The current global pandemic has triggered economic squall thus putting stress on several business sectors across the globe. Countless economists and entrepreneurs have postulated a worse impact as compared to the 2008 recession with oil prices hitting its lowest price ever.
However, an economic slowdown may be a reason to buy real estate since this investment speaks to a variety of investor needs, including diversification and income generation. So it is important to understand the value of property investments in a portfolio during a recession.
According to Mihal Gartenberg, an agent at New York-based “Real estate is an interesting asset. When the stock market is doing poorly, investors who are looking for other opportunities find that real estate is a safe haven.”
Still not sold on real estate investing? Here is a look at the merits of investing in property when the stock market moves into a sluggish cycle:
— Property investments can produce stable income.
— Real estate may be less sensitive to volatility.
— Property may outperform stocks and bonds.
Property Investments Can Produce Stable Income
One of the chief reasons to consider making property investments is the opportunity to generate income. As an income stream, real estate investing tends to offer predictability in a recession.
Investors are in a position to hedge against inflation and changing interest rates when they have control over rental prices. Raising the rent at lease renewals, for instance, allows investors to keep up with rising prices associated with inflation
Real Estate May Be Less Sensitive to Volatility
Stock market volatility can add to an investor’s recession woes if stock prices are making wide swings. That can directly affect the return profile of a portfolio. Real estate’s relative low correlation to stock market movements, on the other hand, can make it a more reliable choice during a recession.
“Because of the steady nature of revenues from real estate, it can often be a good hedge against volatility,” says Diana Hill, director of real estate education at OTA Real Estate. “Even in times of recession, people need places to live, work and get services. So the market will always exist.”
Property May Outperform Stocks and Bonds
Past performance is not a guarantee of future performance — that is one of the oldest investing rules. But real estate could prove profitable when the economy moves toward a recession if stocks and bonds falter.
In conclusion, it’s the nature of the world that sometimes bad things happen. When they happen to your investments or savings, you don’t need to panic. Sometimes, you need to take a hit before you can make some money again and holding on until the recession ends is the best plan.
Besides reading and learning as much as you can, one of the best things you can do is talk to a real estate professional who can help you better understand the world of investing.
Source: Yahoo finance & JZA Research Team