4 recession-proof real estate investments for your portfolio

IInflation is at its highest in decades, signs of further supply chain problems are mounting and the stock market is down over 20% year-on-year. It looks like we’re on the verge of a recession, but that doesn’t mean you should panic.

We say to equity investors that if you have a long-term investment focus, short-term issues should be largely ignored. The same applies to real estate investments. If you own good, profitable real estate with savings and a reasonable loan-to-value, short-term hiccups in the market shouldn’t give you an ulcer.

That means nobody is perfect. It always helps to build your portfolio so you can sleep at night — especially when the economy seems to be headed in the wrong direction. Here are a few real estate investment options that may have good odds during a recession.

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1. Existing properties

The first step is to do whatever it takes to hold your existing properties. Any property you’ve owned for five years or more is likely to have accumulated a lot of equity and could bring you a nice cash inflow to sell, but it’s also likely to have a great cash-on-cash return.

The real estate market is in purgatory. Interest rates have risen and mortgage lending has fallen, but prices have yet to begin any meaningful downward moves. The demand is still high, the housing stock is still low.

This means you have two choices: sell now and buy a new property while the market is likely near a peak, or hold on to your investment, continue to collect cash flow and save for the opportunity to buy when prices are lower and interest rates stabilize .

As long as you have a good mortgage on your property, short-term falls in property prices are irrelevant.

Assuming you decide not to sell now, you can invest in your existing properties. Add amenities if possible. For example, if you own properties with large yards, add a storage shed to the yard that can be used for an additional fee. If you have older devices, invest in new ones. Anything that can make your property more attractive and increase your rental income when the rental market slows will help.

2. Farmland

Farmland is one of the most inflation-resistant real estate investments. As prices rise, people choose to keep some items and even stop buying others. But they won’t stop buying groceries. If you own land growing corn, soybeans, or wheat, your cash flow should increase along with inflation.

The key here is to find someone to farm the land. It is not easy. Not only do you need someone who is knowledgeable—you don’t want harvest time to come and you find that half your crop is dead—but you also want someone who is trustworthy and understands the market.

In fact, it might be better to buy farmland REITs or real estate mutual funds. There are some notable REITs that own farmland and lease it to farmers. They do all the hard stuff, and you get a huge dividend every year.

3. Office/warehouse space

E-commerce growth, which began before the pandemic and was then accelerated by it, has fueled industrial real estate growth in recent years. Storage areas are needed more than ever.

Office/warehouse space is even better because you increase your flexibility. If you can find a tenant who can rent and use the entire space, great. If not, you can distribute the office space to different tenants and the storage space to even more. In the worst case, you can turn the warehouse into self-storage space and use the office itself to write off expenses.

Meanwhile, e-commerce is expected to continue growing and demand for warehouse space will continue to rise. Businesses that used to only use half of their inventory will find that it is much more cost-effective to sell and downsize. Industrial property prices should continue to rise as demand picks up and there will be no shortage of tenants when the market turns around.

4. REITs

For some investors, the only way to sleep through a recession at night is to take a hands-off approach: leave it to the pros. I am not blaming you. If that sounds like you, you might want to consider adding a few REITs to your portfolio.

Instead of buying farmland, buy a farmland REIT. Instead of buying an office/warehouse, consider an industrial REIT. You can even buy REITs for sub-sectors that most individuals could never invest in themselves, such as; B. infrastructure or woodland. REITs give your portfolio the extra diversification it needs to weather a recession.

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