The Coronavirus pandemic has drastically changed the way we live. Extended school closures, restaurants and bar closures and now entire cities are locked down across the country to prevent the spread of the virus. This situation is forcing us into a long-overdue recession in the US. On the bright side, during a recession, it might be a good opportunity to invest in San Diego real estate since this can address numerous investor needs.
5 reasons to invest in San Diego real estate during a recession
1. Real estate is a safe haven especially when the stock market is crashing
Changes in the market sentiment don’t typically impact real estate as quickly as equities. Therefore, real estate shows a slow correlation with public markets and has an ideal position to weather downturns.
During an economic slowdown, buying real estate can speak to common investor needs, such as income generation and portfolio diversification.
2. Falling asset prices can create a buyer’s market
Investing in a real estate investment trust during a recession involves less capital than it normally would. You can also get a few “extras” in the sale.
3. Real estate investing can generate solid income
Generating a stable income is one of the main reasons to take into account when making property investments. Real estate investment trusts can provide dividend income; having direct ownership makes you able to gain rental income. Consistent rent payments make real estate investments predictable, thus more suited during a recession.
4. Unlike the stock market, real estate is less sensitive to volatility
The relatively low correlation between real estate and stock market movements can make investing in properties a reliable choice in times of an economic slowdown. People always need a place to live, get services, and work, which means that the market will exist even during a recession. Revenues from real estate have a steady nature, hence investing can be a good hedge over volatility.
5. Returns can be higher than the stock market
When a recession strikes, although stocks and bonds falter, real estate can still be profitable. This is most likely to apply to property investments with good neighborhoods and jobs, in the low-interest-rate environment.
When it comes to your portfolio, it’s important to diversify your real estate investments; this will help you gain financial strength and reduce the risk of loss. Also, while continuing to invest, you have to take several steps in order to weather through the economic downturn and recession-proof your portfolio.
1. Plan for the worst, hope for the best
It’s very important to have cash reserves and avoid overleveraging yourself. This way, you’ll be prepared for any outcome while being optimistic, focusing on the bigger picture and, as we mentioned above, recognizing opportunities.
2. Be cash flow positive
A property that cash flows today will most likely cash flow during a downturn. Although your investment properties’ value drops on paper, as long as they are cash flow positive, you’ll come out from the recession a successful investor.
3. Run the numbers
Do your due diligence and run the numbers. Understand the cost of purchasing, fix and flip costs, vacancy rates, and so on. Carefully analyze properties and only invest if the prices make sense.
4. Don’t panic and sell
Although prices drop, they’ll recover, so don’t panic and sell. Think that it’s exactly these economic cycles that make property values go up and down and, historically, real estate always goes up.
5. Location location location – it matters
Invest in quality properties that are located in high-demand areas. There’s no doubt that properties in good locations will perform better in a potential market downturn.
In short, even when the economy is going towards a recession, San Diego real estate investors should know how to recognize opportunities, make wise decisions, and beat the slowdown.
At Civic Financial Services, we’re dedicated to building strong relationships with our customers and helping them with their financing needs. Our team is always happy to talk about your investment projects!