Want to jump into real estate but can’t muster up the courage due to fears of a recession?
I recently sat down with Bill Manassero, host of the Old Dawgs REI Network Podcast, and discussed why you shouldn’t be afraid to invest in multi-family real estate during times of economic downturn.
During the podcast I mentioned:
You need to figure out where to put your money in a world where inflation is sky-high and the Fed continues to raise interest rates. Savvy investors turn to real estate as an excellent investment during these times because:
- The stock market usually doesn’t do well during recessions and times of uncertainty.
- Crypto has also not performed very well.
- Banks still aren’t paying you nearly enough to even maintain your buying power.”
BUT THEN, I go on to talk about exactly why real estate (specifically multi-family real estate in Florida), tends to continuously outperform the broader market in a recession.
Continue reading to find out why.
People Are Flocking to Florida & Have Been for Decades
Fact: Almost 1,000 people move to Florida every single day.
With sunny skies, warm weather, no state income tax, tons of jobs, and beautiful beaches, it’s not hard to imagine why this is the case. All kinds of people are making the trip and relocating. Some of these people are wealthy, but most of them aren’t.
Now, they are building new housing in Florida, but the only types of properties they can afford to build are properties that command very high rents (it’s a cost issue). The builders do a good job of taking care of the more affluent people moving into the state, but that doesn’t necessarily help the majority of ordinary people who are moving to the state and also need a place to live.
The result is a situation where lots of ordinary people moving to the state need a place to live, but there is not enough housing available and they are not building any properties that are affordable.
So, when demand far outweighs the supply of housing in the B-class multi-family asset space, it puts tremendous upward pressure on rents making our business model a very successful one.
Inflation, High Interest Rates, & Recessions Make It Extremely Tough For People to Buy Homes
As you know, we are currently experiencing extremely high inflation in the United States and around the world. Subsequently, one of the Federal Reserve’s mandates is to manage inflation using their number one tool: Interest rate adjustments.
Currently, the Fed is raising interest rates faster than ever before in an attempt to significantly reduce demand for goods and services, which they hope will take some of the pricing power away from suppliers and start to bring inflation under control.
Whether or not raising interest rates and driving the US economy into a recession will be effective in reducing inflation remains to be seen. One thing is for sure, though—it is currently one of the hottest-debated topics in the financial industry right now.
The Fed’s theory is, if interest rates are very high, consumers will not be able to purchase as many products and services because the cost to borrow money to make these purchases becomes considerably higher than it used to be. Because of this, lower demand should make it harder for suppliers to raise prices and inflation will go down.
This rise in interest rates affects the multi-family business in a major way. When interest rates go up, consumers have a more difficult time buying a home because the cost of a mortgage is considerably higher than it used to be.
This has the effect of pricing people out of the market and pushing them back into the renter pool. We operate in very high growth markets, and these high interest rates only add to the demand that we are already experiencing for our apartments giving us even more upward pressure on rents.
The result is extremely attractive returns in the multi-family real estate investment world.
To listen to the full podcast and learn more about how we help our investors greatly outperform the market, click here.