I learn something new every day. Last week I had dinner with a cousin who told me that he bought a home for the sole reason of paying off his student loan debt. This was a new one for me, but I thought it was brilliant! His plan is to keep the home for 3-4 years, then when it accrues enough equity he’ll sell it and boom – debt free. They bought at a good time, in a good market, and it looks like the plan is going to work out for him and his wife. Bravo! Student debt is a huge problem in American and this is a solution that should be talked about more often.
Real estate has countless success stories like my cousin. It’s an industry that has produced more wealth than any other in history. For many, owning a home is still an intrinsic part of the American dream. The benefits are vast and easy to see, but we all know there’s another side of the coin. Economic downturns can hit this market like a hammer. With talks of a financial dip on the horizon, a lot of investors are looking for security. They want to know what types of real estate are immune to the pitfalls of economic woe.
The truth is: there is no sure thing. Risk will always be part of the reward. What you should be thinking about is how to mitigate that risk. Here’s a few real estate factors that can help make sure you weather an economic storm.
If you have an investment property, or are looking to invest, look for real estate in areas with high demand but low availability. Certain cities are becoming saturated with rental properties and multi-family homes. If the market takes a downturn in an area with accelerated growth then the whole neighborhood can be at risk for a big drop in value. However, if you’re in an area where permits are not given out like hotcakes and your home is in high demand for rent or vacations, then you are in a much better positions. The bigger barrier to entry the more insulated you are from disaster – monetarily speaking.
Speaking of highly desired location, a cool house or ocean breeze is almost always a good bet. Some people will always have money (lucky them) and will have specific wants. This could be a certain type of architecture, proximity to the beach, off a ski slope…you get the point. If you have it within your means to get a home or second home with these kind of specs – go for it.
Duplexes are another good bet. Most of the time if you have a duplex it’s because you’re renting out one of the units. This can provide a nice level of security. Unfortunately, the same rule here applies to what I said previously. If you live in an area saturated with multi-family homes, if you lose the tenant it could be difficult to get a new one. Now that income you planned on having to put towards your mortgage is gone. In these situations don’t be afraid to cut rent in order to keep the tenant. It’s better to have most of the rent than none at all.