I’ve been hearing people talk about an imminent real estate price collapse – like what we experienced in 2006-2011 – ever since prices took off in 2020. While I think most concerns are overblown it’s not unreasonable to assume that some sort of correction may happen sooner than later. Perhaps it’s only a correction of the greater economy that largely leaves the housing market unscathed. Or perhaps there’s another Real Estate correction or, worst case, there’s a mini repeat of the Great Recession where the greater economy in general and real estate in particular both experienced broad declines.
Regardless of which, if any of those events unfold it would behoove the intelligent investor to find recession resistant investments. Here’s a handful of ways to ensure your next STR investment stands a good chance of performing during a recession.
Choose a real estate market that is historically recession resistant. The graph below shows a tale of two cities: Bismarck, ND and Las Vegas, NV – I think these pictures are worth a thousand words, but I’d say the most important one’s are that real estate is, always has been and will remain so for the foreseeable future a local market. Yes, there are things that can exert pressure across the national real estate economy – such as a pandemic – but there are always local variations. As you can see below, Bismarck, ND has not experienced any type of significant real estate t real estate price correct in the last 30 plus years.
Choose a hospitality market that is historically recession resistant. I would suggest that the short-term rental economy is more analogous to the hotel accommodation industry than standard long-term rentals. The Accommodation and food services GDP – as measured by the US Bureau of Economic analysis – includes hotel/motel stays and restaurant service. Looking at Rockwall County, TX, its hospitality industry has been experiencing a positive growth trend since before the great recession and carried that trend through the recessions and after. Meanwhile Las Vegas, which is particularly sensitive to recession, has still not fully recovered its hospitality industry to levels seen before the great recession.
Cross-reference your research to find areas that exhibit strength in both key sectors before, during and after recessions. If you can find a handful of places that exhibit these characteristics, you now have a list of cities to investigate further. You’ll want to find out what makes the places so special and develop a “buy box” or checklist of what type of home is most likely to perform well as an STR. You’ll want to drill down to specific neighborhoods, room/bath counts, amenities etc. This will probably look like the type of local research you’ve already been doing when looking for your next STR to invest in only now you’ll be conducting that research in areas where you can have reasonable assurance of performance during any type of economy.
Diversify your investment across more than one asset and if possible, more than one city.
With all that said – and just scratching the surface of STR due diligence – real estate has proven time and time again to be one of the safest, recession resistant investments available. Furthermore, history has shown that A) there’s massive real estate investment opportunities during recession and B) there’s many locals out there that are in their own world, more or less insulated from the economic woes of the rest of the country. Find those opportunities and position yourself at an advantage for the eventual recession.
Don’t wait to buy real estate. Buy real estate and wait.
