Hi again. Mark here with my favorite topic real estate.
So, I’ve mentioned before that my goal in 2020 is to start investing in other types of real estate than just raw, rural land. In 2020, we are having to deal with this COVID-19 pandemic and the very deep recession that we self imposed on ourselves by shutting down the economy in order to fight the virus and save lives.
So, one basic question that I have when looking at various categories of real estate is what types of real estate survive best during recessions. In my research, I’ve come across three types of real estate as well as a fourth that I think is starting to now become more recession resistant and I’ll explain.
The first type is self-storage. Why do people need self-storage? The basic reason in the U.S. is that America is basically a materialistic society and everyone buys more stuff than they need. And, of course, no one likes to throw away stuff that they have paid their own money for. Then, in a recession, a lot of people have to down-size their housing due to financial difficulties. This is where self-storage comes into demand. So, basically this makes self-storage very recession resistant. In fact, a lot of historical data shows that cash flow from self-storage properties increases during a recession.
The second category is data centers. Data centers are where IT companies house massive numbers of computers to process software and data. We commonly refer to this as the “Cloud”. Think about it, once these tenants move in, it would be extremely expensive for them to move. In today’s world where more and more software and applications are run in “Cloud” environments, the demand for this category of real estate will continue to grow. Also, social distancing is no problem. Only a small number of people work in these centers. The network operators that actually run the software and applications do all their work remotely from the data center.
A third category is small medical office buildings. You’ve probably seen these buildings in your locale. They are used by small medical and health related businesses. These include small medical and dental practices, chiropractors, therapists of all kinds, speech therapists and pathologists and many other related healthcare practices. Most of these types of businesses are recession resistant because the demand for their services does not decrease during a recession. Also, as long as the patients have insurance, the cost to the customer is very low.
Now here is a fourth type of real estate that I became aware of through my analysis of demographic shifts. That type is assisted living facilities. I’ll get into this type of real estate in a future blog post when I talk about types of real estate that are driven by demographic shifts. I believe those demographic shifts that are increasing the demand for this category will make this type recession resistant no matter what else is happening in the world.
So, self-storage is on my radar and I am doing a lot of research to make sure I understand the dynamics of this category as well as doing a lot of networking with people that operate this type of real estate. As I mentioned above, I will write a future post about assisted living facilities. There is a specific type of assisted living that interests me and I believe that the spread of COVID-19 exposed a risk to the larger facilities that I think will make this type of assisted living more desirable going forward. At this time, I don’t know anyone that has developed data centers or small medical office buildings, but if I meet people in this area, I will certainly learn as much as I can.
I would really like to know what you think about this topic. Are there other types of real estate that are recession resistant that I overlooked? Please comment below and let me know what you think.
As I’ve said before, if you’d like to talk about anything related to real estate, let me know. It’s my favorite business topic. In fact, if you want to talk on the phone, feel free to use the URL below to schedule a time with me.
For now, be safe and take care of your family.
Mark