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Do Recession-Resistant Investments Actually Exist? (Hint: Sort Of)
Andrew Koenig
May 16, 2023
cash home buyers calgary

There's a buzzword that's recently been making the rounds in the real estate investment space: recession-resistant. (Or worse yet, "recession-proof.")

“Protect your investments with this recession-resistant market!”

“Recession-proof your portfolio with this property!”

The reason why this concept is being thrown around is simple. While the country was technically in a recession that is now considered “over,” there is no denying that COVID is still wreaking havoc on the economy and creating instability that is being masked by the government and rhetoric. Unfortunately, if you look closer at these claims, you’ll probably find nothing but a steaming pile of crap.

Let me explain…

Beware of Recession-Resistant Investment Myths

It’s pretty bold to certify anything as recession-resistant. Because unless you’ve got a time machine, no one can say with certainty what the market will do. If nothing else, the pandemic taught us that much.

Related: Top 50 Housing Markets for Home Price Appreciation and Sales Growth in 2021

But here’s the good news. There are markers you can watch for that will give you the best chance to see solid returns that outperform the broader market—even during an economic downturn.

You’ll want to see things like:

  • Promising job stability and income in higher-demand fields like healthcare and technology
  • Landlord-friendly policies
  • A steadily growing population and/or positive migration pattern
  • Affordability (for both owners and tenants)
  • Stable or declining area crime rates

Now, that’s just a jumping point. Picking a great market gives you a good foundation, but it’s still just one marker of a worthy investment opportunity.

So, the fact that a lot of “investors” out there claim their offers are recession-resistant/-proof when they are so obviously NOT really gets to me.

Related: 3 Important Points to Remember When Considering a Potential Real Estate Crash

The Only Investment Niche Proven To Be Recession-Proof

Just to give you some background, “recession-resistant real estate” started making headlines after the Great Recession of 2007-2009. The label was mainly applied to self-storage, and for good reason—self-storage REITs were the only real estate asset class that generated positive returns during that period.

Why did self-storage perform so well before, during, and after the recession? Because the industry provides a service to businesses and consumers in good times and in bad times.

In good times, the demand is tied to growth and expansion of business and lifestyle, which is pretty easy to understand. And in bad times, the demand is tied to the four Ds: downsizing, divorce, dislocation, and death. These life events are exacerbated during economic downturns and recessions, which amounts to storage demand from those experiencing a life expansion to contraction. As companies and consumers downsize, storage demands continue to rise.

That's why applying the "recession-resistant" label to other assets like multifamily bothers me. Regardless of the market, there are several risk factors that make the multifamily claim of being "recession-resistant" misleading.

Related: Some Say the Housing Market Is Poised to Fall Off a Cliff—Here’s How Investors Should Proceed

Now, hindsight is 20/20. In this case, it’s verified that self-storage is actually recession-resistant because it was proven during the Great Recession. Similarly, using the term for any other asset class is speculative—if not entirely misguided.

There’s no denying our need for more affordable housing, but here are some questions that expose the glaring uncertainty right now in multifamily (at least, to me):

  1. How much is the continued government stimulus propping up businesses, and what happens when it ends?
  2. Is there a larger wave of failed businesses—and entire industries—on the horizon?
  3. How many tenants are actually jobless and using unemployment benefits to pay rent?
  4. What if eviction moratoriums keep getting extended and financial support to owners stops?
  5. Could there be a trend of tenants joining forces to not pay rent or renegotiate rates lower?
  6. What is the trickle-down effect of lost revenue from municipalities, and what taxes will they impose to recoup it?
  7. How has COVID changed lifestyles, habits, and behaviors, and what’s the long-term impact to communities and apartment amenities?

These are just some of the questions I have that give me pause in looking at multifamily right now, not to mention how many investors are still flocking to buy up apartment buildings at crazy prices.

It’s for the same reasons that I’m glad we made the pivot to self-storage in 2018. Even during the height of the COVID lockdowns, self-storage was considered an essential business. And there sure aren’t any policies restricting how to handle delinquent tenants.

It doesn’t stop there, though. It’s also worth taking notice where the world’s wealthiest are putting their money when you consider where to invest. Especially when they’re bigwig investors like Blackstone and Bill Gates.

Related: Housing Markets Post-COVID: Which Ones Win? Which Lose?

So, how is it that I managed to make a move on something like self-storage even before Blackstone and Bill Gates?

Well, a few years ago, as we approached the 10th year of an economic expansion cycle—which usually signals an impending recession—I started exploring assets that would be better suited to weather an economic storm. Self-storage wasn’t sexy by any means, and choosing it wasn’t something I anticipated becoming a defining moment in my portfolio’s future. But I could appreciate the returns. Little did I know just how lucrative it would become.

I’ve fallen in love with self-storage for many reasons—it’s a discussion for another time. But basically, it boils down to the fact that I did my homework, ran the numbers, saw it made sense, and made the leap. And now?

Well, it looks like Blackstone and Bill Gates are doing the same. On October 26, Blackstone bought Simply Self Storage for $1.2 billion. And just a few days before that, Bill Gates bought an ownership stake in StorageMart.

So what’s this mean to you?

Well, I hope it means that you’ll explore the perks of investing in self-storage by doing your own research and speaking with investors who have already done it. At the very least, though, maybe you gained some insight into when and how to consider pivoting investing strategies and what the world’s wealthiest investors are up to nowadays.

What do you think of self-storage? Is this niche on your radar?