For investors, that means better cash flow, lower cap rates, and higher property values.
Fewer Buyers, Less Competition
In both stocks and real estate, buyers get spooked and pull back in a weakening economy.
Real estate investors face less competition and fewer bidding wars. They can make lowball offers to find distressed sellers, and close more of those distressed deals.
Discounted Prices
Fewer buyers and less demand also mean lower prices, again for both stocks and real estate.
But in a weaker economy, you also end up with more distressed sellers who got in over their heads. Read: opportunity for deep discounts.
In fact, the deal the Co-Investing Club is investing in right now includes a distressed apartment complex. The owner ran out of money after buying with short-term, variable rate debt. Now they’re in foreclosure and selling at a deep discount.
Less New Supply Being Built
On the real estate side, developers largely stop building new homes and apartment buildings in downturns. That pinches housing supply over the next few years, which drives up rents and property values.
Again, that creates an opportunity for those of us willing to keep investing even when the headlines spout fear and doom.
Recession-Resilient Investments
Sure, some investments crash during downturns. Others do just fine.
Several times this year, the Co-Investing Club has invested in properties securing tax abatements in exchange for setting aside some units for affordable housing. They get an instant boost in cash flow by slashing property taxes, and the rent-restricted units become even more coveted during a recession.
We’ve also invested in an industrial property with a backlog of orders through 2028. Their clients include the US Navy. They’re not going anywhere, even if a recession hits.
Another month, we invested with a partner who buys vacant land, installs a manufactured home, and sells it for literally half the local median home price. Demand for housing this affordable will never go away, even (or especially) in a recession.
