Worried about a recession on the horizon? 

Brian and Deni break down four recession-resistant investments, to help protect your portfolio from turbulent times.

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live off rents podcast transcript

 Brian: Hey, guys. Happy Tuesday.

Deni: Hi, everyone. Welcome. And please, please let us know where you’re joining us from. I forget to say that sometimes in the beginning. It’s good to know. So we’re not just talking the air?

Brian: Yeah. No, it’s. It’s fun to keep this interactive. I mean, that’s one of the reasons why we broadcast these as live videos instead of doing a much more polished audio recording and then publishing it just as a podcast like most people do. We keep it a little bit more gritty and real and but part of the fun of that is that we get to hear from you guys and have more of a conversation. So yeah, please chime in with questions, with comments, rants, raves, all of the above.

Deni: So last week we talked to Brian Clayton and he reached financial independence in his thirties and he was very, very strict with his spending and whatnot, but he did really, really well and it was very interesting to talk to him and see how he also spun it into an app. He developed an app for lawn maintenance and stuff. So great app for property managers who need that kind of service. So he was pretty cool. Today, Brian is going to talk to us about three and a half. I have to add the half recession proof real estate investments. We’ve been talking a lot about syndications and truly passive real estate investing. So I think this will be a nice addition to that. And again, if you have questions, just pop them in there. And Brian, with that said, take it off.

Brian: Well, you know, it’s worth mentioning upfront that no investment is actually recession proof, but some investments are much more recession resistant than others. Some have historically performed much better during recessions than others. And that all being said, we are not in a recession yet. You know, if you feel like the economy is bad now, like you you have some a tough road ahead. The economy is still humming along pretty hotly, actually, with a very tight labor market. Unemployment is extremely low at 3.7% last month. But we’re starting to see some of these cracks in the economy as a result of the Federal Reserve sending interest rates through the roof trying to combat inflation. We can see it in home prices, even in pretty hot markets. Their growth is starting to cool. We are seeing more and more markets with negative growth, with declining home prices. So, for example, we just updated our quarterly interactive map showing real estate by county in the US and growth rates. 173 counties in the US are now showing quarterly home price declines. That’s significantly higher than even one quarter ago.

Deni: I’m a practicing realtor and it’s crazy. Two months ago we were still in bidding wars and whatnot, and now I’m starting to see property sit and yes, decline in price.

Brian: Yeah, And that’s a great point that it’s not just about price movement, but it’s also about inventory and homes sitting on the market, not moving, sellers having to kick in incentives that they never had to consider a year ago, three years ago, four years ago. So, yeah, we’re starting to see the cracks in the economy. And I am of the opinion that a recession is inevitable given how quickly and how high the Federal Reserve is raising interest rates. Not that I blame them for doing so. I mean, you know, inflation is by far the scarier boogeyman here than a recession, but it doesn’t mean that there won’t be pain and suffering as a result of a recession. I mean, I think of the Federal Reserve raising interest rates is almost like a rubber band stretching and stretching and stretching. And it’s it’s going to snap the economy back down. And the longer they have to keep hiking rates and the higher they have to go before we start putting a dent in inflation, the more that rubber band is going to sting when it comes back and hits us on the wrist. So with all that being said as a preamble, let’s talk about a few real estate investments that are recession resistant. So first and foremost, and probably my favorite of these is self storage facilities. And the reason why those are recession resistant is that in a shrinking economy, when you have a recession, people tend to downsize their homes, which means that they don’t have enough room in their new home for all of their stuff. And the rational thing to do in that situation would be to sell off your old stuff, right? You know, make some extra money, you know, declutter. But human beings are not rational or. I think we can all agree on that. So. And people get very. Yeah, they get emotionally attached to their stuff. Even I am guilty of this. And I am someone who I try to be really vigilant about not getting attached to stuff.

Deni: Especially being where you are. I mean, that’s. That’s really difficult.

Brian: Yeah. I mean, so my my family and I move across the world every few years. We can’t have a lot of stuff and we still end up accumulating stuff. So when the average person downsizes, what do they do? They go out and they rent a storage unit. So that is why self storage facilities have the reputation for being recession proof, recession resistant, whatever you want to call it.

Deni: Can I add something here, please? We also see such an increase in multigenerational living right now because of the cost of stuff, so that even made self-storage facilities even more popular.

Brian: Yeah, absolutely. And, you know, I think you see more of that multigenerational living. The more that we have a housing shortage in the US, depending on what estimate you use. I’ve seen estimates ranging between around one and a half million housing units short up to around 5 million housing units short nationwide in the US. Over the last decade we just didn’t build enough homes. So in that environment, you do see more household bundling, people living together who maybe wouldn’t have lived together otherwise, which means less room for their stuff, which means more demand for self storage. Yeah. And by the way, we will put a link here in the comments to the interactive map showing where home prices are declining and rising and how much across the across the country. So that’s the first one is self storage facilities. Second recession resistant real estate investment. Ah, mobile home parks, mobile home parks are you can think of them as housing of last resort if you want. I don’t think that’s actually fair to mobile home parks. I think a lot of people enjoy living in mobile home parks, the ultimate affordable housing. It’s very difficult to build new mobile home parks in the US, so there’s not a whole lot of expanded supply of mobile home parks, but there’s plenty of demand to live there.

Brian: People need a place to live. Of course. So mobile home parks offer a great affordable housing option for investing in. One of the nice things about mobile home parks is that in many cases the renter is renting the pad. They bring their own home. So it’s a lot easier to evict someone from a parking pad, a mobile home pad if they don’t pay their rents for the pad and their utility costs and so forth. So if you do have defaults, which we’ll talk about in a few minutes, but if you do have rent defaults in a mobile home park, it’s a lot easier to manage that than in, say, single family rentals, multifamily rentals. And there’s no risk of them damaging the interior of your property, right, Because there is no interior of the property. It’s their property, it’s their mobile home. Right? So that removes a lot of the risk as well. So mobile home parks, a second great option for recession resistant investing. Third option here are campgrounds and RV parks. Now, people still like to vacation. Even during recessions, they still like to travel. Sometimes they change their travel patterns. Mean maybe they’re not flying over to Europe to to jet set around for six weeks. Maybe they’re going camping for a week.

Deni: Wouldn’t you say even that the whole camping industry has increased definitely since COVID, but even continuing?

Brian: Yeah. Yeah. So, you know, if you look at the one of the dominant news stories of 2022, it’s been all about how many of those pandemic trends have totally reversed. You know, like the pandemic darling, companies like Peloton and Zoom, you know, saw their stock prices crash. And but camping was a trend that got very popular in COVID because everyone wanted to be outside. Right. That has continued to be popular long after most people consider the pandemic to really be winding down. So, yeah. Campgrounds, RV and RV is by the way, there are still a shortage of RVs in the US, so it’s still difficult to get an RV. People have really fallen in love with RVs, even more so during the pandemic, and that trend has not reversed post-pandemic. So campgrounds and RV parks, another pretty recession resistant real estate investment.

Brian: Now let’s add the half year. A halfway recession resistant real estate investment are multifamily properties, apartment complexes, basically large apartment buildings, large apartment complexes. And I’ll tell you why what the advantages are during a recession and also some of the downsides or risks. So on the upside, rents don’t drop during recessions. Sometimes they flatline, but they don’t drop. If you look historically over the last hundred years at recessions in the US.

Brian: You’ll see home prices dip. Sometimes you don’t see rents dropping during recessions. The worst that they do is flatline. Now, one of the reasons for that is that in a recession, some homeowners, sometimes millions of homeowners, default and go into foreclosure and they become renters. Right. So that adds demand for rental housing. And of course, people still need a place to live like we talked about with mobile home parks. Now, that being said, it’s not that rental properties and multifamily properties are without risk during recessions, and it’s not that they don’t have any downsides whatsoever. Vacancy rates during recessions do tend to go up some default rates on rents and eviction rates. They do go up some as people stop paying their rent. So that is so that’s why it’s a half, right. I mean, there are rental properties and multifamily properties. They perform better than most investments during recessions, but they still don’t perform as well during recessions as they do during bull markets and growing economies. So that’s some food for thought. On on rental properties with both single family rentals and also on apartment complexes and multifamily properties. So let’s talk about a couple of ways to invest in all four of those types of properties or, yeah, types of real estate investments.

Deni: We have a quick comment I just wanted to throw out there before you get into investings.

Brian: Yeah, let’s do it.

Deni: A Facebook user said RVs are considered a luxury item, so funding is super more difficult, which is true.

Brian: Yeah. I mean, so you can have their RVs that are like half a million bucks apiece. And they’re I mean, they’re gorgeous. They have all the slides that come out.

Deni: Oh, my goodness. Yeah.

Brian: Washer dryer. My father in law has a super upscale fancy RV. There are also, like, very modest, like old school camper vans that there is nothing luxurious about them whatsoever.

Deni: There’s tow behind. Like we my husband and I have a tow behind, but it’s. Yeah, beautiful. I mean, to us it doesn’t, it’s not super fancy. But there are other ways…

Brian: Yeah, yeah, yeah, yeah exactly.

Deni: And I think that even if obviously our views might be harder to fund, but people are still doing it because they’re hard to find right now.

Brian: Yeah, and some campervans you can finance with normal auto loans. It just depends on on the size of the loan. It depends on the type of vehicle. But yeah, it’s a great point that some higher end RVs can be more difficult to to finance. But yeah, they run across the entire spectrum of cost. So ways to invest in these four options. So obviously you can go out and buy rental properties directly, like individual rental properties if you want to invest in multifamily properties or self storage facilities, mobile home parks, campgrounds, RV parks, you can invest in syndications, of course. And we put a link to an article explaining what real estate syndications are and how they work in the comments. You can also go out and buy self storage facilities directly and they don’t necessarily cost as much as you think. I’ll put a link here in the comments to It’s a recording of a class that we did with Stacy Rosetti, who teaches exactly that, how to go out and buy self storage facilities on your own, how to finance them. It’s a great class. She had a ton of value. So that’s worth checking out. If you’re interested in buying parks or I’m sorry, self storage facilities yourself directly. And then you can also invest in real estate investment trusts, REITs, whether those are publicly traded REITs. You just log into your regular brokerage account and invest in them, or you can invest in private REITs on real estate crowdfunding platforms. These are all options for investing in these types of recession resistant investments. And for good measure, we’ll also put a link in the comments here to an overview of how real estate cycles work and what the phases of a housing market cycle are, from downturns to the upswing. That’s worth understanding as a real estate investor, no matter what kind of real estate you invest in. So, Deni, anything I missed. Anything you want to add?

Deni: I don’t think so, but I was talking to somebody I know who owns a storage facility near me, and he said that one of the benefits it’s very easy to remove those stocks, the storage buildings. So if he ever wanted to have it developed into a housing development, he still it’s like a win-win.

Brian: So if that the reason it. But yeah, from a construction standpoint that’s relatively easy.

Deni: So I just thought that was another, you know, a kind of a win-win with those anyway.

Brian: That’s a great point. And we had an audience member ask, Is now not a good time to buy single family homes? And it’s not that it’s a bad time to buy. It’s financing is expensive right now. Right. And getting more so every month as the Federal Reserve keeps raising interest rates. So that is a pinch. But that doesn’t mean that there aren’t opportunities. And in fact, that in itself can be an opportunity if you go out and buy in cash, if you have the money or if you negotiate, say, seller financing, or if you sometimes you can negotiate with sellers to assume their loan could work out like a wraparound mortgage, something like that. And if you’re not familiar with how wraparound mortgages work, we have an article explaining that. But yeah. So it’s not a bad time to buy necessarily…

Deni: You can also negotiate prices…

Brian: Especially if you’re in a position to buy in cash. Yeah. Cash. Cash is king all the time, but it’s really king when interest rates are high. So we added a link in the comments, by the way, to where you can learn more about wraparound mortgages, which in this environment are great. You definitely want to learn how to negotiate seller financing, negotiate, wrap around mortgages with the seller. So.

Brian: All right. To recap, the three recession resistant investments that we went over today are self-storage facilities, mobile home parks and campgrounds / RV parks. And the half was rental properties and apartment complexes, residential properties, basically. Deni, final thoughts before we wrap things up?

Deni: No, I think I think you covered it. I think those are all good things. We talk about diversification all the time. I do believe and I hold a rental of my own, but I also think it’s good to diversify into these items as well.

Brian: Absolutely. One, one final thought, and I certainly don’t want to get political, especially on an Election Day.

Deni: Oh, voting day!

Brian: Yeah, right. Yeah, exactly. But one thing that has given me a little bit of pause since the pandemic was the eviction moratoriums. And if a very deep recession were to hit the US, I worry that some markets, you know, particularly very tenant friendly markets, might institute another eviction moratorium. So that’s one more reason why Deni and I talk all the time about how you want to invest in investor friendly markets, landlord friendly markets. You know, it’s one thing to live in tenant friendly markets and many people want to live and friendly markets. And I certainly would not discourage anyone from doing that. But when it comes to investing your money for better returns and lower risk, look for landlord friendly markets and investor friendly markets.

Deni: Absolutely.

Brian: All right. On that note, we’re going to call it a day. We’ll see you guys next week. Have a good one.

Deni: Have a good week, bye!

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