Recession-Resistant Investments

Dear Investor-

Depending on who you talk to, we're either already in a recession or soon to be in one. Either way, it's not our first and it certainly won't be our last. That's why it's important to have some recession-resistant investments in your portfolio.

One recession-resistant asset classes is Multifamily Real Estate. Let's review just one aspect - vacancy - to see just how resilient it is.

Between 1956 and 2022 the national apartment vacancy rate moved between a low of just above 5% and a high of slightly more than 10%. That's a +90% - 95% occupancy rate for the past 6 decades.

During that same time period, there have been 10 recessions and yet apartments have remained +90% to 95% full. Now, let's take a deeper dive into this Federal Reserve data and look at what happened to the rental vacancy rate during each of these recessions.

By way of disclosure, we have an advertising relationship with 37th Parallel, meaning we get paid for making this introduction and sharing this content. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you.

Aug. 1957 - April 1958 Recession

• 5.3% vacancy rate (start) - 6.3% vacancy rate (end)

April 1960 - Feb. 1961 Recession

• 8.0% vacancy rate (start) - 8.9% vacancy rate (end)

Dec. 1969 - Nov. 1970 Recession

• 5.1% vacancy rate (start) - 5.2% vacancy rate (end)

Nov. 1973 - March 1975 Recession

• 5.8% vacancy rate (start) - 6.1% vacancy rate (end)

Jan. 1980 - July 1980 Recession

• 5.2% vacancy rate (start) - 5.7% vacancy rate (end)

July 1981 - Nov. 1982 Recession

• 5.0% vacancy rate (start) - 5.5% vacancy rate (end)

July 1990 - March 1991 Recession

• 7.2% vacancy rate (start) - 7.5% vacancy rate (end)

March 2001 - November 2001 Recession

• 8.2% vacancy rate (start) - 8.8% vacancy rate (end)

Dec. 2007 - June 2009 Recession

• 9.6% vacancy rate (start) - 10.6% vacancy rate (end)

Feb. 2020 - April 2020 Recession

• 6.6% vacancy rate (start) - 5.7% vacancy rate (end)

As you can see, vacancy rates remain low even during recessions, having never increased more than 1.0 percentage point. This resilience allows multifamily real estate to resist the financial drag of a recession and continue to cash flow through a recession. The data isn't surprising given that investing in apartments is an investment in the basic need of shelter. And no matter what the economy is doing, people still need a roof over their heads.

Compare this with the stock market.

Every recession during the last 100 years has resulted in an associated decline in stock prices. On average, those declines were -28%. That's not to say you shouldn't have stocks, but they are volatile, and adding multifamily real estate can introduce stability to your portfolio. Our friends over at 37th Parallel Properties pay close attention to vacancy rates. They stress test every property they make offers on because protecting investor capital is their number one priority. In their underwriting process, they will double historic market vacancy to see if the property could sustain that level of disruption and still not lose money. If it doesn't pass that test, they move on and let somebody else buy that property.

This conservative approach means that they pass on a lot of properties. But it's also part of the reason why they have a 100% track record for success over $1 billion in transactions and 15 years in business spanning two recessions. They've made their investors money in good times and in bad. If you're not already invested in apartments or want to allocate more to your portfolio, you may want to check out 37th Parallel Properties. And if you're looking for recession-resistant assets in a diversified fund then their current Income and Total Return Fund just might be right for you. I(Jim) have invested with 37th Parallel Properties, I trust their conservative approach, and maybe you should too.

Learn More About 37th Parallel Today!

Have a great day!

Jim and Brett

James M. Dahle, MD, FACEP
Founder, The White Coat Investor

Brett Stevens, MBA
COO, The White Coat Investor

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