How to Make Money in a Real Estate Recession – Keith Weinhold
The Real Estate market in the U.S. has been booming in 2017. However, I own an apartment building in a city that is going through a recession and it is hurting me.
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The lesson to be learned here is to be aware that wherever you invest in real estate, that area will face an economic downturn during sometime. I know what you are thinking, how is it possible that I am invested in a “down” market when I always talk about how in real estate investing the geographic market is more important that the property.
Well, it is because I invest in multiple cities in the U.S. to diversify my portfolio. It is very likely that real estate investors only invest in their home market, but that can be riskier than you think.
You are probably not invested in my hometown market income property of Anchorage, Alaska. It is the United States’ northernmost city with a population of 300,000. I invested here, and it is in an economic recession.
The main problem with the city of Anchorage is that it is now well-diversified. There is a heavy oil extraction dependency, and as you probably know, oil prices have been slashed in half during the recent years. This means that the oil companies are not as profitable as before, so they had to lay off workers which caused a recession.
Even though that my Anchorage apartment building isn’t occupied by higher-paid oil employees it still affects me in a negative way. Imagine a scenario where the head of the household worked for an oil company but gets laid off. This doesn’t mean that his family continues living life unaffected, the entire family leaves the area. This is bad for all business around, restaurants, car dealers, salons, any type of luxury becomes unaffordable. My apartment building in Anchorage is filled with food servers, mechanics, and hair stylists. So it is a “trickle-down” effect.
There have been around 1,500 residents that moves out of Anchorage in the last year. What’s worse is that it promises to keep going or possibly get worse.
Below you can look at Anchorage’s recent year-over-year net employment change, sector-by-sector, and see what this small case study can teach you, wherever you’re interested in investing:
However, you can see that even though Anchorage has suffered net job losses, there is still a gain in the health care sector. However, this isn’t just happening in Anchorage, it is a National phenomenon. As the population grows older, the demand for medical jobs grows.
So, what does this mean to you as an real estate investor? I recommend you buy property near medical districts and you will be guarded against the economic downturns. Most major metropolitan areas have sections where the health care jobs are concentrated in medical campuses. Before the economy in Anchorage took a downturn, I purchased building that were adjacent to the health district. Even though the rent amount has gone down, i have managed to keep my properties nearly 100% occupied during the recession.
When you think of real estate investing, keep in mind that the market is more important than the property. To be more exact, it is the submarket that is most important. The medical submarket of a metro area is the smartest place you can invest in the long run. This was predictable, back when I bought the apartment buildings, new employment was concentrating in the medical sector. This trend is still forecasted for years into the future. Event the futurists admit that it will be difficult for robots to simulate what nurses do.
Back when I hosted Ken McElroy, the Rich Dad Advisor for real estate on my popular weekly podcast, he said: “Real estate is dumb and slow.” I always loved that line! It does not take a genius to figure out this: Medical = Jobs = Occupied units = Rent-paying tenants = Durable rent income streams = More profitable rental properties, even in a recession.
-If you buy income property in a smaller, less economically diverse metro area, do it near a medical district.
-Invest in multiple metro markets to diversify geographically, not just your hometown.
-The fact that I practice these two bullet points has kept me profitable and resilient, even in a recession. It will help ensure your prosperity in the long-run too.
Here’s to your wealth and success!