Here are four real estate business options to help tide you through the recession:

Off-Campus Student Housing
Senior Housing
Multifamily Real Estate
Real Estate Investment Trusts (REITs)

1. Off-Campus Student Housing

Generally, students will continue to go to university and college each year. This may increase during a recession as many hope to improve their career prospects through advanced degrees.

So students will always be looking for rental property sites off-campus. Consider investing in student housing in primary markets close to the best universities.

2. Senior Housing

Senior housing is constantly in demand, even during economic turmoil. This is primarily due to the aging population in the United States. The property value for such real estate will only appreciate.

3. Multifamily Real Estate

Multifamily properties (also known as apartment complexes) are buildings with more than one available unit to rent. This type of commercial real estate frequently outperforms other asset classes because people are always looking for places to live.

This asset class does well during a recession despite two factors - multifamily property value rates may not appreciate, and rent growth may be slow. But, as an investor, if you’ve positioned yourself well (i.e., little debt), you’ve nothing to worry.

4. Real Estate Investment Trusts (REITs)

A real estate investment trust is a company that purchases and owns real estate that generates an income. This includes commercial real estate like apartments, malls, office buildings, hotels, self-storage facilities, warehouses, and more.

As an investor, you can purchase stocks in a REIT and earn quarterly or annual dividends. This is a good form of passive income. And we all need a little extra passive income to tide us over!

REITs can weather a recession, so buying the right ones will put you in a good position to survive an economic downturn.

Here are 3 of the best REITs sectors to look out for:

Healthcare REITs: Healthcare REITs only finance and own medical facilities, like nursing centers and hospitals. This is a great sector to invest in because, at any given point, people will need a doctor and hospital services.
Self-storage REITs: These REITs own storage facilities they rent out to individuals and businesses. Self-storage units are constantly in demand as units are affordable, and many people are moving or downsizing their homes to cut costs.
Residential REITs: Residential REITs finance and own different types of residences like student housing, apartment buildings, and single-family homes. Even during a recession, people will require accommodation, and many opt to rent. This was evident in the United States during the Great Recession in 2008.

Other FAQs About Recession Proof Real Estate Investing

Here are answers to other questions you may have about recession proof real estate investing:

What Causes a Recession?
What Asset Class Should You Avoid Investing in Before a Recession?
What’s The Best Book on Recession Proof Real Estate Investing?

1. What Causes a Recession?

A recession is considered a time when a nation’s gross domestic product (GDP) growth rate is negative for two or more consecutive quarters. Sales and revenue start to decline, and businesses cease expanding and hiring - some employees may even get laid off.

These are some of the leading causes of a recession:

Inflation: Inflation occurs when prices steadily increase over time and the dollar declines in value.
Deflation: Deflation happens when prices and salaries decline over time. And customers and businesses stop spending.
Extreme debt: When too many customers and businesses have a lot of debt, they default on payments or go bankrupt. This can overturn the economy like the 2008 Great Recession.

2. What Asset Class Should You Avoid Investing in Before a Recession?

Some real estate asset classes will be more impacted by an economic downturn than others.

Here are a few asset classes that may not create a better financial situation for you:

Vacation homes and hotels: During a recession, people are less likely to go on holidays or travel for business. So, invest in vacation homes and hotels as an asset class only when the economy is strong.
Retail: Customer spending tends to decline during a recession. Plus, many businesses may opt to have an e-commerce store over a physical store to reduce expenses.
Speculative investments: A speculative investment is a long-term investment rooted in conjecture - it isn’t currently provable but can become verifiable in the future. This type of investment contains considerable risk, so tread with caution.

3. What’s The Best Book on Recession Proof Real Estate Investing?

The book ‘Recession-Proof Real Estate Investing: How to Survive (and Thrive!) During Any Phase of the Economic Cycle’ by accomplished investor J Scott is a must-read for any investor.

Recession Proof Real Estate Investing is an easy guide on how you can make money, irrespective of whether you’re facing an economic recession or a specific stage of the economic cycle.

J Scott also breaks down essential information like:

The four phases of the economic cycle
How to use real world strategies to your advantage during any stage of the economic cycle.
How to forecast economic shifts and techniques to deal with the changes.
How you can profit at every step of the economic cycle.
Multiple ways to improve your investing tactics to survive and thrive through the recession.

If previous economic events like the dot-com bubble and 2008 Great Recession were any indicator, the right real estate investments will strengthen your portfolio.

But, it’s not the only route you can take.

Another great recession proof alternative investment option is fine wine.

A More Stable, Recession-Proof Alternative Investment Option: Fine Wine

Investing in fine wine is a far safer alternative to any other investment vehicle and a better way to offset market volatility.

Here’s why:

Fine wine isn’t affected by factors like interest rates, dividends, and company earnings of traditional investments. Some of the factors fine wine is influenced by include:
- Annual harvest yield
- A producer’s reputation
- Terroir
- Tariffs
- A wine’s age
Fine wine is relatively recession-proof because most people enjoy wine no matter the economic situation. During the 2008 Great Recession, while stock prices dropped 52% and interest rates were close to zero, fine wine prices boomed. The Liv-ex Fine Wine 100 returned about 25.51% on investment between December 2007 and June 2009.
Fine wine is not volatile as prices remain stable. This is because all wine investments are private (not public like the stock market.)

Investing in fine wine used to be reserved for the rich. But thanks to wine investment platforms like Vinovest, anyone can easily buy, store, and sell a portfolio of incredible fine wines within minutes.

Diversify & Recesssion Proof Your Portfolio With Fine Wine

Real estate investing is one of the few asset classes that can survive an economic recession. If you make intelligent financial decisions, you’ll come out of a downturn relatively unscathed.

If you want to diversify your investment portfolio with a more stable investment vehicle, consider wine investing. And the easiest way to achieve your wine goals is through Vinovest — the most trusted company to curate luxury, collectible wine from anywhere in the world.