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Chart courtesy of Darrow Wealth Management
The good news? Stocks nearly always boom in the aftermath of recessions, jumping an average of 16% in the year after recessions end.
I don’t avoid stocks before, during, or after recessions. Quite the contrary: US stocks earn an average historical return of around 10.5%, and they make up a large portion of my portfolio. Don’t think in terms of whether to invest in real estate versus stocks, but rather how much of each you want in your investment portfolio.
Still, stocks are about as far from recession-proof as you can get.
Are Rental Properties Recession-Proof?
No investment is 100% recession-proof. But rental properties perform better than most when the economy takes a nosedive.
Rents don’t fall at all. Home prices do sometimes correct downward, and rental vacancy rates can tick upward. If property values dip, that can remove one of your exit strategies if it puts you upside-down on your rental property mortgage.
When recessions hit, watch out for higher tenant turnover rates, rent default rates, and evictions. Buy rent default insurance to protect yourself against the risk of tenants not paying their rents.
Rental property owners remain mostly unscathed during recessions. But stay vigilant about rent defaults, avoid turnovers if possible, and consider rent freezes or other incentives to keep good tenants in place while the economy finds its footing.♦
What have your experiences been with rental properties during recessions?
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