3 Pandemic-Proof Real Estate Investing Strategies to Consider
People often joke about how to prepare for a zombie apocalypse. State Farm even has a fun survival guide on its website that has essential information like chocolate pudding and a passport.
It wasn’t too long ago that when you heard about “pandemic-proof real estate investing” you would likely associate it with the zombie apocalypse. But a pandemic is here and it has changed the market. Here are some real estate investment strategies to consider that could help your portfolio weather a pandemic.
1. Diversify
Diversifying your portfolio is always a good idea to avoid risk. When trying to weather a pandemic, try not to get overinvested in a product class. Take shopping malls and amusement parks, for example. In a pandemic, if you stay home with jobs and distance yourself socially, you are likely to lose money just investing in places where people gather.
The best defense against a pandemic or other disaster that could decimate a particular industry is to invest in real estate across the board: apartment buildings, warehouses, self-storage, single-family homes, and office / communal spaces.
Diversification also applies to the location. If part of the country experiences a natural disaster and you are heavily invested there, you can lose money. By investing in real estate across the country, you minimize the risk of natural disasters, which are typically localized (floods, hurricanes, forest fires, etc.).
2. Avoid risky sectors
In terms of commercial real estate, some sectors are more vulnerable to risk during a pandemic, as we saw during the current coronavirus pandemic. Vulnerable industries that you want to avoid for a pandemic-proof real estate investment strategy include senior housing and hospitality.
As for the hospitality industry, the industry saw its final success after the 2008 recession. The popularity of Airbnb (NASDAQ: ABNB) has hurt hotels too. Just as business was starting to recover, travel restrictions for COVID-19 came in and hotels were hit hard again.
Hotels are expensive to build, they are based on a mostly seasonal business model, and the volatility of the business makes it difficult for investors to anticipate returns. Hospitality can be risky even in good times. Avoid this sector if you are pursuing a pandemic safe investment strategy.
When it comes to senior care facilities, the current coronavirus pandemic has shaken the industry. Investors in healthcare real estate investment funds (REITs) saw their share price fall 50% at the start of the pandemic. Additionally, senior care facilities are heavily regulated, meaning they could be closed for breach, making this a risky investment against a pandemic.
3. Invest in places where people want to be
To have an investment strategy that can weather a pandemic, you have to act more like a turtle than a rabbit: you want to be slow and steady, not fast and noticeable. That means you need to do the research to invest in properties that you can get at a good price, get good cash flow, and look like the area is up and coming with enough infrastructure to withstand a crisis.
For example, during the coronavirus pandemic, these secondary cities (fewer than 500,000 residents) fared better than large cities overall:
- Charlotte, North Carolina
- Austin, Texas
- Jacksonville, Florida
- Atlanta
- Nashville, Tennessee
As smaller cities are less densely populated, they reported fewer cases of coronavirus as people there could have better social distance. That could prove important for possible future pandemics.
The bottom line of Millionacres
If you want to be prepared for a pandemic regarding your property investment strategy, return to basics. Instead of investing in new businesses during times of uncertainty, sustain your existing holdings. And consider consulting real estate experts or asset managers. Both of these can help you develop your best strategy for maintaining cash flow and positioning yourself to trade on opportunities that arise.