As 2023 marks the potential for a full-blown recession, Jamell Tousant, a realtor based in Oakland, Alameda, and the East Bay in California, believes the best type of real estate to consider during economic downturns are alternative real estate assets and investments. Residential properties are most affected by higher interest rates and falling stock prices – but savvy investors should remember that people still need housing.
So, while it may be wise to hold off on buying a new condo or single-family residence, there are still some commercial and rental properties that still make for a good investment.
When there is a significant decline in economic activity that lasts for more than a few months and is accompanied by high levels of unemployment, economists will consider that the country experiencing a recession.
While business is indeed slowing down, you can still find beacons of property in commercial real estate. These include those outlets that people tend to lean on heavily during economic downturns, such as self-storage facilities.
Even multi-tenant office spaces and medical offices located away from expensive urban settings are a good bet for fast growth during a recession. Also, consider small grocery stores and other types of personal care retail, as people tend to move from spending money on entertainment to self-care and family health and wellness.
Jamell Tousant has noticed how many potential homebuyers will tend to opt for renting a home until mortgage interest rates return to normal. As a wise real estate investor, take advantage of this trend by investing in rental properties that can offer a decent market rental rate – as many people will look to ditch higher-priced leases for something more affordable.
Rental homes and multi-family residential units are good choices for young investors who are okay with spending time and energy on converting these opportunities into monthly cash flow. If you make sure the following five criteria for property and neighborhood are acceptable, then the rental property you choose to invest in should be virtually recession-proof:
1. Crime Rate
2. Schools
3. Property Taxes
4. Number of Vacancies
5. Neighborhood Amenities
If you desire a property that will house a consistent and visible tenant population, then student housing is a good choice, says Jamell Tousant. Your cash flow will be highly predictable, and you can expect to get high rental rates when the student housing is near public amenities like entertainment/dining, recreation, and educational buildings.
While your student housing property may experience more wear and tear than traditional, furnished housing units, just ensure you’ve attached a sufficient security deposit to cover your costs. Off-campus is more in demand than ever, especially after the 2020-2022 pandemic, which caused many institutions to de-centralize and de-densify their on-campus housing arrangements.
While Jamell Tousant agrees that a recession is not the best time to make substantial real estate investments, he does see the economic conditions are a prime time to capitalize on specific populations and to leverage some conditions, such as the need for more low-income rental property.
First and foremost, consider adding multi-family rental or rent-to-sell assets to your real estate portfolio during a recession as a way to take advantage of those who are looking to scurry out of their own rental investments.