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Real Estate Investment Trusts: Safe Bet in a Recession?

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Housing is needed no matter the economic conditions, making residential real estate a relatively safe real estate investment trusts (REIT) a safe investment, NuWire Investor notes. Real estate overall is largely safe in a recession compared to other investments.

Real estate is protected from volatility by factors like location, scarcity, and plot size,” NuWire states. “But unlike tangible property, which is expensive to buy and tough to sell, REITs can be traded on many investing apps. Because they come in single shares, even low-budget investors can diversify their REIT holdings.”

The risk, NuWire notes, is that residential REITs are “notoriously local,” leading many investors to add investments outside the U.S., keeping their portfolio safe in the event of a large-scale national downturn.

REITs can be reliable and well-managed stocks, according to Forbes Real Estate Investor editor Brad Thomas, and interest in these stocks are growing rapidly. In a piece on Forbes, Thomas discussed the benefits of the REIT, noting the larger dividends, despite how slow REIT investments tend to be.

“That last quality gives investors their choice between keeping that additional income or reinvesting the money back into their positions,” Thomas said.

“Those are the good sides to real estate investment trusts. The downside, you could say, is that they’re not exactly going to make you rich overnight.”

Shopping for the right REIT takes time, and buying them takes faith, according to Thomas, but the returns can be high. Real-estate investment trusts that buy residential home loans increased their mortgage-bond portfolios by almost 28% to $308 billion over the 12 months through March, according to The Wall Street Journal’s Ben Eisen.

Though these firms are small compared to the mortgage market as a whole, Eisen notes that some analysts express concern that they are putting more of the mortgage market into the hands of leveraged firms with minimal oversight, noting that some risky REITs went bust during the last financial crisis. However, some suggest that REITs make up an optimal backbone for the mortgage market, leveraging less risk than before the financial crisis and able to quickly raise and deploy money when they see an opportunity.

“If you want to have more private capital in the market, you need to manage the risks,” Calvin Schnure, SVP for Research and Economic Analysis at Nareit, told the Journal. “Mortgage REITs hedge all of those risks.”

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