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The 2020 Unconventional Guide to Investing in Rental Properties During Recession

Find out the best way to invest in real estate rental assets during economic downturns

Newsweek AMPLIFY 2020 Unconventional Guide to Investing

In recessionary times, people tend to hold on to every single dollar more tightly, even investors. If you're wondering what to invest in during a recession—or whether to invest at all—look to recession-resistant industries that can ride out the worst of the storm.

A recession refers to a time of significant decline in economic activity. It marks a period of decreasing employment and income as well as weakened productions and sales, which often leads to a slump in confidence in stocks and other investments.

For many people, it's a nerve-wracking time, but an economic downturn is no reason to give up on growing your investment portfolio. Contrary to popular belief, there are ways for investors to make the most out of their money amid the uncertainty. When the stock market becomes more volatile, recession-proof investments can provide much-needed balance and stability in your portfolio.

One asset class that is generally a safe haven even during a down market are rental properties, whether you prefer the outright purchase of a property or putting money in a real estate investment trust (REIT) such as DiversyFund.

The Value of Real Estate During Recession

A lot of people tend to be afraid of investing anywhere in a declining environment. Some assumptions about real estate and recessions also prevent people from taking a chance on this asset class, especially with its role in the middle of the most recent recession in the United States.

However, real estate is a relatively reliable investment in both good times and bad. No matter what the market conditions, people still need a place to live.

Housing is seldom irrelevant, most especially rentals. With employment, income, and economic activity down, quick buying and selling of properties may be on a downward slope during a recessionary environment. But with everyone still in need of a roof over their heads, the demand for rental properties remains on the upswing.

As long as tenants are capable of paying rent, a rental property will provide consistent yield for investors and endure through the rough tides of a financial crisis.

Moreover, adding property investments to your portfolio is a solid move to diversify your portfolio and make you less vulnerable to stock market volatility. Real estate is known for its low correlation to other assets, which means that real estate is usually at an upturn when the stock market is on a decline. This feature is particularly valuable during a recession with property investments able to outperform stocks and bonds.

Pick the Right Property

Newsweek AMPLIFY 2020 Unconventional Guide to Investing

Here's the thing: not all real estate properties are created equal. In economic downturns, it's more important than ever to be discerning about your investments. Among residential properties, multifamily is among the most resilient and efficient of all.

Not only are rentals in constant demand with homeowners-turned-renters needing a place to live, but multifamily properties also allow investors to amass a large collection of rental units more easily and quickly. A 10-unit multifamily apartment is much easier to purchase and manage compared to 10 units of single-family residences. Additionally, multifamily investments provide a stronger cash flow. With numerous units in a single property, revenue is not dependent on one tenant.

Buy in Real Estate Crowdfunding REITs

The biggest hurdle preventing regular investors from putting money into property investments is the steep capital required. One way to get around this obstacle is by finding a trustworthy real estate crowdfunding platform.

On a crowdfunding platform, a group of individual investors pools their money together to invest in a collection of rental properties. It means that the capital required from each individual is much lower than usual, but investors still benefit from a diversified portfolio and steady cash flow from the properties. The minimum investment is as low as just $500 for the DiversyFund REIT, with the trust open to both accredited and non-accredited investors.

Not only is it more affordable, but REITs also make the process of real estate investing simpler for individual investors. When you invest in a REIT, there's no need to scout, buy, renovate, lease, and operate the properties yourself. DiversyFund picks multifamily properties that are already income-generating. Then, a team of professionals buys, renovates, and manages these properties, saving you all the trouble.

Focus on the Big Picture

During a recession, it can be tempting to react to the volatility of the market. Resist reactionary trends and stay on the course of your long-term strategy. For instance, some people pull out of their 401(k) or IRA contributions when the environment starts getting rough, which could be more harmful in the long run. It's important to avoid panicking and abandoning your strategy, and make sure you think beyond the current recession.

Real estate investments are generally a long-term investment, not just in terms of ongoing passive income from rent but also value appreciation over time. It's one of the reasons why it's a solid place to put your money even in a recessionary environment.

When it comes to investing in REITs, there are options offering liquidity for regular payouts. Many consider it a downside when there is no liquidity, but in certain cases, it allows REITs to reinvest the money from rent or resale, instead of releasing it as a monthly payout to the investors. In the long run, foregoing liquidity could result in more consistent growth through the reinvested dividends.

For instance, the DiversyFund REIT offers a five-year term with the option of payout or reinvestment at the end of the term. While investors may not receive monthly payouts, investors enjoy compounding interest through the reinvestment of dividends and overall growth from property appreciation.

Whether you're an experienced accredited investor or a non-accredited investor just starting out, it's possible to benefit by diversifying your portfolio with rental properties.

Sign up for free with DiversyFund and invest in a multi-million professionally managed portfolio of rental property assets!

The contents of this article is for informational purposes only and does not constitute financial or investment advice. It's important to perform your own research and consider seeking advice from an independent financial professional before making any investment decisions.

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