As the world lurches towards what many economists are now saying is an inevitable recession, many people are beginning to worry about their investment portfolios. During any recession it’s highly likely that if you own stocks most of them will fall in value as confidence in the markets declines. However, there are ways that you can protect your assets and even expand your wealth, even during the worst economic downturn.
In the United States, in economic terms, a recession is classified as two consecutive quarters of falling GDP figures. The GDP, or ‘Gross Domestic Product’, is a measure of how active the overall economy is during a given period of time. This means that when the GDP is falling, the overall economy is shrinking.
While it’s not a perfect measure of economic confidence, the GDP is, nonetheless, a good indicator of industrial and trade activity and allows economists to analyze the prosperity of the economy in real-time.
During a recession businesses will often let members of their staff go to save on their operating costs; however, as levels of unemployment rise, the GDP continues to fall further. This can quickly lead to a downward spiral of collapsing prosperity and growth. This uncertainty can quickly spread to the entire economy and cause a recession to become a more serious depression, an extended period of falling economic activity.
Property Investments In Italy During Recession.
In general I am not a fan of buying investment properties in Italy. You should buy a property in Italy if you like Italy and want to enjoy the Italian lifestyle, culture and history. There are much better options in Europe and in the rest of the world if you are solely looking for returns on your investment property.
Recessions can be seriously bad news for smaller investors but there are still ways that you can turn any crisis into an opportunity. One of the “safer” investments during times of economic uncertainty is property. Property has an intrinsic value and can be utilized to create a short-term income and be sold on later for a profit when prices rise again. Keep in mind that it might take years for a property in Italy to gain value following a recession. The economy of Italy or for that matter Europe is not as dynamic and agile as that of the United States. This time, even the United States is going to have a hard time getting out the hole that it has dug itself in.
Advantages Of Investing In Property During Recession.
There are a few reasons why investing in property can be payoff during a recession:
Everybody Needs Housing.
Housing is a basic human need and people will always need to live somewhere, and consequently, property is a good investment option, even in a recession. This makes residential properties a particularly attractive investment during periods of economic slowdown because you will still be able to find tenants who will rent your property, thereby creating a secure passive income for yourself, even as the markets struggle in general.
Low Correlation To The Stock Market.
Real estate has a relatively low correlation to the stock market. This means that even if stocks are falling in value the real estate sector tends to remain much more buoyant by comparison. Additionally, even if a property loses value in the short term this can be recouped in the future once the economy is booming again.
If you buy real estate during a recession you can find some amazing bargains. People who need to cash in their assets, such as property, will be willing to accept far lower prices than if they were not facing a tough economic outlook. As an investor, you can take advantage of this to buy property at well below its true market value.
Inflation during a recession can quickly reduce the levels of your savings. This means that if you can shift your money from stocks, saving accounts and other financial instruments into the real estate market you can maintain the value of your assets until the recession is over.
Best Properties To Buy In Italy During A Recession.
The best strategy for real estate investment during a recession will largely depend on your budget and the funds that are available to you. For instance, if you have a very significant budget for property investment you can pick up some incredible commercial real estate bargains as companies go out of business.
However, if you have a low to mid-range budget at your disposal then a residential property is generally considered to be a much safer and more profitable option. Residential property also tends to keep up with rising prices and so your investment will be more ‘inflation-proof’ than other types of assets.
One of the safest investments during a recession in Italy is a ‘buy-to-rent’ property. This is a residential property that you buy with the express intention of renting it out in the mid to long term.
A residential rental property will provide you with a consistent income stream, particularly if you rent to long-term tenants. This will mean that you won’t make the types of short-term returns that you could get on a holiday home in Italy, however, the consistency of your returns are worth their weight in gold during hard economic times.
It’s also worth bearing in mind that during economic downturns industries such as tourism tend to be among the first to see losses. When people are struggling to make ends meet at home they are far less likely to book a holiday overseas. Therefore, if you’re planning to buy a property in Italy it would be better to purchase a residential property that you could rent to local Italians instead of tourists.
The best types of Italian rental properties to purchase during a recession include:
- Single-family homes.
- Small, low-cost apartments.
- Residential property in the major cities, such as Rome, Florence or Milan.
- Multiple units in an apartment building.
- A multiple-family home that has 2 or more units in one building.
Should You Buy A Property In Italy To ‘Flip’?
Buying to ‘flip’ a property is real estate jargon for buying a property to renovate or upgrade it before you quickly sell it on for a profit.
Generally speaking, this can be a somewhat successful strategy during times of consistent economic growth. This is because during an economic upturn you can safely assume that the value of the property will increase and there will be buyers who are willing to purchase the real estate after you’ve upgraded it.
However, during a recession, the total pool of potential homebuyers will shrink and create deflationary pressure on property prices. This means that buying residential property to flip during a recession is not likely to be a good strategy.
Of course, if you take a longer-term view you could make this work for you. For instance, you could buy a property and rent it to tenants during the recession. Later, you could use part of the rental income to upgrade the property and sell it after the recession is over, taking advantage of the renewed confidence in the markets.
Commercial Real Estate Investment In Italy.
While a buy-to-rent residential property is a fairly safe investment during a recession in Italy there are also opportunities for the savvy investor in the commercial sector of the real estate market. If you have the available capital to invest then you can pick up some excellent bargains in commercial real estate.
This is because, sadly, many businesses are facing tough times and in some cases are forced to close permanently. These properties are often sold in fire sales and give you an opportunity to acquire real estate at far below its objective market value.
Commercial properties such as farmland, vineyards and even warehouses in Italy can be a great long-term investment. Another good investment in Italy during a recession is student accommodation. Students will always need somewhere to live and you can often buy multiple units at a relatively low price during a recession.
Another commercial property that is potentially very profitable is senior citizen housing. Italy has an aging population and although traditionally most of the elderly would live with their families the trend is moving toward older members of society living in residential nursing homes.
This gives the elderly better access to any medical treatment that they need and allows them to spend their twilight years with other people of their age. Purchasing part of, or the whole of, a residential nursing home is a great investment during a recession in Italy.
Does A Recession Impact All Areas Of Italy In The Same Way?
The Italian economy is highly diverse and has major regional differences in incomes and the types of economic activity that predominate. For instance, many rural parts of Italy which depend on agriculture and tourism will face a much more uncertain future during a recession than the larger, industrialized cities, such as Milan or Florence.
Of course, no part of the economy will be untouched by the recession but some regions have a more robust industrial and financial base which will help to see them through the hard times.
Property prices in the Tier 1 cities will remain far more stable than in the rural towns and villages. This is something of a double-edged sword because although you can find some incredible bargains in rural parts of Italy you’ll also find it much harder to find tenants if you plan to rent it out.
Nonetheless, if you are investing for the long term then a rural holiday home in Italy could give you fantastic returns over the coming years, either as a result of holiday rentals or if you sell it on for a profit. This type of approach would only be suitable for investors who have the available resources to make a long-term investment.
For these reasons, buying an investment property in one of Italy’s main cities during a recession will usually work out to be a much safer and more reliable bet than trying your luck with a run-down rural property in a tiny village.
Financing During A Recession – Can You Get A Mortgage?
The interest rates for a mortgage should reflect the economic climate and consequently. This means that, if you can make a solid down payment, it can actually be easier to get a mortgage during a recession than during better economic times. NOTE: We are not dealing with just recession. There is also inflation to consider. Typically during recessions, governments resort to lowering interest rates to spur growth. Most governments cannot do that now because lowering interest rates now will increase inflation.
As with any financing, you should pay very careful attention to the rates and consider your own cash flows in great detail. You should never put yourself in a position where you don’t believe you can repay the money you owe, so it’s always better to be cautious, especially if the economic future is somewhat uncertain.
If you’re not well versed in the ins and outs of obtaining financing for a property then it’s always worth seeking advice from a professional financial advisor. You will have to pay a fee for their services but it’s guaranteed to be worth it in the long run.
A Real Estate Investment Trust – Is It A Good Option?
Buying commercial real estate can be very costly which makes it prohibitive for most investors. However, if you invest in a Real Estate Investment Trust (REIT), you can leverage the power of crowdfunding platforms and collective trusts to buy into income-making commercial properties.
A REIT is a type of company that allows individuals to invest in a portion or share of an income-producing property. A REIT is a convenient way to join other investors to buy part of a property or commercial real estate that would otherwise be out of your reach.
Joining a REIT can be a good way to get into the property market during a recession without having to spend a huge amount of money. Every REIT has different terms and conditions which you should fully understand before signing any paperwork. If you are considering joining a REIT you should always seek personalized financial advice from a qualified professional.
Real Estate Investments During Recession And Inflation Is Risky.
Despite economic hardships and a general mood of uncertainty, you can still protect your assets and even make a profit during a recession. Property is one of the safest investments during any economic downturn and given that prices are lower than usual, you can pick up some serious bargains.
